The 21st Century Letting Agent – Protecting the Landlord’s Interests

In the previous article I tried to make the point that a Letting Agent should act like an Asset Manager, managing a landlord’s portfolio to maximise the benefit to the landlord. This could only happen if the interests of the landlord are directly aligned with the interests of the Letting Agent but if this did occur, it would revolutionise the letting agency sector.

However, even if the financial interests are aligned there are numerous other aspects of the service a modern agency should attend to in order to maximise the security of a landlord’s investment. After all, what good does maximising income do if the agency goes broke owing the landlord thousands of pounds or tenants with hundreds of pounds of arrears? A 21st Century Agent can actively work to protect the landlord by insuring they maintain the income to the landlord and protect against default.

To this end they should be doing ALL of the following.

Maintaining Income

1. Pay the landlord the following weekfor the rents collected the previous week less fees and repairs charges, rather than wait till the end of the month plus usually at least a further 14 days as many agents do, benefiting their cash flow and putting potential losses in the case of default so much higher. With two agents a week going bust, this is of pressing concern and under this system potential loss is limited to two weeks rent at most, rather than two months or more under the process less able agencies adopt.

   Cash is king and it should be in your bank working for you and not in the agencies bank working for them. While it’s in their account it is vulnerable. Some will argue it is possible to pay the moment the funds are cleared and for those with one or two properties this is suitable. For portfolio landlords though, a single payment each week reduces banking costs and, allied with a proper reporting system (more on that in a later article), is more than adequate.

2. Collect all Private Tenancy rent by DDas a condition of the tenancy. This has two benefits. Firstly, your asset manager rent collection team knows the day the DD is rejected that there is a problem and the Arrears Management Team can get onto it within 24 hours to find out what the problem is. They can then negotiate with the tenant a way out of the problem before significant arrears build up and there is no way out of the situation other than to evict the tenant with all the consequent losses/void periods this inevitably seems to entail.

   The second benefit is the control it gives to increase the rent at the appropriate time. It simply involves a letter or email to the tenant informing them that from x date the rent will be increased and that they need do nothing as your agent will amend the DD. The situation is controlled by the Agency and it involves fewer tenancy terminations arising from rent increases, therefore fewer voids and fewer refurbs. Most Letting Agents are reluctant to raise rents where no DD is in place as it increases their workload for minimal reward to the agency, meaning landlords miss out. Also, negotiating the new rent gives less scrupulous agents the chance to move a tenant into another property and a new tenant into yours resulting in two finders fees. This is why only one fee in 18mths is such a good idea from the landlords prospective.

3. Ensure the majority of LHA rent’s paid direct to the Agency rather than the tenant by using detailed knowledge of the LHA system. On the few occasions that it is not possible to get the rent paid direct (around 5%), then a system involving a cash card account which limits the tenants opportunity to default should be set up as part of the requirements of the tenancy. The moment they change this arrangement it is flagged and again the Arrears Management Team can swing into action to minimise the damage and the arrears.

4. Not withstanding all the above a 21st Century Letting Agent should always indemnify their client against losses arising from the failure of the agency to the tune of £25000 through a Bond and as members of ARLA.

The above activities will help protect the landlord against the financial ravages that an agent default and/or arrears can inflict on the profits of a landlord. I will also continue to ensure an uplift in the rental each year. However, getting the property filled with the right tenant as soon as possible and avoiding voids is crucial and I will suggest how the 21st Century Letting Agent can ensure this for their landlord in the next feature.

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