A new tenancy referencing scheme has been launched in Scotland – where it is illegal for letting agents to charge fees – whereby tenants pay, and agents get referral fees.
The scheme, which also produces rent guarantees, has been launched by Let Alliance. The tenant pays £50 and the agent gets a £24 referral fee.
Boss Andy Halstead emphasised that the scheme is not a dodge to get round the ban on fees, but a solution that works within the new system.
However, asked if there was concern that the likes of Shelter might legally challenge the scheme, Halstead – who has taken his own extensive legal advice – did not rule this out.
He said, in answer to our question: “Quite possibly. But we are ready for them.”
Halstead’s legal advice says that the ban on fees was originally legislation drafted 15 years ago, before tenant referencing even existed as a concept, and was designed to stop landlords getting round rent control measures that now no longer exist.
However, the ban on fees was tightened up in the legislation and came into force last November 30, leaving agents wondering how to foot bills for services such as tenant referencing and inventories.
Some tenants producing their own references might, for example, go to Experian for a credit check, or indeed use the Let Alliance scheme: there is concern that tenants could, in law, ask for their money back, and could even launch legal action to reclaim their fee.
Notwithstanding this threat, Let Alliance has gone ahead with its launch. Crucially, agents are being advised that they cannot insist on prospective tenants using the new Let Alliance scheme. Instead, they are being advised that they can only give tenants the choice.
The new scheme aims to deliver to landlords comprehensive tenant referencing, a way for tenants to be accepted for homes without having to undergo the hassle themselves of sorting out their own referencing, and generate an income stream for agents. Agents also get rent guarantees for tenants who meet Let Alliance’s referencing criteria.
If prospective tenants do opt do use the scheme, the referencing reports will be delivered simultaneously to the agent and tenant, with the tenant being charged directly.
If they choose not to, then a new Let Alliance guide shows them what they will need to do to complete the process independently.
However, Halstead says that the referencing process is in practice onerous and Let Alliance’s experience throughout a four-month trial shows that most tenants would prefer to pay a fixed fee and buy an efficient service.
He said: “Self-referencing is very complex, difficult and time consuming. It is a nightmare for tenants that Let Alliance takes away.”
Halstead, founder and CEO at the business, said: “I am very close to the letting agent marketplace in Scotland and have many friends and associates whose businesses have had a tough time dealing with the legislation that stops agents charging tenants for services that they need.
“At Let Alliance we have made it our business to help in every way that we can. Our new proposition gives tenants valuable choice and support and an outstanding service whilst reducing the administration burden on agents’ businesses and allowing them to earn a valuable revenue stream from us. Everybody wins.”
The Scottish experience in the aftermath of the fees ban is being watched closely elsewhere in the UK. While a ban seems unlikely, the Office of Fair Trading wants to see fees set out in a clear tariff up-front, and the Advertising Standards Authority has ruled that fees must be clearly shown alongside the asking rent in all adverts for rental properties.
Comments
seems pretty simple to me, recommend a tenant to use let alliance services and earn a finders fee, how is it any differerent that using Glide, Virgin etc??? letting agents are not charging the tenant anything and the tenant does not have to use it.
Paul I notice that you quote a law for protected tenancies.
My guess that there are very few protected tenancies left in Scotland.
@Paul, not at all I am away on holiday. Anyway…….
If you are a letting agent in Scotland who is interested in potentially using our services I will be happy to take you through the legal advice we have been given. Please call me directly on 07850387147.
You will understand that I do not want to share our position on a public forum. The advice we have been given is proprietary and for the time being at least gives us a competitive edge.
Cat caught your tongue Andy? You seem able to reply to everyone else's messages quickly but not mine. Have I raised a valid point that you can't or won't answer!
Paul
Personally I have used Let Alliance for my landlords insurance. If their referencing service is as good as their insurance product the market should welcome this move.
Hi Andy,
I would like to ask you this. How do you propose that your system is legal under this Act.
82Prohibition of premiums and loans on grant of protected tenancies. .
(1)Any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires, in addition to the rent, the payment of any premium or the making of any loan (whether secured or unsecured) shall be guilty of an offence under this section..
(2)Any person who, in connection with the grant, renewal or continuance of a protected tenancy, receives any premium in addition to the rent shall be guilty of an offence under this section..
(3)A person guilty of an offence under this section shall be liable to a fine not exceeding level 3 on the standard scale..
(4)The court by which a person is convicted of an offence under this section relating to requiring or receiving any premium may order the amount of the premium to be repaid to the person by whom it was paid.
Looking at this I believe that under Section 2 your company would be breaking the law as they are receiving a premium to carry out a reference whether it be the tenants choice or not. I would really like to hear your answer on this especially the legal point of view,
Paul
Thanks Arnie. We will stay close to the market place and develop our proposition in line with feedback from customers and challenges from competitors. I’m sure we won’t be the only service provider looking to offer letting agent’s a solution. I agree with you 100% the this particular piece of legislation is ridiculous and does not help anyone; agent, landlord or tenant.
Good luck to you Andy for taking on this ridiculous law.
However I am not confident that you are legally sound and suspect that it will be the second mouse that gets the cheese.
@mancunian you have to show your name.
3 years ago this firm did not exist in the market. Today Let Alliance has a serious presence and certainly stirs things up. We are customers and very happy with the service, in particular dealing with Jo and our account manager Laura helps our business on a daily basis. Through Let Alliance we have reduced costs and increased margins, we also have very happy landlords. Whatever they are doing, long may it continue.
@CCV very brave. No idea why people can't show their name.....
Cocky, untrustworthy who'd have thunk it.
@Graham L sorry that you feel this way.
I thought the sentiment was in the right place here untill Let Alliance start tweeting about this being good publicity! I've found this gent hard to trust in the past, more so now.
@Billy thank you. We do have a great team at Let Alliance.
@Gary please give Jo a call and she will talk you through the new process. It is very simple and easy to control, doing exactly what you say; keeping everything in one place. The new process is only an option, any of our customers who want to continue without Let Alliance dealing with the tenant directly are free to do so. We will try and put your mind at rest on the issues you raise.
I can't see the problem. It's bold, but it offers choice. If you wish to save time/hasle, then tenants can pay a fee. If not, don't.
All seems a bit grey and dodgy to me! Get on with it I say!
Let Alliance have a good service previously, but frankly this is ridiculous and I cannot see this being legal for long. There is a balance in business between providing a good service being profitable, and this just seems to be all money money money and not about a good service or finding a solid and wholesome solution to a problem.
Not really pleased with publicizing commissions either. Some may not mind, but I do - this is obviously searchable in google. Yes, tenants do have a choice, but frankly its a minefield the whole aim is to get tenants into properties, not confuse them with referencing options! I've been in lettings for 20 years or so now, and I even get confused at times! I'd rather stick with all references coming from one supplier, absorb the costs and have happy tenant and an easy life.
There is a thin line between confident and sounding cocky too andy.
I don't even understand how tenants would contact or submit a reference request? Is it though the letting agent anyway, so we would still have to process the form, or do they submit it online? I can't find anywhere where they can do that?
Genuinely re-thinking my position with Let Alliance after this whole thing - seems too black market for my liking.
@yarrum95 yes on your final point.
@yarrum95 you make a very good point regarding the validity of the reference for a period of time. Of course Let Alliance would support this approach, however the decision to accept a reference ultimately lies with the letting agent. Let Alliance will be happy to validate any reference certificate if requested to do so
Is not the decision on whether a reference is required is in the hands of the landlord?
After the agents initial common sense enquiries - ask him!
If he wants one he pays for it - he would be stupid not to have one.
@ Industry Observer I agree any form of required payment to take on a lease along with receipt of commission will only be construed as a premium by the back door
@Andy The Tenant does not have a choice....he will be told you must provide this reference at his cost otherwise he will not get the property. That's in my opinion blackmail..... do you honestly believe every Agent will look at two prospective tenants and forego a commission to run with the one who refuses to give a LetAlliance reference?
I still feel the reference should remain in the ownership of the tenant, valid for a period of time, a set rent range dependant upon income etc and capable of beimg used for any property.
Finally I assume you will be underwriting the Commissions to the Agents should you be found to be incorrect in your judgement and not looking for them to return them?
Halstead is amongst the best sales people I have ever met. If he has a strong team behind him at Let Alliance then this proposition will do well for agents and tenants. Always the problem with top class sales people when they run a company is delivery and operations. One thing for sure, they will be putting the customer at the front of the queue. Good luck, from an ex-Pearl friend who learnt a lot.
@Industry Observer we are happy with the advice we have been given. I fail to see how any tenant can have a claim against us if we have given them the choice of;
1. Complete the reference yourself and we will help you for no fee.
2. Instruct Let Alliance and on your behalf we will carry out your request for a fee.
We are prepared for any legal challenge. It is absurd to suggest that tenants cannot make an informed choice and buy a service. Let Alliance is not involved with the preparation of a lease and we have no influence in the decisions that letting agents make. We simply offer a service. The Shelter campaign that influenced the Scottish Government to re-establish a law that was intended for other purposes motivated our response to help letting agents, landlords and tenants. Not every tenant is on the bread-line, in fact a significant number are professional people who want a service and are prepared to pay for it. Those who can’t pay or will not pay can carry out the administration of the referencing process for themselves, and……. We will help them.
@ confucios As far as we are concerned, if someone has chosen to use us and paid for our service then we will complete the full reference regardless of whether there is adverse credit located or not. If adverse credit is found then this is noted on our final report. Our checks do not cover an employee’s ‘right to work’ as this is the responsibility of the employer who is recruiting the individual. What we do carry out are thorough checks relating to employment, earnings and ability to meet the rental obligations. On occasions our letting agent customers make a decision to grant the tenancy with a degree of adverse credit, especially if the full reference is strong. We are however open minded about this and if our customers want us to stop at the credit check stage we will consider implementing this and refund a proportion of the fee back to the tenant.
@Andy
"It is perfectly reasonable and legal for a letting agent in Scotland to ask any prospective tenant for valid documentation bad written references."
Of course it is provided they themselves do not charge them a feefor doing so.
I fail to see how you charging the fee is any different. The bottom line is as tenant is being charged a fee for something in connection with the preparartion of a lease.
I'd get a second legal opinion if I was you.
Andy - your first port of call is the credit check , if the propspective tenant has ccj's etc do you carry on with the rest of the referencing service.
Do your checks include right to work?
Our industry has been inefficient and poor quality services & practices. What Let Alliance are doing is taking one service and making it efficient and of a good quality.
Tenants have the choice to use the service - as do letting agents. It seems at though both find the service time-saving and helpful. Good on them I say.
@confucius our standard referencing fee to the letting agent market place is £16.00 + VAT. Dealing with letting agents is much easier than dealing directly with tenants and far less time consuming. They also provide volume.
Letting agents understand the process, tenants don’t and we need to hold their hand. We have invested heavily in developing our systems so that we can accommodate transactions directly with tenants. We feel our price is fair, we have also built in a margin for our letting agent customers
Let alliance are known in the industry for being cheap as chips. Their average referencing fee to agents regardless of volume is most probably less than £15. How do they justify providing the same service to tenants for £50?
@yarrum95 at Let Alliance we are in business to support letting agents. We help letting agents reduce costs and develop incremental revenues. When letting agents make referrals to Let Alliance we reward them financially.
Through our new proposition for Scotland, everybody wins; the tenants receive a professional and helpful service, landlords improve the strength on the covenants supporting each tenant and letting agents benefit from lower costs and incremental income. Our industry is crying out for innovation and value for money, we are doing our best to help letting agents in what is becoming a hostile market place.
Every time we read the industry press it is full of negativity; it is our view that the vast majority of letting agents deliver a great service and value for money, we are in business to help them and provide support whenever we can. Our customers deal with us through choice……
@Loosing Money The reference check is conducted on behalf of the Landlord therefore Landlord is being charged. Why should an Agent pick up the bill he still has to deal with all the admin etc?
Sorry for the typo; bad should read and.
With a shortage of properties and too many tenants any Savvy Tenant will take this option to make themselves stand out ahead of the pack.....agent should not be part of process and should not receive a commision.
I assume having paid for this reference the tenant may use it on any property with the agreed rent. If this is the case it may well work.....a tenants choice to demonstrate he is "qualified" to take on a property not a Landlord or Agent requirement.
After all a Landlord is perfectly entitled to request a tenant to demonstrate they are "fit and proper" for their property.
OK, so what are you both doing in your businesses? Are you simply absorbing the cost of abortive references and admin work when dodgy tenants with a complete lack of good faith pull out at the last minute, or are you passing the cost on to your landlords?
I'm genuinely keen to know.
Tenants have choice. It is perfectly reasonable and legal for a letting agent in Scotland to ask any prospective tenant for valid documentation bad written references. It is also reasonable and legal for a letting agent to ask the same from any potential guarantors. Let Alliance is simply offering a service to those tenants who do not have the time or inclination to carry out this request; for an acceptable fee (it must be otherwise tenants would no select to use our service) we will complete the whole referencing process on behalf of the tenant. Choice is the key, along with a simple and professional services that many tenants seem to want. Let Alliance is a service provider and all of our customers deal with us through choice, no contracts, no compulsion, simple choice.
Couldn't agree more. The Law is that a tenant cannot be charged anything in connection with the preparation or renewal of a lease.
This has now been 'clarified' though for some of us it always was clear.
The Law does not say the tenant cannot be charged by an agent, or a Landlord, but is fair game for anyone else.
Undoubtedly Let Alliance's legal advice is wrong.
JJ is right - just get on with it.
There are many agents still charging referencing fees and taking premiums whilst many agents are trying to buck the system.After taking advice from lawerys in Scotland they still believe that this type of scheme will be deemed illegal.
Just accept the change of law and get on with it!