x
By using this website, you agree to our use of cookies to enhance your experience.
Written by rosalind renshaw

A property maintenance firm which says it was asked to pay Foxtons 20% commission for work done on landlords’ properties has turned whistle-blower on the whole practice.

The firm, Aspect, says the practice by which agents pass over to landlords the actual costs of the work but then, unknown to the landlord, charge the maintenance firm a commission, is a letting agent scam which should be exposed to the public.

It says that government moves to make letting agents belong to an ombudsman scheme will not protect the public from maintenance rip-offs.   

Will Davies, managing director of Aspect, said: “Finally, after years of campaigning from consumer groups, letting agents may become regulated by a recognised ombudsman scheme, but this will only provide a system of redress after things have gone wrong and not clean up an industry that is rapidly deteriorating into a racket.

“As an example, we used to manage property maintenance work around London for Foxtons. We stopped when they wanted to increase their commission from 15% to 20%.  

“Basically, letting agents can milk their clients by charging them a fee to manage the property and then they take a commission from the maintenance companies they use so their clients end up paying more than they should on top of the charges they are already paying for the service.

“We took a policy decision that we would not do work for any letting agents that wanted to charge a commission, as we knew their clients weren’t aware of this particular scam and we didn’t want to be associated with that.

“The practice is still rife within that market and will not be within the remit of the proposed ombudsman scheme. Letting agents handle billions of pounds of other people’s money every year and the industry should be subject to full regulation.”

The practice of charging maintenance firms is something of a hot potato. Some agents say it is simply a ‘bung’ or backhander; others defend it because they say it brings in valuable and regular work for maintenance firms, who would otherwise have to spend money advertising.

Some agents also charge super-commissions when they have hit target on the amount they have invoiced their landlords.
 
Founded in 2004, Aspect is based in south-west London and operates primarily across the city and all areas inside the M25. In July 2011, the company launched its nationwide franchise business.

We put Aspect’s criticisms to Foxtons, but the firm declined to comment.

Comments

  • icon

    Yes, about £2 on tenancy deposit registrations - our business hardly relies on it as an income source as you suggest! More importantly, our landlord's know about it.

    But you seem to be failing to understand the basic point in the case being reported - namely that the landlord was UNAWARE of the financial arrangement for a contractor paying a commission to the agent and DID NOT AGREE to it.

    An agent could charge whatever commission they like from whoever they like, or even outsource work to his own subsidiary firm, PROVIDED THE RELATIONSHIP AND COMMISSION IS MADE CLEAR TO THE LANDLORD AND THEY AGREE TO IT.

    Do you get it now?

    • 19 September 2013 15:45 PM
  • icon

    from fees not charged to the landlord!
    You commit exactly the same 'crime' but you are OK because you don't profit from it as much as Foxtons!

    Covering costs is all any other agent is doing. Their idea of reasonable is just a bit different from yours.

    Since you reckon this is aginst RICS and ARLA rules, name all the cases you can find where RICS ans ARLA Agents have been taken before the disciplinary panel for beaching this particular rule. What rule is it.? I have my copy of the Blue book sat on the desk and will happily turn to the page that deals with this particular issue.

    • 19 September 2013 07:49 AM
  • icon

    "Next you will be claiming you don't take a penny of profit from tenant referencing, insurance or inventories. Your business survives solely on the fee commision from your landlords."

    YES that's EXACTLY what I'm saying!!!

    We do our own referencing and charge a single, reasonable, transparent fee to cover the costs. We don't sell or introduce insurance. We charge inventories, check-ins, check-outs, land registry checks, EPCs, electrical/gas inspections and AT COST.

    The only thing we make a tiny commission on is registering deposits (I'm talking a couple of quid at most) and that's only because the amount we're charged by TDS can change each year year it's easier to charge a flat rate. The difference is we TELL the landlord up front.

    • 17 September 2013 23:22 PM
  • icon

    I am astounded at the lack of basic understanding on the part of some of the contributors to this thread.

    You haven't even got a basic grasp of the law as it relates to agency and what your duties are to your clients.

    I suggest you read about the law of agency, bribery act and the codes of practice for whichever governing body you may (or more likely may not) be a member of. You're currently making things up as you go along and it's giving professional agents a bad name.

    • 17 September 2013 21:28 PM
  • icon

    Come on buddy, you shouldn't need 'yarrum95' or anyone else to point out where ARLA, TPO, RICS and the like stand on this.

    • 17 September 2013 18:06 PM
  • icon

    @isn'tcorrect The RICS for example is specific in its members regulations that any commission, discount or third party fee must not only be declared to the Client but they must also receive their approval to accept it.

    The Landlord is paying an agreed fee for a service. If the Agent is adding another hidden fee(by telling a contractor to add a further percentage onto the contractors invoice) so he can take a cut and then charge the Landlord the full invoice, without the Landlords knowledge, in my opinion that is fraud

    • 17 September 2013 17:03 PM
  • icon

    The landlords Invoice and Statement is required to detail the Landlord's expenses. It is not required to be an explanation of everything earned by a firm in connection with the Landlord's Property otherwise it would include commision from Property insurance , Tenant referencing and the Christmas kickback Pinot or Selection Box.

    Can you provide a link to RICS, ARLA or NAEA where it says a firm can not earn commision from suppliers or contractors?

    Do you really think a landlord objects to a firm earning £2.50 from a gas certificate or are you suggesting all landlords would like to return to 15% full management fees which was the case until the mid 90's? My guess is most are delighted that their agent is getting £2.5 from Pete the plumber and is saving them typically £15 off the cost of a gas cert as a result of their economy of volume business.

    Is this the latest Boo Hoo Shelter campaign?

    • 17 September 2013 16:24 PM
  • icon

    @Nope You appear to be missing the point of this thread. No one is questioning software providers detailing the transactions the problem is these" hidden fees" are not shown on any Landlords statements therefore he has no idea the practice is going on. It is also totally contrary to some regulatory bodies members regulations.

    We have Agents fees being collected from Contractors, Tenants and Landlords. How many clients can an Agent have at one time? and that's without raising the other thorny issues of Insurance Commission for one provider only and Agents setting up and using their own cleaning, contractors and house clearance companies without their Landlords knowledge or consent.

    • 17 September 2013 15:11 PM
  • icon

    The whole idea of Tradespeople paying commission to agents is wrong. As start the industry, possibly through their 'Trade Associations', should ban members from accepting 'commissions' for specific jobs handed out?
    The credibility of the lettings industry is being destroyed by these, and other, very dubious practices.

    • 17 September 2013 14:51 PM
  • icon

    I don't think you have the full picture. 5-10% commission for project managing repairs is fairly common and the way it is handled in CFP is that it is recorded as an Agency Fee and the VAT is recorded too.

    This isn't a mucky backhander it is a legitimate and recorded commission, just like the one an Archiect or Surveyor would take for doing the same job.

    Next you will be claiming you don't take a penny of profit from tenant referencing, insurance or inventories. Your business survives solely on the fee commision from your landlords.

    • 17 September 2013 14:44 PM
  • icon

    "So he's been bumping up his bill to Foxton's, ie overcharging for the work he's doing, to get their landlord to pay the commission he has to pay Foxtons for the amount of work he gets from them."

    Exactly Ray. But even if they're not overcharging teh lack of transparency leaves you wide open to these sorts of assumptions and accusations.

    • 17 September 2013 14:31 PM
  • icon

    "When an agent is assessing works and obtaining competitive quotes, 5-10% is a fairly standard fee"

    I hope you're talking about the monthly managment fee charged to the landlord. No one is questioning that. If you're talking about a commission paid by the contractor then it's simply wrong and I'm horrified if it's standard practice.

    "Is there suddenly a conflict of interest in those cases too?" (Where the agent owns the maintenance firm)

    No, provided you make the client aware of it and they agree to you using them (this is also in TPO and ARLA codes of practice).

    "Let me guess those making indignant comment have never received Chocolate, Wine or Whiskey at Christmas from any of their contractors."

    Yes we have, and anything over a value of £15 is politely returned or given to charity. The rest is recorded on our gifts/hposipitality register. Have you never heard of the Bribery Act 2010?

    And you wonder why people are calling for regulation of letting agents!

    • 17 September 2013 14:25 PM
  • icon

    So he's been bumping up his bill to Foxton's, ie overcharging for the work he's doing, to get their landlord to pay the commission he has to pay Foxtons for the amount of work he gets from them.

    Hope he's got another source of income because I doubt many people will trust him from now on, agent or otherwise.

    • 17 September 2013 13:54 PM
  • icon

    There’s certainly no honor amongst these two and as previously identified, Aspect cannot now suddenly lay claim to ethics. I can’t help feeling it’s a missed opportunity for more insightful discovery such as how long have Aspect KNOWINGLY been a part of this scam?

    A management fee must cover our costs in administering maintenance and so any additional fee from a contractor, as already pointed out is a clear breach and indeed is the reason these fees are hidden from landlords.

    Such practices are the root of protest from the likes of Shelter and from a highly visible agent such as Foxtons is more so destructive but whilst I agree with ‘SteveFromLeicester’ we can’t argue that landlords will pass on costs if we increase theirs (tenant fees) without accepting that’s the inevitable result of ‘charging’ contractors too.

    Fair warning to those corporates who do exactly the same thing with their panel and solicitors fees…

    • 17 September 2013 13:31 PM
  • icon

    Agree with SteveFromLeicester. Perhaps it should be called an agency "discount", rather than "commission".

    • 17 September 2013 13:16 PM
  • icon

    It's certainly a murky area and I understand why a landlord would be miffed to pay us a management fee and to find out we received a "commission" for dealing with maintenance and repairs, which is surely an integral part of the property management they are paying for.

    I happen to think that charging a contractor a fee for handing him shed-loads of work (with 99.9% certainty of payment because we hold client funds) isn't unreasonable. However, the contractor, not the landlord should meet this cost from his additional profits. The contractor shouldn't just tack it onto the landlord's bill.

    On the specific story above, I agree with others that neither party in the story above comes out of it well. 20% is taking the mickey if Foxtons really are charging that. On the other hand, the contractors were happy to take the business at 15% yet they claim the moral high ground now the rates have gone up.

    • 17 September 2013 12:54 PM
  • icon

    A commision for project management paid by the contractor rather than an additional expense on the landlord?

    When an agent is assessing works and obtaining competitive quotes, 5-10% is a fairly standard fee charged across the entire industry and was the reason it was written into CFP APM 22 years ago, CARL copied that bit as it is widespread practice

    Isn't the problem one where no competitive quotes are requested and the works completed at cost plus xx% commission meaning the Landlord is paying more because of commission arrangement?

    There is no law against making a profit on works carried out on Rented properties and many firms have their own maintenance teams that do all of the work for their landlords. Is there suddenly a conflict of interest in those cases too?

    Let me guess those making indignant comment have never received Chocolate, Wine or Whiskey at Christmas from any of their contractors.

    • 17 September 2013 12:18 PM
  • icon

    The monthly agents commission, a percentage usually based on the monthly rent, should be to cover normal supervision of the property including normal maintenance supervision of tradespeople. Major works supervision or actual improvements to the property are different and the charging methods etc. for supervising these should be included in the initial agreement between agent and landlord.

    • 17 September 2013 12:11 PM
  • icon

    Maybe I'm missing something, but isn't dealing with contractors one of the things that LLs pay agents a management fee to do?

    • 17 September 2013 11:13 AM
  • icon

    @ Once Again Amazed

    You're still breaching the law of agency by profiting from it without the landlords knowledge. If you're happy that it is all above board and always in the principle's best interest then why not tell them about the financial relationship with your contractors?

    • 17 September 2013 11:06 AM
  • icon

    Industry Observer,

    That isn't what is being reported. We're not talking about increasing fees for bigger jobs above and beyond minor maintenance.

    This is about contractors having to pay a commission to the agent for the priviledge of having any maintenace work (not just major works) and that fee being added to the landlord's final bill without their knowledge.

    There is no ambiguity, this is a clear breach of the agent's fiduciary duty to their principle under the law of agency. You cannot allow personal interests (in this case financial gain) to come into conflict with the interests of the landlord without their consent.

    I can't belive it's built into some of the industry software!

    • 17 September 2013 10:56 AM
  • icon

    I have worked in the PRS and several Franchised businesses eg Jordan's, Martin & Co applied a commission when employing contractors and suppliers - in my area up to 10%! There is then an issue with VAT as someone else pointed out.

    Surely the most unfair aspect(no pun) is that the Client Landlord is paying extra for work carried out on his/her property without their knowledge. Some Agents argue that it covers the cost of administering the job ie. issuing Works Orders, visiting site and checking the work has been completed satisfactorily. However the Client is being conned if he/she is not being made aware of this, in effect it's an undisclosed fee which I am sure the ASA would like to investigate and apply sanctions. It's a breach of trust between Agent and Client.

    • 17 September 2013 10:27 AM
  • icon

    Will Davies said, "We stopped when they wanted to increase their commission from 15% to 20%." and
    "We took a policy decision that we would not do work for any letting agents that wanted to charge a commission, as we knew their clients weren’t aware of this particular scam and we didn’t want to be associated with that."

    Hardly a PRINCIPLED stand, more a complaint about the increase. I suspect his firm will now struggle to find ANY agent who will employ them now.

    I am no fan of Foxtons, but this is a breach of commercial confidentiality. Perhaps Foxtons could now release a similar breach about the complaints they had about Aspect's work?

    • 17 September 2013 10:06 AM
  • icon

    That is funny, happy to take the work and remain silent when giving 15% comm but now they want 20% comm we are telling. Hey Aspect, foot, gun, shoot, you work out the order.

    • 17 September 2013 09:51 AM
  • icon

    On top of this dubious scheme, is the dubious double charging of VAT.

    If a maintenance company is VAT registered they charge an additional 20%, when this figure passes through the agents books, the agent then charges their VAT on top of this.

    The government needs to set a better example too.

    • 17 September 2013 09:47 AM
  • icon

    Another day, another witch hunt...

    My position here is that an agent agrees with a contractor with whom he intends to provide a significant and regular flow of work, a preferential rate for works. There is then a reasonable commission due between the agent and contractor, who stands to profit substantially without having the difficulties and costs associated with advertising, which seems reasonable to me, assuming that the rate charged to the landlord is market value or below.

    In this case Aspect have clearly had a falling out with Foxtons and decided to jump on the anti-agent bandwagon for some publicity. Good luck to them...

    • 17 September 2013 09:43 AM
  • icon

    I think the problem being exposed is the double charges made by Agents...first to Client who accepts cost in his management contract and second a commission from the contractor with the Landlord having no knowledge of the commission being paid. This leads contractor to "add" in his commission to the Agent in his final price therefore Landlord pays again. This is so rife even CARL and CFP write the system into their management programmes yet market themselves as being regulatory body compliant. Another gravy train at the Landlords cost.

    • 17 September 2013 09:31 AM
  • icon

    There are other deeper issues here in terms of legality etc, but the main point is most Landlord Contracts provide for a maintenance commission for work above and beyond normal routine stuff.

    Used to be 5% when I joined the industry in the Dark Ages, 10% is probably now quite common.

    Some maintenance jobs require a lot of hands on time by managing agents way beyond the normal monthly management fee which may only in itself be 8% - 10% anyway.

    Nothing wrong with this mark up system in one sense provided it is transparent and Landlord knows about it. Whether contractor invoice is marked up to 110% of bill, or stays at 100% but LL is then charged 10% and that is deducted from next rent it is the same net cost to the LL.

    Problem arises operationaly and in accounting terms in respect of VAT and tax

    • 17 September 2013 08:36 AM
  • icon

    Fair enough maybe there is a point to br made but Publicly having a go at the industry that keeps you in business is nuts!!

    Brave or stupid. I guess you'll soon find out

    • 17 September 2013 08:20 AM
MovePal MovePal MovePal