Changes to letting fees – what it could mean for landlords and tenants

12 Jun Changes to letting fees – what it could mean for landlords and tenants

Why do tenants pay a letting fee? If tenants no longer to have to pay a letting fee when they enter a new tenancy agreement, then who will pay for it? If the cost of letting a property is to be borne by the landlords, then what will this mean for tenants? The expert property managers from Fahey Property Management company answers these questions in this article.

With all the recent hype in the media lately about the charging of letting fees for tenancies and what the Government is planning to do about it, we thought we’d do a quick recap on what it’s all about.

The Residential Tenancies (Prohibiting Letting Fees) Amendment Bill

Earlier this year, the Government introduced a Bill in Parliament that, if enacted, would prohibit charging tenants a letting fee under the Residential Tenancies Act 1986. Until the end of May, the Social Services and Community Committee was accepting submissions on the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill, and will report back to Parliament on the Bill in October this year.

If the Bill becomes law, it will likely take effect three months after it is passed, at which point anyone charging a tenant a letting fee to rent a property could be subject to a fine of up to $1000.

What are letting fees and why are they charged?

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Rental property letting agents or property managers currently charge a letting fee to cover the cost of finding a tenant for a rental property. The costs the letting fee covers include things like the cost of the property manager’s time for advertising, holding open homes, receiving and processing applications, doing background checks, liaising with landlords, preparing the tenancy agreement, doing property inspections, and so on.

Currently, tenants pay this letting fee, which is usually equivalent to one week’s rent plus GST, to the letting agent at the start of their tenancy. If a tenant is being charged a letting fee then the tenancy agreement must clearly state the fact. However, a letting fee cannot be charged to renew or extend a tenancy.

However, a private landlord who doesn’t use a letting agent to rent out their property cannot charge a tenant a letting fee.

What if the new legislation passes?

If the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill becomes law, it will be illegal to charge tenants a letting fee or any other fee for services relating to granting, continuing, extending, varying or renewing any tenancy agreement.

Of course, the work that letting agents and property managers have to do in order to find a suitable tenant for a rental property will not go away. They will still have to do that work and will have to be paid for that one way or another.

Why stop charging tenants a letting fee?

It is estimated by the Government that about half of all New Zealanders live in rental properties. The Government believes that letting fees are a significant up-front cost to many tenants, in addition to other costs, such as the bond, the rent in advance and various other costs incurred when having to move.

By stopping letting fees, the Government is hoping to ease the financial pressure on Kiwi’s when they move to a new rental, as well as improve the accessibility of rental properties for some tenants. The Government also believes that stopping letting fees promote consistency and fairness in the rental market. It ensures all tenants have the same up-front costs to rent a property, irrespective of whether they’re renting from a property management company or a private landlord.

Possible effects of the end to letting fees

Property management company nzAs stated earlier, the work of a property manager or letting agent does find a tenant for a rental property does not disappear if the proposed change to the Tenancy Act takes effect. So, who then will pay for that work?

At this stage, there is a fair bit of concern around who will actually end up paying for the letting fee to cover the cost of the property manager or letting agent, given that what property managers do to ensure finding the right tenants for a rental property still has to happen.

Up front, however, it will likely be the landlord who will have to absorb the cost, although many worry that landlords will simply pass on the extra cost to tenants in the form of a rent increase.

Alternatively, landlords might decide that, in addition to all the other requirements they are faced with, that this extra cost to being a landlord is just too high and may start to withdraw properties from the rental market, which could put a squeeze on rental property availability in what is already quite a tight rental market. In this regard, a lot will depend on the particular circumstances of individual landlords.

Other legislation affecting rental properties

As mentioned, in addition to the potential for landlords to soon have to pick up the cost of the current letting fee, there are a number of other pieces of legislation that have come into effect in recent years that require further commitments from landlords.

Legislation such as that which requires landlords to ensure their rental properties comply with certain minimum insulation standards, and the implications for rental properties of the Healthy Homes Guarantee Act and the Health and Safety at Work Act.

You can read more detail about these in our article “Recent legislation affecting rental properties – what this means for landlords”.

Support to help you comply with your obligations as a landlord

If you would like to find out more about your obligations as a landlord according to the recent and potential changes in legislation that affect residential rental properties, talk to one of the Property Managers at Fahey Property Management company Our Property Managers have a wealth of property management experience which, coupled with their passion for customer service, ensures we provide our clients with a professional service that removes the stress associated with all aspects of managing a rental property. So give us a call today.

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