'Tenancy fees' for landlords replace banned letting fees

Wednesday, 14 November 2018

Housing Minister Phil Twyford announced a new bill to ban letting fees in March.

Letting fees are back, now being levied on investors rather than tenants.

A law change was passed at the start of this month to ban the fees, which are usually equal to a week's rent plus GST.

The ban comes into effect on December 12.

Housing and Urban Development Minister Phil Twyford said it would save tenants millions of dollars.

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But now property managers are introducing a fee to replace it, which will be charged to owners.

Property managers said the fee covered the cost of finding a new tenant.

It has led landlords to warn that rents might rise to cover the cost.

Quinovic wrote to property owners telling them that the letting fees had covered the time and cost associated with finding and placing new tenants.

'The removal of letting fees will have a considerable adverse impact on our business and we have been forced to review our owner charges,' it said.

'Rather than seek to increase our base management fees we have decided to introduce a New Tenancy Fee. The New Tenancy Fee will cover the cost associated with finding and placing new tenants. We will discuss this fee with you prior commencing the search for a new tenant. Our intention will be to deduct this fee from the first week's rent of the new tenancy.'

The fee will be set at $550 plus GST although franchisees will have some flexibility.

Chief operating officer Paul Chapman said it was set at a level to recover the costs associated with a new tenancy rather than to maximise income. 'It reflects some, but not all, of the costs involved.'

Property management consultant David Faulkner, of RealIQ, said all the big property management companies were working on similar measures.

Housing and Transport Minister Phil Twyford said the letting fee ban would save tenants millions.

Most were implementing a fee for new tenancies, he said, but some were increasing the percentage commission they took from rent each week.

For many the letting fee would be 15 per cent of their income, he said.

'If you say we can afford to take a hit of 15 per cent you're basically saying we've been ripping you off for years, and that's not the case. Landlords are going to have to pay.'

Andrew King, executive officer of the New Zealand Property Investors Federation, said it would encourage landlords to put their rent up.

'If they can put the rent up, I imagine they will.'

Chapman said it was an inevitable effect of the ban. 'At the end of the day landlords are there to run a business. If there are costs levied against them they need to recover that.'

A regulatory impact statement from the Ministry of Business, Innovation and Employment, issued before the ban was enacted, said it was not clear that the cost would be transferred directly from tenant to landlord.

Landlords might switch to property managers that charged less, it said, resulting in a more efficient market.

'Currently, industry practice is for letting agents to charge one week's rent plus GST, which varies from property to property, for the same service. A more efficient market may encourage letting agents to be more transparent about the actual costs of the services they provide and set fees accordingly.'

It said there was a risk that tenants could end up bearing the cost, anyway - although there was no clear international evidence for that.

'In the event letting fees were passed on in the form of increased rent, at the current national average weekly rent of $452 for tenancies managed by property managers, $9.99 per week would be added to rents over a one-year tenancy. While not necessarily desirable, tenants are likely to find the cost easier to pay when spread over the course of the tenancy rather than in a lump sum along with all the other costs associated with moving into a rental property.'