New tenancy fee for landlords likely across property management sector

Thursday, 15 November 2018

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

More property managers are predicted to follow Quinovic's lead in replacing a letting fee for tenants with a 'new tenancy fee' for landlords.

From next month, property management firms will no longer be allowed to charge renters the one week's rent plus GST that had become common across the industry.

Housing and Urban Development Minister Phil Twyford said the ban would save tenants money and reduce the cost of moving to a new rental property.

On Wednesday, it was revealed that Quinovic will introduce a $550 plus GST fee taken out of the first week's rent a tenant pays.

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Rents are likely to rise, but perhaps not immediately, as a new tenancy fee for landlords spreads across the sector.

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Kiri Barfoot, director at Barfoot & Thompson, said it would do something similar. 'We will be passing the cost on to the landlord and probably calling it a letting fee. We haven't worked out the finer details.'

Karen Withers, president of the Independent Property Managers Association, said she had heard that up to 80 per cent or 90 per cent of managers planned to transfer the cost from tenant to landlord.

'Good on Quinovic, they've come out and said this is what they're doing and it may cause others to do the same. I think everyone is waiting to see what [the big management firms] are doing.'

Claire Leadbetter, manager of tenancy and rental quality at the Ministry of Housing and Urban Development said the move was not a surprise.

Officials had predicted that in some cases managers would adjust their fee structures to charge higher fees to landlords.

'Officials advised the Select Committee that it's preferable for the cost of the letting fee to be charged to the landlord rather than the tenant. This is because a landlord is in a stronger position than a tenant to negotiate the letting fee and has more power to ensure the fees they are charged reflect the services they are receiving.

'Moving the cost of letting fees to sit with landlords will also help them have a clearer view of the full cost involved in hiring a property manager. This might encourage landlords to shop around and compare quotes before entering into a contract with a property manager.'

In its regulatory impact statement, officials told the government that if the landlords were to try to recoup the new fee from tenants, it would mean about $10 extra a week in rent.

'Given that the average tenancy is around two years, this would mean that tenants actually end up paying more than the original cost of the letting fee,' New Zealand Property Investors Federaton executive officer Andrew King said.

His organisation made a submission to the government that whoever received the benefit of the property manager's service should be the one who paid the letting fee.

'If an owner just used the property manager to find them a new tenant, then the owner should pay. If market conditions meant it was difficult to find a tenant, then the owner should pay. Conversely, if market conditions meant that it was difficult for tenants to find suitable rental accommodation, then they should pay.'

Investor Nick Gentle has a property with Quinovic and said he was happy to pay a fixed fee to them to find a tenant. Their work involved credit-checking, reference-checking and online research, he said. 'I do not want my property manager to cut corners.'

He said a rent increase should be expected, although it might not be immediate.

'We live in a world where nothing becomes cheaper by increasing the costs associated with it. I think letting fees, just like any other cost, will find their way into market rent increases.

'I do not think there will be a reactive increase because most property owners already have a tenant in place and a rent increase on the spot because of a future letting fee once they move out is rather silly.

'The majority of landlords that I know increase rent by a small amount each year while there is a tenant living in the property. Small and consistent increases are easier for the tenant to work through. In a growth period, that often results in the property rented for lower than the market amount, so when the tenant moves out, the property will be re-advertised at current market rent. It is at that time that I think the increases in costs, which will have already been priced into the 'market cost' for housing, will be passed on.'