The Dirty Truth About Contractor Uplifts, Kickbacks, Agent Commissions and Landlord Fees

Are YOU being ripped off by your managing agent? Beware of the Hidden Costs: The Truth About Contractor Uplifts and Letting Agents

Introduction

As a landlord and possible investor, it is important to be aware of all the costs that can come with renting out your property, this is after all your profit, pension, savings, or income.  The last thing you want is for hidden costs to eat into your income and reduce your NET yield.  For many years (see this article published in the Telegraph from 2014 - Landlords hit with hidden fees and commissions) uplifts for contractors have been a common charge that agents have been forcing landlords to pay – and this can have a significant impact on the overall cost of landlord fees and their overall income/profit.  With more and more charges and legislation 'hurting' the Buy to Let landlords/investors, in this blog post, we'll explore what uplifts are, how they can increase the cost of services, and what you as a landlord can do to protect yourself from being ripped off.

The Role of Letting Agents in the Property Market

Letting agents play a crucial role in the property market, acting as the intermediary between landlords and tenants. They provide invaluable advice and guidance to landlords, especially those who are new to the property market and can help landlords navigate through complex legislation and regulations, ensuring that their properties are compliant and that they avoid any legal pitfalls. They provide a range of services, from advertising and marketing rental properties to screening potential tenants and managing tenancy agreements.

One of the key responsibilities of letting agents is to ensure that properties are well-maintained and meet legal standards. They conduct regular inspections and handle maintenance issues on behalf of landlords. This helps to ensure that tenants are satisfied and reduces the risk of costly repairs down the line.  This requires agents to instruct a suitable contractor to carry out any works required, and a good agent should do the following (when advised by the tenant or via inspection that something needs doing):

1. Ascertain that the work is required in the first place

2. Ensure that it is not the tenant's responsibility

3. Advise the landlord that works are required in their property, outlining what the work is, and why it is required checking that the landlord is aware and happy for the agent to sort out said work

4. Get quotes from the best-suited contractors for the work in question

5. Appoint the best-suited contractor after agreeing on the cost with the landlord

Some agents have agreements that state that they will deal with works up to a maximum amount of expenditure without contacting the landlord, and some landlords have relationships with their agents whereby the agents know they don't have to contact the landlord with every little issue that arises.  However, before entering into a contract or agreement with a managing agent it is worth finding out whether your agent receives kickbacks or commissions from the contractors they use. 

In the following sections, we look at what kickbacks, uplifts and commissions are and how YOU could be being ripped off.

What are Contractor Uplifts, Commissions and Kickbacks?

Contractor uplifts are additional charges that are passed on to landlords by letting agents or property management companies. These charges are meant to cover the costs associated with managing contractors who perform maintenance or repair work on rental properties.

When a contractor is hired to carry out work on a property, they often charge a higher rate when working for a letting agent or property management company compared to working directly for a homeowner. This is because the contractor knows that they will be dealing with a third party who will require additional services such as project management, invoicing, and coordination.

Contractor uplifts can vary in amount, but they can significantly increase the cost of services for landlords. This is because letting agents or property management companies often pass on the full cost of the uplift to the landlord, without disclosing it upfront.

The rationale behind contractor uplifts is that the additional fees cover the administrative costs associated with managing contractors, such as vetting their qualifications and ensuring that they meet legal requirements.

There are numerous agents, including some of the larger national agents, who charge commissions on the work that contractors carry out on their managed rental properties.  This is ON TOP of YOUR management fee, this is where the agent will charge the contractor a percentage of the cost of the work done.  You might have read in your agency agreement that this is the case, with some contracts stating something similar to the following:

"Commissions from Third Parties: We may be offered commissions by third-party companies in the course of managing your property.  If we are offered a commission or other form of remuneration and are satisfied that the services provided are as good as other local services, and of a similar price, and as long as your interests are not adversely affected, we may accept such a commission for our own benefit".

So in these cases it is not unusual for a contractor to charge an uplift to take into consideration and to cover the commission or kickback charged by the agent, so they are not out of pocket.  Are YOU aware if your agent charges their contractors a commission or kickback? 

Landlords/investors need to be aware of these charges and understand how they can impact their overall expenses.  By being informed about contractor uplifts, landlords can take steps to negotiate these charges or find alternative solutions to minimize their costs.

Examples of Upfront and Hidden Costs for Landlords

Lets get straight to the point, there should be NO HIDDEN COSTS!

As a property investor or landlord, it's crucial to be aware of ALL costs that can arise when renting out your property. Let's explore some examples of these costs to give you a better understanding.

One upfront cost that landlords typically expect is the letting agent's fee. This is a fee charged by the letting agent for finding and vetting tenants, managing the tenancy agreements, and providing ongoing support. It's important to clarify the fee structure upfront to avoid any surprises.  The agents fees will normally include:

1. A letting fee - covering the advertising, marketing, viewings, referencing and setting up of a tenancy

2. Management fee - normally a percentage of the rent, typically 10% of the monthly rental income

3. Other costs - these can be repairs/bills (not covered by the tenant such as service charges or property repairs)

However, hidden costs can also emerge. One example is the contractor uplift, which we discussed earlier. This is an additional charge that letting agents or property management companies pass on to landlords for managing contractors. It's important to request full transparency from your letting agent to ensure you're not being charged an inflated price for contractor services. Letting agents who mark up maintenance sub-contractors’ bills should make landlords aware of the practice and clearly display what the mark-up is, under consumer rights legislation.

Are YOUR agents/contractors being truly HONEST with you?  Can YOU be sure you are not being charged over inflated repair bills by contractors to cover the agents kickback or uplift?

In the next section we will look at tips to help mitigate hidden costs to you.

Tips for Avoiding Hidden Costs as a Landlord

Being aware of the potential hidden costs as a landlord is crucial for protecting your investment and maximizing your profits. Here are some tips to help you avoid these hidden costs:

1. Research and choose a reputable letting agent: Take the time to thoroughly research and choose a letting agent with a good track record. Look for reviews and testimonials from other landlords to ensure they have a transparent fee structure and are trustworthy.

2. Negotiate fees and charges upfront: Don't be afraid to negotiate fees and charges with your letting agent. Ask for full transparency regarding contractor uplifts and other hidden costs. By discussing these costs upfront, you can avoid surprises down the line.

3. Conduct regular property inspections yourself: Regular inspections of your rental property can help you identify and address maintenance issues early on. This can prevent small problems from turning into costly repairs later.  Don’t just put 100% trust in your agent, it is YOUR property after all.

4. Create a budget for maintenance and repairs: Set aside a portion of your rental income for maintenance and repairs. By budgeting for these expenses, you'll be better prepared to handle unexpected costs without affecting your overall profits.

5. Establish clear communication with your letting agent: Maintain open and clear communication with your letting agent. Discuss any concerns or issues promptly and ensure that you are kept informed about any potential costs or changes.  Ask them to get several quotes for issues or repairs to ensure you are paying the right amount for works required.

By following these tips, you can minimize the risk of hidden costs and protect your bottom line as a landlord and investor. Remember, proactive management and communication are key to avoiding financial surprises and maintaining a profitable rental property. 

If you think you are being ripped off by your agent or would like further information on any aspect of letting and management or property investing please contact our advisory team on 01244 343 355.