Do I Have to Pay My Agent’s Referencing Fees if I Decide Not to Accept the Tenant?

As a landlord in the UK, renting out your property involves various responsibilities and potential costs, one of which may be referencing fees charged by your letting agent. But what happens if, after the referencing process, you decide not to proceed with the tenant? Are you still required to pay these fees? This is a common question many landlords face and understanding the answer is essential to managing your property effectively and avoiding unexpected expenses.

What’s the Referencing Process?

When you decide to rent out your property through a letting agent, one of the first steps they will take is to carry out tenant referencing. This process is designed to assess the suitability of a potential tenant by checking their credit history, employment status, rental history and other financial information. Referencing aims to ensure that the tenant is likely to pay rent on time and maintain the property well.

The cost of this referencing process is usually borne by the landlord and it can vary depending on the agency and the extent of the checks required. For instance, more thorough checks, such as those for self-employed individuals or tenants with complex financial situations, may incur higher fees.

The Role of the Agency Agreement

The agency agreement between you and your letting agent is the primary document governing your relationship and outlining your obligations, including any fees you may be required to pay. It’s crucial to thoroughly review this agreement before signing, as it will detail when fees are payable and under what circumstances.

Most agency agreements will include a clause stating that the landlord is responsible for the cost of tenant referencing, regardless of whether the tenancy ultimately proceeds. This is because the referencing process involves work and expenses on the part of the agent and referencing company, which need to be covered even if you decide not to move forward with the tenant.

Case Study: The Impact of Not Accepting a Tenant

Consider a scenario where you, as a landlord, have engaged a letting agent to find a tenant for your property. The agent locates a potential tenant who is self-employed and the referencing process is initiated. The agent assures you that the referencing company will conduct a thorough check, including a review of the tenant’s financial history, accountant references and annual revenue over several years.

However, when the references are returned, you find that only the last three months of bank statements have been checked. You feel that this is insufficient to assess the financial stability of a self-employed individual and you decide not to proceed with the tenancy. The agent then informs you that you are liable to pay the £300 referencing fee, even though you have chosen not to accept the tenant.

This situation illustrates the importance of understanding your obligations under the agency agreement. Even though you are dissatisfied with the referencing process, the agency has fulfilled its contractual obligation to carry out the checks as per their standard procedures. As a result, you may still be required to pay the referencing fee.

The Legal Perspective: Can You Refuse to Pay?

From a legal standpoint, whether you can refuse to pay the referencing fees depends on the specific terms of your agency agreement. If the agreement clearly states that you are responsible for these fees, then you are likely to be obligated to pay them, even if you ultimately decide not to accept the tenant.

However, if you believe that the referencing process was not conducted in line with what was promised or agreed upon, you may have grounds to challenge the fee. For example, if the agency promised a thorough review of several years of financial history but only checked three months of bank statements, this could be considered a breach of contract. In such cases, you may be able to dispute the fee or negotiate a reduced payment.

It’s important to note that challenging a fee can be a complex process and may require legal advice. If you find yourself in this situation, it’s advisable to seek guidance from a legal professional who specialises in property law.

Best Practices for Avoiding Disputes Over Referencing Fees

To avoid disputes over referencing fees, there are several best practices you can follow:

Clarify Expectations Before Signing

Before signing the agency agreement, ensure that you fully understand the referencing process and the fees involved. Ask the agent to explain in detail what checks will be carried out and confirm that these align with your expectations, especially if you are dealing with a self-employed or financially complex tenant.

Negotiate Terms Where Possible

If you have specific requirements for tenant referencing, such as a longer review period for financial history, negotiate these terms upfront and have them included in the agency agreement. This can help prevent misunderstandings and ensure that the referencing process meets your needs.

Set Clear Criteria for Accepting References

Establish clear criteria for what constitutes acceptable references before the process begins. For example, specify the minimum income threshold or the number of years of financial history you require for self-employed tenants. This way, if the references do not meet these criteria, you have a stronger case for not proceeding without incurring fees.

Document All Communications 

Keep a record of all communications with your letting agent, particularly those related to the referencing process. If there is a dispute, having written evidence of what was agreed upon can be invaluable.

Review the Referencing Report Thoroughly

Once the referencing report is completed, review it carefully before making a decision. If there are any discrepancies or concerns, raise them with the agent immediately. Addressing issues as soon as they arise can prevent them from escalating into larger disputes.

When Paying the Fee May Be Beneficial

While it may seem frustrating to pay a fee for referencing a tenant you do not accept, there are situations where doing so may actually be beneficial. For instance, the referencing process may have uncovered red flags that prevent you from entering into a potentially problematic tenancy. In this sense, the fee could be viewed as a cost of due diligence that ultimately protects your investment.

Moreover, paying the fee may help maintain a positive relationship with your letting agent, which could be valuable if you plan to use their services in the future. Disputes over fees can strain relationships and may lead to difficulties in securing tenants for your property down the line.

Conclusion

In summary, whether you have to pay your agent’s referencing fees if you decide not to accept a tenant largely depends on the terms of your agency agreement. While it’s common for landlords to be responsible for these fees, understanding your rights and obligations is crucial. By clarifying expectations, negotiating terms and carefully reviewing the referencing process, you can minimise the risk of disputes and make informed decisions that protect your interests as a landlord.

If you find yourself in a situation where you are unhappy with the referencing process or the outcome, it’s important to seek legal advice before refusing to pay any fees. Ultimately, being proactive and thorough in your dealings with letting agents can help ensure that the referencing process works in your favour, whether or not you choose to accept the tenant.

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