Do I Still Have to Pay Referencing Fees if I Don’t Approve the Tenant?

Renting out a property can be a complex process, and one of the important steps is tenant referencing. This process is meant to ensure that potential tenants are reliable and financially stable enough to rent your property. However, what happens if the references come back and you’re not satisfied? Do you still have to pay the agent’s referencing fees if you decide not to proceed with the tenant? This article aims to clarify this issue for landlords in the UK, explaining the rules, possible outcomes, and what you can do to avoid unnecessary costs.

What Are Tenant Referencing Fees?

Tenant referencing fees are charges incurred by letting agents or landlords to check whether a potential tenant is suitable to rent a property. These checks may include:

  • Credit history
  • Employment status
  • Previous landlord references
  • Proof of income
  • Financial stability (bank statements)

In some cases, more thorough checks may be performed, especially if the tenant is self-employed or has a complex financial situation. These checks are designed to protect landlords from renting to someone who might struggle to keep up with rent payments or cause other issues down the line.

Why Is Tenant Referencing Important?

For landlords, tenant referencing offers some security. It’s a way to verify that the person renting your property has a stable income and a history of meeting their financial obligations. A poor reference could indicate that a tenant may struggle with rent payments, while a positive reference increases the likelihood that you’ll have a trouble-free rental relationship.

What Happens If You’re Not Happy with the Reference?

Let’s say you’re working with a letting agent, and they provide a reference report for a potential tenant. However, you’re not satisfied with the report. Maybe the tenant is self-employed, and the referencing company only looked at the last three months of bank statements. You might feel that this doesn’t give a full picture of the tenant’s financial stability, particularly for someone who is self-employed and might have fluctuating income.

In this situation, you may decide that you don’t want to proceed with the tenant. But now, the agent is telling you that you need to pay for the referencing fees, even though you’ve decided not to accept the tenant. This is where things can get a little tricky.

Check Your Agency Agreement

The first thing you should do is check your agency agreement. The agreement is the contract you signed with the letting agent when you decided to use their services to rent out your property. It will outline the fees and conditions for services like tenant referencing, and this is the key document that will tell you whether or not you’re liable to pay the fees.

Many agency agreements will have a clause that says something along the lines of: “You must pay for the tenant referencing service regardless of whether the tenant is accepted or not.” This is because referencing is a service that costs the agent money, and they are unlikely to absorb that cost themselves, even if you don’t proceed with the tenant.

If the agreement explicitly states that you’re responsible for the referencing fees even if you reject the tenant, then you will likely have to pay. On the other hand, if the agreement doesn’t mention this or is unclear, you might have grounds to argue that the fee shouldn’t apply.

Is the Fee Reasonable?

One thing to consider is whether the referencing fee is reasonable. For example, if you’re being charged £300 for tenant referencing, that might seem high for a simple check of the last three months of bank statements. In this case, you could question whether the fee reflects the actual work done. If you feel the fee is unreasonable, you might be able to negotiate with the agent or challenge the charge.

It’s also important to understand what the fee covers. A comprehensive tenant reference might involve a credit check, verification of employment, a check with previous landlords, and more. If the agent only performed a limited check, such as reviewing a few bank statements, the fee should reflect that.

Could You Avoid Paying the Fee?

If your agreement with the letting agent doesn’t explicitly state that you must pay the referencing fee regardless of the outcome, you may have some room to argue that you shouldn’t have to pay. However, keep in mind that referencing is a standard part of the rental process, and agents incur costs whether or not the tenant is accepted.

That said, here are a few strategies you might try to avoid paying the fee:

Negotiate with the Agent

If you feel that the referencing wasn’t thorough enough or didn’t meet your expectations, try talking to the agent. Explain your concerns and see if they’re willing to reduce or waive the fee. For example, you might argue that only checking the last three months of bank statements for a self-employed tenant is insufficient and that a longer financial history should have been reviewed.

Check for a Breach of Contract

If the agent didn’t follow the procedures outlined in the agency agreement or didn’t perform the checks you expected, you could argue that they didn’t fulfill their obligations under the contract. This could give you grounds to refuse payment.

Specify Requirements in Advance

To avoid this situation in the future, be clear with your letting agent upfront about the kind of tenant referencing you expect. For example, you could specify that for self-employed tenants, you want a review of the last year’s financial records, not just three months of bank statements. This can help ensure that the referencing meets your needs and reduce the chance of disputes over fees.

Is It Worth Paying for the Reference?

While it can be frustrating to pay for a reference when you’re not happy with the outcome, it’s worth considering the value of the reference itself. Even if you decided not to proceed with the tenant, the referencing process might have saved you from renting to someone who wouldn’t have been a good fit for your property.

For example, if the reference revealed that the tenant’s income fluctuates significantly and they might struggle to pay rent during slower months, the cost of the reference might be a small price to pay compared to the potential loss of rental income if the tenant defaults.

What to Do If You’re Unhappy with the Referencing Process

If you’re unhappy with how the referencing was conducted, it’s important to raise your concerns with the agent. Explain what you were expecting and why you feel the reference was insufficient. In some cases, the agent might agree to perform additional checks or to use a different referencing company in the future.

You might also want to review the agency’s referencing procedures before agreeing to any future references. For example, if you have specific concerns about self-employed tenants, make sure the agent is aware of those concerns and is prepared to conduct a more in-depth review.

Tenant Fees Act and Its Impact

In June 2019, the Tenant Fees Act came into force in England, banning most fees that landlords and letting agents could charge tenants. However, this act primarily protects tenants, not landlords, and does not cover the fees that landlords pay for services like tenant referencing. This means that as a landlord, you are still responsible for covering the costs of services like tenant referencing unless your agency agreement states otherwise.

Key Takeaways

As a landlord, you are likely to encounter referencing fees at some point. Whether or not you have to pay them when rejecting a tenant will depend largely on your agency agreement. Here are the key takeaways:

  1. Review Your Agency Agreement: This is the most important step. Your agency agreement will specify whether or not you are liable for referencing fees when rejecting a tenant.
  2. Negotiate Where Possible: If you’re unhappy with the reference or feel that the fee is unreasonable, it’s worth trying to negotiate with your agent.
  3. Clarify Expectations in Advance: To avoid disputes in the future, make sure you clearly communicate your expectations for tenant referencing upfront.
  4. Be Prepared for Costs: While referencing fees can be frustrating, they are often part of the cost of being a landlord. Even if you reject a tenant, the reference might still provide valuable information that helps you make an informed decision.

Ultimately, paying for tenant referencing is part of the process of managing a rental property. By understanding your rights and obligations, and by working closely with your agent, you can minimise unnecessary costs and ensure that your rental experience runs smoothly.

Leave a Reply

Your email address will not be published. Required fields are marked *