The government is planning to introduce an amendment to the Residential Tenancies Act (RTA) 1986 that will no longer allow letting fees be charged to tenants.

Current practice

The current practice amongst most property managers is to charge new tenants a letting fee –typically one week’s rent – for the work involved in setting the new tenancy, that is, the time in showing the property, dealing with applications and select prospective tenants, preparing tenancy agreements and lodging the bond. This can all amount to several hours of work that must be paid for by someone.

We agree with proposed change

At Nightingales, we fully agree with the proposed change to letting fees. When tenants move into a new rental they are already faced with a hefty financial outlay made up of the bond – typically four weeks rent – and one week’s rent in advance.

Who pays?

But somebody has to pay for the work and time involved in setting new tenants up in a property. With the government’s proposal prohibiting charging tenants a letting fee, property managers need to look at other options to cover these costs.

One option...

A number of options are under discussion. The one that we favour is that the cost is passed onto the owner in the first instance, but then recoup it over time from the tenant. A 2% rent increase will see the letting fee be recouped within a year so when the tenants stay longer than a year, the owner stands to benefit. According to Barfoot and Thompson, the average length of a rental is two years.

A waiting game

The Real Estate Institute is to make a submission to Parliament on behalf of all property managers and no doubt there will be other submissions. So, at this stage what we propose is an option only – there are likely to be others. We will keep you informed...