21 May 2018 The IPMA (Independent Property Managers Association) is a non-profit industry organization representing professional property managers throughout NZ who have voluntarily joined to differentiate themselves in order to be recognized for being at the highest ethical & professional position in the industry. It represents approximately 120 individuals & around 10,000 residential rental properties throughout New Zealand. Email: ipma@ipma.org.nz IPMA Submission: Residential Tenancies (Prohibiting Letting Fees) Amendment Bill The IPMA acknowledges that the current 1 week +GST letting fee formula which has become the norm but does not best represent the actual administrative costs borne by a property management/letting company signing up a new tenant. A review of this charge is agreed overdue, however a ban is not considered by the IPMA as the fairest and best solution in this situation. The IPMA does not support the proposed ban on letting fees in its current form. Rather, we wish to propose a full & thorough review of letting fee charges with consideration for the implications to the Property Management industry. This should be done in a timely, but not rushed manner consulting fully with all relevant industry sector groups.
Our recommendation is to allow the ability to set a transparent, up front fee structure for tenant charges at the beginning of the tenancy in relation to any letting costs incurred by the tenant at the beginning of, or during the tenancy. IDENTIFYING THE REAL COSTS INCLUDED IN THE LETTING FEE We reference the MBIE cover document relating to this bill which states that the tenant receives no benefit from being required to pay a letting fee. This statement does not recognize the service provided to the tenant by the letting agent in the following forms: - Viewing times scheduled to accommodate tenant availability often after hours or weekends. Second or third viewings are not uncommon to accommodate the tenant to measure the property, show partners, family or potential flatmates through. With the apportionment of part of the letting fee to this work, the agent is incentivized to offer a level of service to the tenant to facilitate this process. Our fear is that with the removal of the letting fee, the ability to offer this level of service to the tenant will greatly reduce, negatively impacting on the tenant experience. - Professional property managers/letting agents present compliant tenancy agreements to provide incoming tenants confidence and peace of mind that they are entering into an agreement with full protection under the RTA. This will generally include a full photographic or written report of the condition of the premises to offer the tenant assurance in the case of any disputes during, or at the end of the tenancy.
- Allowances for contingencies It is not uncommon for a tenant to retract an application after being offered a property for varied reasons. Provision within the letting fee has traditionally allowed the letting company to absorb the already-incurred costs in labour, credit/background check charges, etc. The alternative would be to have the tenant applying pay for these costs up front (such as the standard in Australia). If this approach is not accepted, companies/landlords will cover these additional costs. It is also not uncommon for prospective tenants to not show to scheduled viewings of properties. The cost of this must also be worn by the letting company. Allowance will need to be made for companies who are paying staff for these viewings especially for after hours viewings. - Reduced flexibility for changes to tenancies Without the buffer of the letting fee, it is likely that property managers will more strongly enforce the prohibition of assignment, subletting, or lease breaks given that any dispute will need to be taken to the Tenancy Tribunal. It is a reasonably common occurrence for tenants in New Zealand to request leave from a fixed term tenancy earlier than the scheduled end date. As well as further clogging the Tenancy Tribunal system unnecessarily, this forces them to rely on rulings to decide on the reasonable costs incurred in re-letting the property to recoup the costs incurred. We believe this will have a negative effect on tenants experience & service levels.
CLARIFYING SECTION 44(5) WITHIN THE PROPOSED NEW SECTION 17A (Requiring a letting fee prohibited) It is imperative that any removal of the letting fee provision allows for landlords to be able to claim their reasonable incurred costs for changes initiated by tenants. Section 44(5) must adequately address this issue. Examples of this would include: *Removal of a tenant from a joint lease *Changing a leaseholder name on a joint lease (group lease situation where single or multiple tenants leave during a tenancy) *Breaking a fixed term tenancy (often allowable by mutual agreement of both parties) *Subleasing to another tenant Surveys of IPMA members have indicated that the average time taken to prepare a new application is 6-10 hours. The time taken for a change to a tenancy agreement is 2-4 hours. This will increase if more than one additional tenant is added. Our concern is that if not addressed correctly, the flow on effect of this proposal may be tenants making changes to their tenancy at whim with the cost being borne by the landlord. Allowing a fixed fee clause in the tenancy agreement would allow for these costs to be accepted & covered by the tenant and represents a fair & equitable solution.
UNINTENDED CONSEQUENCES The IPMA acknowledges the Prohibiting Letting Fees bill s intention of reducing the financial impact of the up-front rent costs for tenants. What has been overlooked, however, is the impact on the Property Management industry should this bill be passed. Loss of professional property management in certain areas Particularly in the case of harder to rent areas/properties, our fear is that without the incentive of a letting fee, professional companies will steer clear of lower rental properties leaving tenants in more vulnerable & riskier tenancies dealing with inexperienced private landlords. A reduction of professional property management operators/ service levels Industry statistics suggest that most property management companies gain 10-20% of their turnover from letting fees presently. This loss of earnings puts many companies into reconsidering staffing levels & increase workloads. Our fear is that this will impact negatively on service levels for property owners, tenants & the industry in general. An increase in Tenancy Tribunal applications under section 44(5). This will be unavoidable as property management companies look to claim back costs incurred. To avoid this, companies may look to enforce a strict no amendments clause for all tenancies this, in itself will further impact on the tenant experience. Increased rents It is generally accepted in the property management industry that a high proportion of companies may consider passing the letting costs on to property owners. Should this happen, the natural result will be an overall increase in rents to cover this additional expense.
It is the Independent Property Managers Association s view that the proposed ban on letting fees will seriously affect the industry & has the potential to reduce the level of service to tenants. We welcome a review of the fees being charged currently but strongly advise a full & thorough review of the issue take place. This would include all relevant industry & tenant representative bodies. In conclusion, the process needs to be measured & result in a fair outcome which considers BOTH property management companies and tenants considerations. The IPMA appreciates your consideration of our submission and is happy to provide any additional information to this submission and take questions should this be deemed appropriate. Yours sincerely, Karen Withers President, Independent Property Managers Association