Terms of Business

Following initial discussions with a prospective landlord, the agent sets out the terms in writing; the principal (more commonly called the landlord in the letting situation) accepts, they both sign, and the contract comes into existence. It is paramount that the agent does nothing that may constitute the commencement of their service until the landlord has signed the agreement and given the authorisation to proceed.

Unfortunately, the 'law of agency' is not one set of statutory regulations. The 'law' has developed as common law, statute, case law, and so on over many centuries. This whole subject is full of difficulty and 'grey' areas. This means that any person who holds himself out as an agent for a principal would be taking huge risks if the terms of that agency are not clearly understood and legally compliant. Any agent who acts beyond that authority is running significant risks.

It follows, therefore, that an agent should aim to produce a 'watertight' agreement. The agreement must accurately reflect the terms agreed by the parties and be consistent with the business's customary practice (The RICS code of practice for lettings and management is a good starting point). The agreement must also be 'personal' to the principal's circumstances and instructions and must be current. The problem in most busy agency offices is that a 'standard' agreement is produced and used in every case without thinking. The standard agreement may be outdated (staff may not be doing things that way anymore), or it may not cover some particular aspect of that client's property or instructions.

General Principles

The moment a landlord says "go ahead", when an agent offers to carry out services for a landlord and the landlord either expressly or by implication says "okay", the agreement is created. The agreement will continue until it is expressly cancelled by the parties or until the services have been concluded. This means that if the arrangement were for a tenant find, the agreement would end as soon as the tenancy has commenced.

Where an agent is instructed to manage a property, the agreement will run as long as the parties have agreed or until the end of the tenancy, unless cancelled earlier. Unless expressly stated, the agent has no authority to act after that, nor is the agent liable for any events occurring after that date (unless they arise from some earlier act or omission by the agent).

The parties' conduct may imply an agency agreement, and it may also be subsequently ratified after the event's performance. Ratification is not always a straightforward matter, but it may be expressed or implied, i.e. the landlord accepting rent or taking no action to evict a tenant would be deemed to have ratified the arrangement.

An agency agreement may also be created by extending an existing relationship. It is not unusual for an agent to be engaged during the pre-let refurbishment of a property, in which case the agency agreement can start long before finding a tenant has commenced.

During the engagement/management period, the landlord will be liable for all of the agent's actions in the day-to-day management of the property. This could be rent collection, dealing with repairs and disputes. The extent of the agent's authority will depend upon what the parties have agreed, express instructions given by the landlord, the law or authority implied by the conduct of the parties, plus a duty of care.

Drafting/sourcing Terms of Business

Agents of a professional body may be required to use terms of business that comply with that organisation's guidance. Templates are made available by them. Templates can also be purchased or drafted by a legal advisor.
Agents’ Terms of Business are a critical legal document in a letting business. A well-drafted agreement assists both parties; the scope of the service provided will be clear from the outset, and disputes can usually be resolved by reference to the contractual position of the parties.

It is common for an agent to obtain copies of competitors' terms and use these as a base for drafting. Whilst this may be a good starting point, there is no guarantee that other agreements are correct in law or that those terms will accurately reflect the service provided.

It is essential that any agreement is in plain English, is fair and accurately reflects the agency's current practice or any particular matters agreed with an individual landlord. Variables such as fees are best shown as separate attachments.

The Consumer Rights Act 2015 may apply. Essentially, this legislation ensures the terms are fair and balanced. The legislation requires businesses to use terms which are not too technical to make the interpretation simple. The contract should not seek to permit the agent to do something the law does not allow. Similarly, clauses that seek to waive the agent's liability may not be considered fair.

Declarations which say that the client has read and understood the contract are regarded as unenforceable because if a client cannot understand a contract, stating that he does will add nothing to the agreement. The legislation requires the agent to give the client adequate time to read and reflect before signing and accepting the services offered and, in some cases, a 'cooling off' period.

Drafting the terms of business is an ongoing process. Agents should review the terms annually to ensure that the current day-to-day working practice is reflected.

Fees

Agents usually base management fees as a percentage of the rent collected, plus separate costs for setting up, agreement fees, inventory fees, etc. Clarity is needed regarding whether the management fee is payable on 'rents due' or 'rents collected'. The latter means that charges only apply if the tenant pays the rent, yet the agent will still provide a management service through non-payment. Also, ensure it clarifies when the fees are payable. Some agents will collect the payment monthly from the rent collected, and others will charge the total cost for the agreed tenancy upfront.

An agent should always consider the extra cost that can come with day-to-day management. Who pays the cost of attending court or inspecting an empty property? Who pays for the administration and time sourcing and arranging the delivery of a new appliance?

Under the Consumer Rights Act 2015, agents' fees for their landlord and tenant clients must be displayed in a place likely to be seen in their office premises and on any website (if any). See Chapter 8 later for more details. The fees quoted must also be inclusive of VAT.

The business terms require clarity on matters such as minimum charges and what fees will be payable on the cancellation of the agreement. Is the fee for a sole agency, and do charges apply if the landlord lets via another agency? The agent must protect their business against a landlord withdrawing early, but severely penalising such a landlord is unfair.

Variation

Once signed, the parties cannot make changes (including fees) to the business terms without consent. A provision to change the terms upon reasonable notice should be included, but that will allow the landlord to say no and withdraw instructions. Signing a new agreement every time fees are changed is not expedient. This can be done by a separate letter or notice, allowing the landlord to accept or decline (within a reasonable time limit). Building a fee structure that enables increased fees by set criteria is possible. Where variations are agreed upon verbally or by practice, they should be recorded as a variation to the original terms and signed by all parties.

Termination

A landlord may revoke his agent's authority at any time, either verbally or in writing. Some agents seek to make termination difficult, but it is questionable whether penalty-type clauses are enforceable. Because of the 'close' relationship between an agent and a principal, it is better to end it sooner when the parties are not satisfied with the arrangements or working well together. If the client can prove that the service is unsatisfactory, it is unlikely that a court would hold a landlord to the agreement.

The agent should require a reasonable notice period and can make a minimum fee payable to avoid early termination. Many agents will have a minimum fee equivalent to six months of management. This will reduce the risk of a landlord cancelling his instructions immediately after the first tenant has taken possession.

The agent should reserve the right to terminate the contract without notice where the landlord is unwilling to comply with statutory obligations.

An agency agreement will terminate immediately upon the principal's death. The principal's estate is not bound by anything the agent does post-death of the client, even if the agent is not immediately aware of the client's death. This will also apply if the property is sold, as the landlord cannot manage the property, nor can the agent be without instructions from the new owner.

Agency by Estoppel

Estoppel is a legal term meaning that a person is precluded from denying the truth of a statement of fact previously asserted. This means that where one person has acted to lead another person to believe they have authorised a third party to act on their behalf. That person, considering this, enters into a transaction within the scope of the authority; the first person is estopped from denying the agency. The fact that the agent may not have had express authority is immaterial. For instance, a tenant may be told by a landlord that they should 'contact the agent' regarding the defective heating. If the agent arranges a repair, the landlord cannot claim that they are not bound by what the agent has done, and they will be liable for the cost of the repair.

Good employment practice is essential for any agency. It requires the production of clear policies, rules, and procedures for all staff. These policies include health and safety, helping employees understand their legal obligations, what their employer expects of them, and how they should carry out certain activities. They also advise employees of the rules and rewards available to them.

Cancellation Of Consumer Contracts

Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, which were in force from 13 June 2014, agents taking on consumer landlords must follow new rules.

Distance and off-premises contracts have an automatic right to cancel within 14 days of agreeing to the agreement. Also, within those 14 days, the agent cannot do any work for the landlord without the landlord's express consent. Most landlords will not want the agent to wait 14 days before arranging EPC and advertising, so express consent is likely to become the norm. If any work is done within 14 days of cancellation without following this process, then no charges are payable by the consumer.

Firstly, consumer landlord contracts will fall into one of three basic categories. Distance contracts (concluded without a meeting), off-premises contracts (basically those agreed from a home visit), and on-premises contracts (those where the consumer comes to your premises and concludes the contract). For letting agents, most contracts will probably be distance or off-premises contracts. While it is accepted that some landlords will not be consumers, it may prove too tricky to identify the difference; therefore, granting the same right to all may simplify the business.

In all three contract situations, "prescribed information" (from the schedules at the back of the regulations) must be given to the consumer. There is a long list for distance and off-premises, and, again, to simplify things, this long list could be used for all consumers regardless of which type of contract they have. Failure to give this information could allow a consumer to cancel for twelve months and two weeks without paying anything!

Additionally, distance and off-premises contracts are legally required to include information about the consumer's right to cancel and a cancellation notice they can complete and return if they wish to exercise their right to cancel.

The regulations also prohibit "additional charges" without the consumer's express consent. This would apply to making a charge not agreed upon when creating the contract, but could also be used to increase the amount charged. It is also unclear if a contract term allowing the agent to increase charges on a specific notice period would be considered express consent.

The regulations also require consumers to be able to contact the trader on a basic rate phone number to seek assistance in their contractual relationship.

Breach of these regulations carries unlimited fines.