Indirect payment of letting fees may be unintended outcome

Indirect payment of letting fees may be the unintended outcome

Property managers are to be banned from charging tenants a letting fee from 12 December this year.

“It is reasonable to assume that property managers would need to recoup the cost of not being able to charge tenants a letting fee and that this fee would be passed onto rental property owners”, said Andrew King, Executive Officer of NZ Property Investors’ Federation (NZPIF).

In their regulatory impact statement to Government, MBIE officials advised that there was a risk that landlords would pass the cost of the fee onto tenants through higher rental prices. Officials advised that if this occurred, the likely increase in rent would be $9.99 per week.

Given that the average tenancy is around 2 years, this would mean that tenants actually end up paying more than the original cost of the letting fee. A benefit of this is that the cost would be spread out rather than being the current large and up-front letting fee.

The NZ Property Investors’ Federation (NZPIF) recommended in their submission that whoever received the benefit of the property manager’s service should be the one who paid the letting fee. If an owner just used the property manager to find them a new tenant, then the owner should pay. If market conditions meant it was difficult to find a tenant, then the owner should pay. Conversely, if market conditions meant that it was difficult for tenants to find suitable rental accommodation, then they should pay.

The NZPIF also recommended that property managers allow tenants to pay the fee off over time to help reduce their upfront moving in costs.

This situation shows that simply banning a practice doesn’t always result in the intended outcome. Tenants will still probably end up paying the letting fee, although indirectly. Care needs to be taken when implementing new regulations.

ENDS

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