Property management fees: a guide for London's landlords

Landlords Jun 17, 2021

Property management fees are often the single biggest factor deterring many landlords from outsourcing the hassle of dealing with a tenancy. Even landlords who are stretched for time, or who just don’t particularly relish the experience of dealing with emergency repairs on evenings and weekends, balk at handing over significant sums of their rental income to a managing agent.

The property industry is also notorious for its lack of transparency, making it difficult to find clear pricing information or understand which service is best suited to your needs. To help London’s landlords understand how much it costs to instruct a managing agent to take care of a rental property, we have put together the below guide to average management fees. As well as outlining average prices, we also explore additional hidden costs charged by letting agents and explain what to look out for to ensure you are always getting the best value for money.

Property management fees

Most agents offer various property management packages, and it can be difficult to distinguish what differentiates the service on offer at each price point. We will explore this in more detail shortly. The prices below are for a standard management service that deals with things like rent collection and arrears chasing, responding to tenant queries, 24/7 emergency response, maintenance works, and property inspections.

National agencies

Average price: 19.32%

Range: 14.4% to 20.4%

Mean: 20.4% (more than half of the agents reviewed charged this rate)

Local agencies

Average price: 17.82%

Range: 15% to 20.4%

Mean: 16.8% (roughly a third of agents reviewed charged this rate)

In nominal terms:

Let’s break down what both average fees would look like in nominal terms using a property let at £1,750pcm as an example.

1,750 x 12 = 21,000

(21,000/100) x 19.32 = £4,057.20

or

(21,000/100) x 17.82 = £3,742.20

A significant caveat applies to above fees. As we discussed at length in our general lettings fee article, the overwhelming majority of agencies charge substantial additional fees for the cost of essential administration, such as the tenancy agreement or tenant referencing, and for the cost of any administration that may arise during property management during the tenancy - e.g. the service of notices to regain vacant possession. The cumulative cost of these extra charges usually adds several hundred pounds to an invoice, and that’s on top of the thousands of pounds landlords already surrender from their rental income in exchange for supposedly ‘all inclusive’ services.

As well as administration fees, landlords are also likely to find themselves contractually bound to expensive renewal costs if their tenants want to stay at the property after the end of the original fixed term. At their worst, fees for renewing a tenancy can be charged at the same rate as the original service, despite the fact that the agent doesn’t have to do any of the work to find and reference tenants. However, agents who charge a flat fee for renewals instead of a percentage of rental income tend to be more competitive, with costs usually at around £180 - £300 for renewal negotiation and administration.

To learn more about the various additional hidden fees lettings agents charge in general, check out our article on London letting agent fees. For the purpose of this piece, we are going to take a deep dive into hidden property management fees in particular.

Hidden charges for property management

With agents advertising property management packages as ‘all-inclusive’ or ‘comprehensive’ as standard, it would be reasonable to assume that the service you are paying for includes, well, everything. However, this is far from the case and there are several additional fees charged by managing agents to look out for.

Certain ad hoc charges are reasonable, for example fees for services such as compliance documentation and inventory inspections. These require third party specialists for completion and often won’t need to be commissioned before the start of every tenancy (e.g an EPC is valid for 10 years).

Other charges, however, are much harder to justify. We have outlined some of the most pernicious hidden fees below.

Fees for arranging works

Of all the agent fee schedules we reviewed, most set out a charge of 10-12% of the invoice cost if they had to arrange works at a property ‘beyond the scope of the agreement’. This might not seem unreasonable at first glance, and there is nothing inherently wrong with charging a project management fee for coordinating extensive renovations that improve and upgrade the property as opposed to simply repairing damage or maintaining its existing condition. However, further investigation almost always reveals that the ‘scope of the agreement’ is narrower than what most landlords are likely to require during the course of a tenancy.

For example, one agent charges a fee of 10% if the cost of any repair or maintenance works cost more than £350. The cost of emergency repairs and remedial work required after a compliance inspection routinely runs significantly north of this figure, though both are fairly commonplace issues that a landlord would expect a property manager to resolve.

Others impose a more reasonable cap of £1,000 before additional charges apply, but even here you might still find yourself paying the agent for undertaking essential maintenance required to manage the tenancy effectively. If a landlord is already paying 20% of their annual rental income for property management services, it’s hard to see how an agent is providing value when they levy a further charge that capitalises on misfortune.

Another red flag is where the scope of the agreement is not defined at all in the fee schedule. Where this is the case, to avoid the risk of arbitrary charges issued at the agent’s discretion, be sure to scrutinise the terms of business in detail and ask for a very precise definition of works included within the scope of the agreement.

In addition to administrative charges for coordinating the work, many agents will also charge landlords if someone from their office is required to attend the property to meet the contractor and provide access. The going rate for this service is £60-£120 per hour and, once more, it is difficult to understand how such an essential property management function is not included within the 17%-20% average fee for ‘all-inclusive’ services.

Finally, there are a few agents who will charge landlords for the process of getting quotes for works. In the most egregious example we found, an agent is levying a punitive charge of £600 if they source quotes for work and the landlord chooses to proceed with their own contractor, and a £120 if the landlord ultimately decides against going forward with works. In effect, this penalises the landlord for finding more competitive quotes than they are able to manage while locking the landlord into using their suppliers.

Financial administration fees

Agents charge a range of fees related to the financial administration of a property. The most common fees we found are:

  • Charges for monthly financial reporting (generally £30 per statement).
  • Charges for reporting to HMRC on behalf of non-resident landlords (£60 - £540 plus VAT).
  • Dispute handling charges if you wish to withhold funds from the deposit (£120 - £600 plus VAT).
  • Fees for payment of service charges to a freeholder (£60 - £120 plus VAT).

Most of the above would be very difficult (if not impossible) to do without assistance from your managing agent, so it does not make sense that this important administration is not included within the fee for a service level that is supposedly all inclusive.

Other things to look out for

It’s not just hidden fees that compromise the value for money you receive from a letting agent. It’s also worth bearing the following in mind to make sure you’re getting the best possible deal.

Referral fees

Some agents receive referral fees from third-party contractors every time they use them for work required at a managed property. While there is no direct cost arising from referral schemes, agents who receive referral fees are not incentivised to find the best value trader for the landlord. This results in an indirect cost to the landlord, as it often means higher invoices for maintenance and repair work than they would pay if their agent shopped around for the most competitive price.

Multiple property management service levels

It’s common for agents to offer several different property management service levels, ranging from basic rent collection to ‘premium’ management. However, before shelling out for the premium service level, it’s worth taking the time to understand how the most costly package differs from the standard management service (which is normally already advertised as comprehensive or all inclusive) and whether it will add any value.

For example, one agent charges an additional 2.4% on top of their comprehensive management service for their premium service. In addition to everything available under the comprehensive management service, their premium service also includes:

  • An inventory report.
  • Check-in and check-out appointments with the tenants.
  • An EICR.
  • An EPC.
  • A gas safety certificate.

The total cost of purchasing each of these items individually from the same agent is more expensive than paying the additional 2.4% for premium property management - on the surface a good deal. However, very few landlords will need to commission an EICR, an EPCR, and a gas safety certificate prior to the start of a new tenancy. An EPC is valid for 10 years and an EICR is valid for 5 years - if the property has been let before then you will most likely already have one or both of these documents.

If a landlord were to pay for only the services required rather than the additional 2.4% for premium management (for the sake of argument, we removed the cost for the EICR and the EPC from the total, as these are the documents most landlord will have in hand already), they would save money by opting for the comprehensive management package.

Furthermore, remember that the additional services you receive for the extra 2.4% for premium management services only represents good value compared with the agent’s own price list for pre-tenancy services. Agents almost always mark-up the fees for services with third-party suppliers significantly above cost price.

The Home Made alternative

At Home Made, we offer a hybrid lettings solution providing the end-to-end services of a traditional agent at a much lower cost (and substantially higher quality).

Our fees are as follows:

Tenant find: 3% plus VAT (3.6%), with a minimum £948 plus VAT (£1,137.60).

Fully managed: 4% plus VAT (4.8%) in addition to the tenant find fee.

Renewals: No fee.

The cost of our tenant find and fully managed services are inclusive of the following:

  • Property marketing across all major listings portals and additional unique channels.
  • Accompanied viewings.
  • Access to our proprietary online landlord platform.
  • Offer handling and negotiation.
  • Contracting.
  • Tenant referencing.
  • Deposit registration and administration.
  • Right to Rent checks (and follow up checks where a tenant with time-limited status renews a tenancy).
  • Guidance on all of your compliance obligations.
  • End-of-tenancy termination and renewals.
  • Renewal negotiation and documentation free of charge.

In addition to the above, our fully managed service includes:

  • 24/7 emergency response.
  • Rent collection and arrears chasing.
  • Coordination of any required maintenance or repair work (with no charges incurred if the cost of works exceeds an arbitrary cap).
  • Monthly financial statements and financial administration related to non-resident landlord tax, i.e submitting returns to HMRC.

Additional fees are only required if:

  • You would like us to arrange pre-tenancy compliance services or an inventory on your behalf through one of our specialist third-party contractors. These add-ons are entirely optional (though the compliance obligations these inspections are necessary to meet are not). Prices are available on application as fees depend on a number of variables.
  • You would like us to cut additional keys - charged at cost price.
  • You require a mid-tenancy visit - charged at £70 plus VAT.
  • You would like us to manage your property during periods of vacancy - charged at £90 plus VAT per month.

We also do not charge any margin on top of the cost price of services we arrange with external contractors, and we are happy to use your preferred contractors if you have an existing relationship with a third-party service.

We keep our costs low through a combination of our efficient centralised operation, smart technology, and our commitment to charging fair and transparent fees. We cover the whole of London from one office in Waterloo, so the money you pay us covers the services you have received - not the rent bill for a network of agency branches that neither you nor many renters ever set foot in.

We firmly believe that renting and letting property doesn’t need to be painful or expensive, and that if you advertise a property management offering as ‘full management’, then your fees should be inclusive of all the services that a client is likely to require.

If you would like to get started today, you can book a free valuation here and an account manager will be in touch shortly after.

Book valuation

You can visit our landlord’s page to learn more about our services. If you would like to speak with us about your property needs, contact us via our website to find out how we can help.

Check out more of our landlord advice here and follow us on Twitter, Linkedin, and Instagram for regular updates on industry compliance standards, market insights, and Home Made company updates.

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Jess Brookes

Content & Research Executive at Home Made

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