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Monday Sep 12, 2016

Are rental 'screening fees' legal?

In cities where the demand for rental properties is high and stock is low, finding a property is increasingly challenging and expensive. It's made all the more costly by the charging of large application fees by some agents, who are effectively passing on to tenants the cost of screening them.

A young couple from Cape Town told Personal Finance this week that they had effectively been disqualified from applying to rent properties in the city because of hefty application fees charged by agents. One agent told them they would be liable for a R700 application fee, payable irrespective of whether or not their application was successful. Two other agencies quoted them fees of R700 and R800, which they would be liable to pay only if their application was successful and they secured the lease.

Considering that the couple will have to put down a deposit equal to two months' rent, and their first month's rent is payable in advance, they have had to save R21 000 for a one-bedroom flat in Cape Town. They now need an extra few thousand rand to cover what they regard as unreasonable application fees.

Michelle Dickens, the managing director of Tenant Profile Network (TPN), says the charging of application fees is a national trend, albeit more prevalent in the bigger towns. "I know of a national franchise that has implemented this policy, but it is not mandatory."

She says there is nothing in the Rental Housing Act that prohibits an agent from passing on to the tenant a "reasonable" application fee.

Jacqui Savage, the national rentals business development manager at the Rawson Property Group, says the purpose of the Act is to facilitate sound relations between tenants and landlords and to lay down general requirements for leases. "It doesn't therefore make mention of tenant vetting. Tenant vetting is a best practice and mitigates a landlord's risk."

Dickens says the charging of application fees seems to be gaining in popularity for a number of reasons.

"It pre-qualifies tenants before the agent wastes time viewing properties with an applicant who will not qualify for the property – saving time for both the agent and landlord who needs to provide access. [And] there are direct costs associated with qualifying tenants," she says.

But aren't agents paid by the landlord, and if so, are they not doubledipping by charging both the landlord and the tenant?

Dickens says the fees charged by agencies depend on their mandate, which may be only to find a tenant, or a mix of the following: find a tenant, inspect the property, collect the rent, supervise maintenance, debt collection, oversee the collecting and disbursing of supplier invoices, including rates and taxes, utilities, levies, plumbers, and so on.

"Most procurement-only agencies charge an upfront fee of between eight and 12 percent of the rent for the period of the lease.

"Many agencies that procure the tenant and manage the property do not charge an upfront fee, and charge between 10 and 12 percent a month.

"Some agencies charge the eightpercent procurement fee and an additional eight-percent to 10-percent management fee.

Dickens says it is important to note that the monthly commission (management fee) paid by the landlord to the letting agency is usually split 50-50 between the agency and the agent.

Melissa Cullen, the portfolio manager for residential property at Steer & Co, says agents are bound by the National Credit Act to ensure that an applicant qualifies in terms of affordability before offering the applicant a lease, and considerable work and time goes into assessing a would-be tenant's affordability.

"Many people think that, as long as they have the money to put down a large deposit, we will be happy to sign them up on the spot, but it doesn't work like that. We have to ensure we follow all the requirements to ensure we cover ourselves, our landlords and potential tenants," Cullen says.

Steer & Co charges an application fee of R130. Cullen says the fee covers the following costs: R65 for a TPN credit check; R49 for printing, emails, compiling documents, making calls to the landlord and employer, checking references, and time spent going through information provided to check if the applicant qualifies; and R16 for VAT.

Savage says that, because Rawson is a franchise, franchisees have the discretion to charge what they like, although the franchisor suggests a fee of between R150 and R300.

Personal Finance has been told that agents have been known to refuse to allow would-be tenants to view a property because they "do not earn enough". Cullen says this is because most agents expect a tenant to earn at least three times the asking rental.

Dickens says most agencies charge a fee to prepare the lease. It could be that the successful applicant's application fee is offset against the lease fee, but she cannot confirm that this is a standard practice.

Siya Vabaza, the marketing co-ordinator at Prime Letting, says the company does not charge an application fee, although it is common practice in the industry.

"We only charge the lease administration fee once an application has been successful," Vabaza says. The fee is R700, but if you apply online, the fee is reduced to R300.

The Estate Agency Affairs Board was unable to comment by the time of going to print.

Personal Finance


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