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Will we see the end of the letting fee?

  • Potentially third change to the residential tenancies act in a year
  • Greens' Bill may become reality if Labour win next election

The prospect of tenants not having to pay a letting fee became a step closer to reality last month. The Green Party co-Leader Metiria Turei's Residential Tenancies (Safe and Secure Rentals) Amendment Bill was one of three member's bills drawn from a ballot in August to go before Parliament. The purpose of the bill is to provide greater stability for tenants with the numbers of home ownership dropping.

The bill provides a number of changes however probably the most significant change to Property Management companies is the outlawing of charging the tenant a letting fee. This is a significant development and has the potential to wipe out the profit margin of many Property Management businesses. 

Generally, the letting fee makes up anywhere between 10 and 20% of total income for most companies. If this source of income was stopped, many companies may be forced into selling as their profits may be wiped out. The likelihood is that again, the landlord will suffer as the cost of the letting fee will have to either be absorbed by the landlord through a fee increase or the landlord will be forced to pay the letting fee. The other potential outcome would mean an end to casual letting's as the revenue generated from doing this would again be reduced significantly. This ultimately may not be a bad thing as we will see an increase in properties under management due to the increased legislation and risk involved in privately managing your own rental portfolio. 

I for one never understood why the tenants pay the letting fee as it is the landlord who benefits from the service and I always felt that they are the ones who should pay. This again will see New Zealand follow the path of Australia where the letting fee is charged directly to the landlord.

New Zealand isn't the only country to see the charging of the letting fee challenged. In Scotland, changes in rental laws saw all fees other than rent and bond outlawed in 2012. We have also witnessed protest in England regarding the letting fee as more and more people are forced into renting. 

The bill does not stop with letting fees.

This Bill will also:

  • Set a default of three years for fixed-term tenancies on the standard tenancy form, while maintaining the provision for both parties to opt out and set the term of their choice
  • Remove the ability of landlords to give a reduced notice period of 42 days in the event that they decide to sell their tenanted property, and restore the standard 90-day notice period
  • Limit rent increases to no more than once a year, regardless of tenancy type or term
  • Require that the formula for calculating any future rent increase be included in tenancy agreement forms
  • Allow tenants right of renewal on rental agreements

Although some of the objectives of the bill may not seem practicable like allowing tenants the right of renewal, some aspects of the bill have merit.

It is our view that when Labour eventually do get back into power, the letting fee is almost certain to disappear.

Housing looks like being a major battleground when we head into an election year in 2017. As it keeps in the news expect housing and investors to remain in the political firing line.