Letting Agents

slick

Hi

I have a plumber client who has been engaged by a Letting Agency to do boiler servicing and other maintenance plumbing jobs on their various landlord properties. My client charges an agreed fee + VAT based on the work done. Straightforward enough but...the letting agency want my client to add a 15% commission on top of his fee so they can make an additional profit when charged to the landlord! OK but...my client has been advised not to show this on his invoice in any form as they don't want the landlord to know of the additional charge! However, the odd bit is that the letting agency will only pay my client the original agreed fee + VAT suggesting that the difference in my client's books will need to be written off as discount allowed although my client has not agreed to any discount.

Although my client could do with the work offered by the letting agency I believe that in order to produce a proper discounted VAT invoice some reference should be made that a discount applies otherwise, it is a commission charge by the letting agency for which a valid VAT invoice is due from them to support the cost & the income entries in their records.

Whats more is it normal practice for a letting agency to charge extra without the landlord knowing? I would have thought this would have been covered in their landlord management charges anyway.

I don't want my client unwittingly being involved in any scam for what seems a better way of putting it unless I'm mistaken in what is normal practice.

Any comments please?

Monsoon

I act for a few landlords, and they are usually given a copy of the original tradesman's receipt, and have their rent received income deducted by the same amount.

i.e. I have not seen an agent making a commission.

If your client is charging £100+VAT, then he needs to invoice for £100+VAT. If the agent wants to stiff their client, then they need to do that themselves.

Alternatively, If the plumber charges £115+VAT, and the Agent invoices £15+VAT commission back to the plumber and pays them the Net of £100+VAT, then that would be fine for everyone, apart from the landlord!

Sue

I have a client that does work for several letting agents and he has the same problem that a couple of them have asked him to inflate his prices so that they can make additional profit, this also means he misses out on work as some landlords get quotes themselves and realise that his prices are much higher.

When he is paid by the letting agents they always issue a remittance advice showing what they have deducted as an admin fee so I use their remittance as an invoice.

deanshepherd

Thieving bastards!

I would report them to trading standards and go to the local press.

JaffasGirl

Quite normal practice I'm afraid. What we used to do was invoice the landlord ourselves for whatever we had agreed and then just pay the plumber/electricians invoice ourselves. I think that's easier for everyone concerned!

That said, we had a gas safety man that gave us a deal because we gave him so much work, so we just charged his normal price anyway.

Timmne

Absolutely normal practice - although it's not particularly ethical for the agency to ask the contractor to inflate their prices.

Usually, the 15% is essentially a charge for all the contractor's sourcing, sales ledger and payment management - i.e. if a contractor's decent, they'll get loads of work from the agency and pay just 15% of sales in "overheads" - which is what the 15% represents. All they have to do, is do the work. The chasing of the payment is left to the agency and there's no marketing cost, since the agency will use the contractor all the time, and more, depending on the quality of work and reliability.

Think about it this way - which contractors wouldn't give anything to have an 85% net margin?

jamesm96

deanshepherd wrote: »

Thieving bastards!

I would report them to trading standards and go to the local press.

And the NAEA and the Property Ombudsman too (if they're members).

I'm a landlord and if I found out that, in addition to taking 10% of the gross rental income, the agent were also making a commission on the services they arranged I'd be outraged. As my 'agent' they have a responsibility to disclose any such commissions to me and to act in my best interests; inflating the contractor's costs and hiding it from me is unacceptable.

If the agents are engaged on a 'let only' contract (i.e. where they're only responsibility is to find and place the tenant) then fair enough I'd expect them to charge for arranging repair works, but they'd need to tell the landlord that's what they're doing!

deanshepherd

JaffasGirl wrote: »

Quite normal practice I'm afraid. What we used to do was invoice the landlord ourselves for whatever we had agreed and then just pay the plumber/electricians invoice ourselves. I think that's easier for everyone concerned!

That is the correct way of doing it. I'm not against adding a mark-up provided the tenant is aware that is going to happen.

Getting a contractor to produce a false invoice to disguise the fact a mark-up has been added is fraud.

Sue

With the two letting agents I am aware of the contractors definitely have to mark up their bills and then have an admin fee deducted from them by the agents.

PGM

JaffasGirl wrote: »

Quite normal practice I'm afraid. What we used to do was invoice the landlord ourselves for whatever we had agreed and then just pay the plumber/electricians invoice ourselves. I think that's easier for everyone concerned!

That said, we had a gas safety man that gave us a deal because we gave him so much work, so we just charged his normal price anyway.

I deal quite a bit with property, and it seems a fairly common practice to me. You can understand it to a point, the letting agent has to deal with the builder and tenant to get the work done.

The problem is, if they put their 20% "handling charge" on the builders invoice, then there'll be an additional vat charge (assuming the builder wasn't vat registered).

Although for some agents its a lucrative business, they have a captive market, often the landlords can't deal with the fault for whatever reason, so the agent could easily be doubling the charge...

deanshepherd

PGM wrote: »

You can understand it to a point, the letting agent has to deal with the builder and tenant to get the work done.

I would have no problem paying a 20% surcharge on a maintenance guys invoice provided they were honest about it.

If they said to me that handling maintenance issues was all covered in the 10% of gross rent that they are charging then I would be pissed if I found out they were marking up behind my back.

Any mark-up should be invoiced from the letting agent, telling a builder to increase his invoice to 'fool' the tenant is a joke.

PGM

deanshepherd wrote: »

I would have no problem paying a 20% surcharge on a maintenance guys invoice provided they were honest about it.

If they said to me that handling maintenance issues was all covered in the 10% of gross rent that they are charging then I would be pissed if I found out they were marking up behind my back.

Any mark-up should be invoiced from the letting agent, telling a builder to increase his invoice to 'fool' the tenant is a joke.

Totally agree with all your points there. Like auditors say; its about being transparent and honest in your dealings.

jamesm96

deanshepherd wrote: »

If they said to me that handling maintenance issues was all covered in the 10% of gross rent that they are charging then I would be pissed if I found out they were marking up behind my back.

Precisely.

Imagine if we told clients that their tax bill was £1,150 instead of £1,000 and kept the £150 for ourselves!

slick

Thanks for all your input on this guys...some interesting comments! I've advised my client that these arrangements are the norm although not entirely ethical by keeping the inflated price from the Landlord subject to their own agreement. Should I be bothered if they are ripping off the Landlord? However, to keep my client's own records straight I've told my client that the Letting Agency ought to provide him with a proper VAT invoice for the 15% commission + VAT to support the shortfall mentioned earlier + also backup their commission charge in their records. Failure to do so will require further justification for their method of creative accounting! Cheers all.