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28 January 2004

Charging Investors

How much should landlords pay agents?

A friend of mine suggested I contact you as I recently bought an investment property in Western Australia and I’m in the process of arranging its rental.

The issue I have is that I am using a rental agent and they have sent me a copy of the rental agency agreement they want me to sign and I have a number of concerns about the agreement.

I wondered if I could briefly summarise the issues I have a concern with if you could advise if this is “normal”.

The Agreement is exclusive with them and they want me to commit to a period of 2 years. At the moment I only have commitment from my tenants for a 12 month rental. If I terminate the agreement for convenience, other than for the agent’s failure to perform or where the agent is guilty of fundamental breach of the terms of the agreement, then I have to pay them liquidated damages equivalent to 50% of the management fee which would otherwise be payable for the unexpired period. Is this usual – it seems extreme to me and also the payment of these liquidated damages could be construed as a penalty and therefore unenforceable in law. What damages could they possibly have incurred as a result of me terminating ? If anything, it is a loss of revenue which is a consequential loss and therefore their risk.

The agreement states that I have to indemnify the agent “against any actions, suits, demands, claims, costs or other expenses brought or made upon the agent or incurred by the agent arising out of this authority…..except where caused by the agents’ negligence or default” – this indemnity is unlimited and not even fault based. It is extremely wide and again I question if this is usual for these types of agreements.

I seek a fully managed service and obviously will pay a percentage (about 9.5%) for this. There are a number of reports etc. which they say is outside of this management fee for which I have to pay in addition e.g. Routine Inspection Reports – $38.50 every 3 months; Annual Summary for tax return $25.00; postage, petties, e-mail faxes $5.50 per month. Should this not come out of the management fee I pay?

I must pay $391 as a letting fee for the property – on top of this they want me to pay up to $50 for advertising the premises for letting, $20 tenant enquiry fees and lease renewal fee of $55. Shouldn’t these be covered in the initial letting fee?

Finally they want me to sign and date this agreement – your web-site advises not to sign anything!

I would be really grateful if you could let me have your thoughts on the above. I will challenge all of the above anyway, but any advice received from yourself would be very gratefully received.

Kind Regards


This feels like a rip-off. However, we sought the opinion of two agents in whom we have a great deal of confidence.

John Tucker from Cranbourne in Victoria.

I have no knowledge of property management law in W.A. and can only speak on how things are in Victoria. Certainly the agent’s requests seem most excessive. They may be trying to take advantage of an interstate client who they don’t expect to know any better, however it is possible that this is the norm in Western Australia.

If I was Joy, I would most certainly be getting a second and third opinion from other independent agents in W.A.

Paragraph 1. Exclusive Agreement.

I cannot imagine why they would be requesting a 2 year agreement when the initial lease period is only for 12 months.

In Vic. exclusive agreements are for the lease of the property and once a tenant is found, the landlords can cancel the agreement and manage the property themselves without penalty – in our office at least.
To my knowledge, there are no liquidated damages applicable to management agreements in Victoria. The conditions seem extreme and I would be surprised if they were enforceable at law.

Paragraph 2. Indemnity.

I think that this is a fairly standard requirement these days due to insurance companies requirements. It applies to all Victorian agreements.

Paragraph 3. Management Fees.

We charge a fee of 8% of the rent collected which is actually on the high side of fees in Vic.

Some agencies who are nothing more than rent collectors, charge as low as 5% and the norm seems to be around 7% in this State.

In Vic. all other costs are included in our management fees except bank fees (BAD) and GST although this may vary from office to office. Some offices charge a lower collection fee but charge a statement fee to cover postage, etc. Overall the charges of the WA office seem very high. We don’t charge for maintenance inspections, annual summaries for tax purposes or postage or statement fees as these are all inclusive in our 8% management fee.

Paragraph 4. Extra Fees.

In Vic. our letting fee is the first 1.5 weeks rent or 3% of the annual rent collected and this seems fairly typical of what other Vic. agents charge. This fee is only charged on the first lease with a $50 charge for renewal of the lease. The letting fee is pro-rated if the lease if broken mid term. Enquiries to NTD (National Tenancy Data Base) are charged to the Landlord at the net amount of $12. We do not charge for advertising a property. I suspect that the agent in WA. may be loading a profit margin into some of these charges??

Landlords need to sign an agreement with the agent before the property can be let for them, however our office has a cancellation guarantee if the Landlord is not happy with our service at any time. Not all agents offer this service.

Joy doesn’t mention whether the property is a holiday type of property, although with a 12 month tenant, this would be most unlikely. The only reason that I say this, is that in holiday letting situations, managing agents in Vic. have been known to charge much higher fees than I have mentioned above for normal management situations.

I was also a little puzzled when she mentioned that she already had a tenant for the property. Strange if the agent has found a tenant without having an authority signed?? And if Joy has found the tenant then what on earth is the agent charging her for. Just a thought.

Hope this information is of some benefit. Certainly my advice to Joy would be DON’T SIGN ANYTHING until she has made a number of other investigations as to the bona fides of this agent.

John Tucker, Cranbourne, Victoria.


Sam Pennisi from Essendon in Victoria.

My initial reaction to Joy’s email is that what she has had put to her is no way reasonable.

I do not know what is normal for the West Australian market. I will comment on the points Joy raised by comparing them to what we do (or would do) in the same circumstances.

Paragraph 1. Exclusive Agreement.

We do not sign anyone up on an exclusive Managing agreement. We do, however use an exclusive Leasing agreement but this is for 30 days only.

I feel that the Agreement Joy is being asked to sign is unreasonable in that it is too long and there should be no penalty. We never impose a penalty if one of our clients wishes to terminate an agreement with us. I would advise Joy not to agree to these terms.

Paragraph 2. Indemnity.

Again I believe that this is unreasonable and I would advise Joy not to agree to this. It is far more severe than the conditions in Victoria.

Paragraph 3. Management Fees.

The fee of 9.5% is high when compared to Victoria where it is normally 7%.

I am aware that WA has always had a higher fee structure but my understanding was that it was 8 or 8.5%. I believe Routine Inspections and Annual Statements should be included in the Management Fee (that’s what we do).

However we do charge a Statement Fee of $3 per statement issued (usually one per month as all our rentals are paid monthly in advance). This covers all incidentals such as postage, faxes etc.

Paragraph 4. Extra Fees.

It is normal with rentals that the Landlord pays for the cost of advertising in addition to the letting fee (but only if the cost is actually spent). I have never heard of a “tenant enquiry fee” and would not pay it. Most agents do charge a fee to renew a lease and $55 seems to be about right.

I know you would agree that Joy should not sign anything unless she is satisfied that she is safe in doing so. My advise to Joy is to seek a proposal from two other reputable agents in her area and compare costs and conditions.

I hope this is of some help, Neil. Please let me know if I can assist further.

Sam Pennisi, Essendon, Victoria.

Notice: Pennisi Real Estate manage an investment property on behalf of Neil Jenman.

If you wish to send a question or comment to Neil Jenman you are most welcome. Neil tries to read every e-mail and respond personally. We have posted some of the common questions together with those we feel may help you. Thank you for your interest.
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