Are you concerned about the loss of letting fees?

The lettings market landscape has changed immeasurably over the past couple of years. Alongside the restriction of mortgage interest tax relief on buy-to-let mortgages, the Government also recently announced its intention to ban letting agent fees charged to tenants.

These changes could seriously impact letting agents' profits over the next few years and so all agents need to think about ways to protect their business and their revenues.

Of course, ValPal is designed to help you to generate more landlord leads from your existing website traffic.

If you're being employed by more landlords with help from ValPal, there are ways in which you can protect your profits without having to charge higher management fees.

The Primary Tenancy™ is the name given to what is essentially a ‘profit rent’ business model, which works alongside conventional agency to produce enhanced benefits for agents, landlords and tenants.

The key difference in the case of the Primary Tenancy™ is that the agent leases the property from the landlord and re-rents it at a profit to the tenant.

This fundamentally changes the legal relationship between all parties, as well as the tax treatment of the profit rent charged by the agent.

The Primary Tenancy™ business model is simply more effective than the established model in two simple, but crucial ways.

1. It’s a safer, better service for the landlord.

2. It’s significantly more profitable for the agent.

Compared like for like with conventional agency, there is a significant improvement to the Primary Tenancy™ agent’s profitability. This improved profitability comes from the different way profit rent is treated compared to a commission or fee from a VAT point of view.

Put simply, there is no VAT payable on profit rent, which means that whereas a fee of 10% plus VAT at 20% would cost a landlord 12%, a Primary Tenancy™ agent who charged a profit rent of 12% would not have any VAT to pay.

The Primary Tenancy™ agent would not benefit from the whole 20% in this example because they would not be able to reclaim VAT on their expenses on the proportion of their business done using the Primary Tenancy™.

There is, however, a considerable net advantage, which has been calculated at approximately 14%, more than many agents’ total gross profit!

In addition to the VAT difference, the Primary Tenancy™ agent also benefits from being able to charge for a rent guarantee as an additional profit rent with the same inherent advantages.

With a conventional agency agreement, the tenant knows the landlord’s contact details and can therefore pass them on to another agent if they want to. With a Primary Tenancy™ you are their landlord, so you are protected from this type of touting.

There has already been a high profile court case challenging an agent’s entitlement to renewal fees and there is always talk about the danger of future regulation in this area - the ban on letting fees being a prime example.

Using the Primary Tenancy™ futureproofs your business from this threat because you are making a profit rent, not charging a fee.