Don’t let your letting appointments let you down!

27 September 2021

It is rare that a week goes by that I am not asked to look at a letting appointment – whether that be to check a sample for a client whose accountant is conducting an income verification review, a client who is sensibly having the pro formal appointment updated or acting as a type of adjudicator to resolve an argument between a seller’s accountant and a buyer’s accountant in a transaction where I am not acting for either party.

Given the importance of letting appointments in the overall context of a management rights business I am often surprised at the nonchalant or careless approach some managers take towards their letting appointments.

Some of the problems I have recently seen include the wrong name of the actual letting agent, the wrong licensee, dates missing, signatures missing and in a recent example the letting agent had ticked the service as “Sales” rather than lettings!

Fortunately, as a result of a Court of Appeal decision, a POA form 6 letting appointment will not be invalid just because the wrong version of the form was used at the time it was entered into. That is important because there is no “phasing in” period for updated versions of the form 6 which become obsolete as soon as a new version commences, unlike PAMD forms 20a where superseded versions of the form could be used for up to 3 months after they were replaced. Provided the version of the Form 6 actually used is substantially in accordance with the current version, then that will be sufficient compliance. Having said that, all managers are encouraged to download and use the current version (which at the time of writing this article has been current since August 2016).

Managers are often confused about the trading name and the licensee name in part 2. The trading name is your registered business name (if in fact you have one – such as Moonlight Shores Management). If you do not have a registered business name but operate as a company, you may insert the company name. It would never be your personal name/s unless that is also your business name which would be most unusual.

The Licensee name is the name of the licensed company or person/s being appointed the letting agent. If your company is the letting agent the licensee name is the company’s name – it is not the licensed director’s or licensed person in charge’s name. If you are the letting agent personally, then the licensee name is your personal name/s.

Make sure that in part 4, section 2 you select “continuing appointment” and complete the start date. In part 4 section 3, for permanent rentals make sure you state the asking rent, or more appropriately, the range of acceptable rents. If a holiday or short term letting, state something like: “In accordance with attached tariff sheets as varied from time to time and as varied for market conditions” and make sure that you attach to the form 6 a copy of the current tariff details.

Part 4, section 4 (Instructions/conditions) must be completed or, as ruled by one court already, the appointment is invalid. I will assume that you are using one of the industry forms which have an addendum or special conditions attached. That being so add in this section words such as “Refer to attached addendum”.

In the commission section the wording would be something like “5.5% of rent collected plus letting fee and relet fee described in addendum” for permanent rentals. In the following commission payable section I like to see the words “When rent payments are made to client”.

Pay particular attention to part 8, section 1 which relates to expenses you may incur on behalf of owners, not fees and charges you might impose. There is a critically important difference. If an item (such as advertising) is shown as an expense you can only retain the actual expense you incurred and cannot retain any amount above that for your time and effort. It would be appropriate to use words such as “Refer to any such items in attached addendum shown as expenses” here. There should again be reference to the addendum or schedule of fees and charges in section 3 of this part.

Be careful to give details of any benefit you might receive personally in part 8, section 4 eg credit card reward points or commission on insurances you might arrange.

The various industry forms have different special conditions or addendums and special care should be taken in completing these. My preference is the ARAMA addendum as it is relatively simple to understand and to complete. Importantly it has some very carefully worded conditions dealing with the agent’s entitlement to make a profit from providing certain services to an owner or guests.

If you offer holiday lettings or short term lettings you may need to include what are commonly referred to as the “forced sale provisions” in accordance with the managed investment provisions of the Corporations Act. If at all unsure, check with your lawyer to see if they are required – it is critical that they be included if they apply to your complex.

Whilst the completion and maintenance of up to date letting appointments may seem a mundane and unexciting task, do not underestimate the importance of doing this. One day you will want to sell and any well advised buyer’s accountant will be looking closely at your appointments. Of course you might also face a visit from the OFT doing a random check on your appointments. Be prepared and get it right the first time.