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The importance of a rental mandate

The importance of a rental mandate

19 September 2019

As a landlord, the lease your appointed agent prepares for prospective tenants is not the only document you should be scrutinising. Way before then, you should insist on a rental mandate. Paul Stevens, CEO of Just Property and Peter Mennen, Head of Legal at TPN weigh in on the importance of rental mandates.

Stevens notes that the Estate Agency Affairs Board Code of Conduct expressly states that “No estate agent shall offer, purport or attempt to offer any immovable property [for sale or] to let or negotiate in connection therewith or canvas a purchaser or lessee therefore, unless he has been given a mandate to do so by the [seller or] lessor of the property” and that “all terms of such mandate… are in writing”. 

Your relationship with your agent is hopefully going to be a long and rewarding one (so choose that agent wisely). But things can go awry, tenants can cancel leases... 

A rental mandate spells out the process you and the agent agree will be used to appoint tenants, the agreed functions and duties of the agent in administering the lease and managing your property.

Things to include: The rental you expect to achieve, the calendar date when you expect to receive rental payments and how payment for rates, repairs, legal fees etc will be handled and that you wish to receive a monthly statement of account and receipts for disbursements made. 

Note the number of annual interior and exterior inspections you’ve agreed to, how often inventory checks should be done, what you need reported after each inspection, and how much you will pay for such inspections. Include the agreed process for dealing with maintenance and repairs, the standard of workmanship you require, and set a ceiling for minor repairs that the agent can see to at their own discretion.  

The mandate should also outline steps you agree the agent will take should the tenant breach any terms of the lease. Most importantly, it should outline all commission and fees, including those outstanding after a lease expires, those payable after early termination of a lease, and the agreed commission should a tenant purchase the property. 

Finally, include the agreed use of trust or deposit accounts and interest accrued to these.

Landlords often ask why all these points can’t be included in the lease agreement instead of having a separate document. Stevens clarifies: “A lease agreement is between the landlord and the tenant; a mandate is an agreement between the agent and the landlord. As each of these are between two different contracting parties, two different agreements need to be signed.” 

It is wise to have both placement (sometimes called “procurement”) and management covered in the mandate. With the Consumer Protection Act and the Rental Housing Act applicable to leases, landlords need to be clear on what will happen in every eventuality covered by both, including when a tenant vacates the property early, as tenants often do. 

According to Mennen, “a landmark decision in 2015 saw the Rental Housing Tribunal ruling that a procurement commission may be deducted as part of an early cancellation penalty. This means that where a tenant cancels early, the landlord may recover, pro-rata, the commission for the remaining balance of the lease, which is argued as part of damages/ losses suffered by the landlord. The Tribunal further ruled that an agent is entitled to retain a portion of the deposit to be assigned towards the reasonable cancellation penalty on behalf of the landlord”. 

The Ruling confirms that the CPA applies to leases and it is the first Ruling to deal with penalties and a claim for damages relating specifically to an estate agent’s commission. This ruling could only be made because the landlord and agent had secured their relationship in the form of a signed mandate agreement.

“A well-drafted mandate protects both landlords and agents, and should be as thorough as possible in setting out the terms of the service contract. A reputable agent can guide an inexperienced landlord through this process, so do thorough research before choosing the agency you wish to deal with,'' Stevens concludes. 

 

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