It’s not common, but also not that rare, to be involved in a conversation with a potential landlord who does not want to pay a renewal commission if the tenant an agent procured wants to stay on after the initial lease term has expired.

One of the explanations I have heard or been given personally is that “they haven’t had to pay that before with a previous agent.”

It is hard to comment as to why that would have been the case, other than perhaps the previous agent didn’t take rentals seriously.

However, I can give you good reasons why a good rental agency should charge their renewal commission and be entitled to them.

Firstly, from a legal standpoint, the agent has procured a tenant, introduced them to the property via their marketing or network, and should be paid for the work initially and then again if the same tenant, who de facto was a good quality tenant, wanted to stay on for a further term.

The alternative is that the tenant moves out and then the whole process must start again with the risk of a landlord facing a dreaded void period.

If that void period can be nullified by the tenant renewing, which comes with a much lower level of stress, then the agent, in my opinion, should be remunerated for placing a quality tenant into the property in the first place.

Another perspective to consider is if an agent finds a tenant for 24 months, there are no complaints from any landlord to pay commission for two years, yet if an agent finds a tenant for 12 months, who then renews for a further 12 months, some landlords complain about the renewal commission.

In any logical and rational world, a landlord who is more than happy to pay commission for 24 months but has difficulty paying for 24 months if split into two equal 12 months periods, seems irrational to me.

What I find equally baffling with that mindset is that a renewal commission comes at a lower rate than the initial term, typically 2% less.

In effect the landlord is actually paying less if a tenant renews as opposed to the full commission if they sign for longer on day one or if the agency has to find a new tenant.

In this regard there is also logic. Agents recognise they have put in less time and spend when a tenant renews as opposed to finding a brand-new tenant, so are more than happy to charge a lower amount for year two and then a potential further reduction for year three.

It’s a win-win situation all round, financially and emotionally, for all parties.

My last point to a landlord who still insists on not paying a renewal commission, thinking they are getting the win, is the unintended consequence of that action.

An agent who knows they are not up for a renewal payment, essentially unfairly being starved of an income, could now be forced and encouraged to suggest to the originally placed tenant to move out to another property at the end of first term.

The agent would then place them, earn a commission on that rental and then fill the original property with a new tenant, whereby the landlord will happily pay the full commission again.
This is a loss for the landlord and makes no sense. Any agent I know would rather take the lower renewal commission and move on.

My concluding advice with any landlord who has this mindset is to partner with your agent, work in synergy, and look for the win-win.

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