Justifying the Lease Renewal Fee (Part Two)

Tuesday, December 05, 2023

Please ensure that you read part one of this article first for steps one and two so that you can more easily understand steps three and four.

Leading on from our last article in part one, we explored the cost that CAN and CANNOT be charged onto a tenant, depending on if they are locked into a fixed-term lease, or are in fact on a non-fixed lease.

The claim against a tenant with on-charging the letting fee and marketing costs (part or full) PLUS any lost rent can easily exceed $1000.

Therefore if your lease renewal fee was 0.55 weeks rent or 1.1 weeks rent, you can see how your fee is actually justified and of much better value, than if the landlord had to wear a new letting fee, marketing costs (and other costs as well, depending on what state legislation you must follow) and another vacancy period they would expect if the tenant gave notice on a non-fixed term lease.

Simply, if it costs them $150 or $300 for a lease renewal fee, it is much better value than paying over $1000 in re-letting and marketing costs and lost rent!

You just need to show that your fee cost is far lower than a potential financial loss for not having the lease renewed, to ‘justify’ it and make it worthwhile.

Step Three: Understanding what you can charge

In the Australian fee marketplace, it is very well accepted that if your letting fee is 2.2 weeks rent (inc. GST), then an acceptable fee is 1.1 weeks rent (inc GST) to renew a fixed-term lease.

If the letting fee is 1.1-weeks rent, then it is quite acceptable to charge 0.55-weeks rent (inc GST).

Your office may not do this but instead charges nothing because your competitors don’t, or charges a small fee like $33 to $110 or similar.

I firmly believe those offices that charge so little do so because they consider the amount of work involved to create a lease renewal, and charge accordingly.

However, I implore those that think this way, that landlords really don’t care how much time it takes you to do it!

They are only interested in the benefit to them!

With what I have outlined in steps one and two, you can see that financially a landlord stands to lose a significant sum of money, possibly in the thousands of dollars, should their tenant leave or default in rent on a non-fixed term lease.

Step Four: Know what to say and how to respond to objections

Now we have laid the foundation, and (for example) you have decided to charge 1.1-week rent for a lease renewal fee, and a prospective or current landlord challenges you on this fee with a response such as:

“But the agent down the road doesn’t charge a lease renewal fee (or they only charge a fee of $X)” we can then be confident of a response, as suggested below:

“Thanks for bringing that up Mr. Smith, and we do get asked this from time to time. However, when we get properties transferred from another agency that doesn’t charge a lease renewal fee (or only charges a small fee for this service), when we get the file, we always find that the lease hasn’t actually been renewed, and has fallen onto a non-fixed term basis.

With this in mind, Mr. Smith do you understand the potential financial benefits and costs associated with a tenant on a fixed term, or non-fixed term when it comes to them vacating unexpectedly or defaulting in their rent?”

From that point, you would explain the costs involved that a landlord can claim, and cannot claim (or that they stand to lose), as specified in steps one and two.

The unbeatable formula to get better fees

Quality agents everywhere are enjoying a quality lease renewal fee of 0.55-weeks rent right up to 2.2 weeks rent, just to renew a fixed-term lease!

And this is when they are surrounded by agents that charge nothing, or $100 or less!

Adding or improving any fee, to do so you simply need to follow this easy formula:

1. Believe (know) that you are worth it!

2. Know how to justify your fee to your client!

Once you have these two simple elements in place, there is no stopping you!

All the best!


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