Rental agencies across South Africa could be leaving tens of thousands of Rands per month on the table because of a common misunderstanding of the law, according to PayProp’s latest State of the Rental Industry report.
PayProp’s annual industry survey results, published last month, revealed that more than half of residential rental professionals either mistakenly believe it’s illegal to charge tenants a monthly administration fee to cover the costs of managing their tenancy or aren’t sure if they can.
In truth, it’s completely legal to charge a fee as long as it is included in the lease.
How much are agencies making from admin fees?
Tenant admin fees are usually quite low. The most common amount charged by our respondents was R100 per month, and 45.5% of respondents charged even less. However, some agencies have been able to set higher fees: 10.9% of respondents charged R500 or more per month.
As these fees are quite small (compared to an average monthly rent of R8 598 in Q4 2023) they can help agencies cover their costs without putting undue financial pressure on the tenant. It also gives agents a way to increase revenues without increasing costs for landlords. Even so, 51.1% of respondents said they had reduced commission to keep a landlord as a client in 2023.
The relatively meagre recurring income from admin fees compares surprisingly well to other common revenue streams. The most frequently reported inspection fee amount was R500 for both incoming and outgoing inspections, potentially making agencies R1 000 on a year-long tenancy – compared to R1 200 from a R100 admin fee on the same tenancy. The most common initial lease fee was also R1 000.
Choosing the right fee structure for your rental agency depends on your local competition, the tenants and landlords you work with, your other revenue sources, and more. All the same, agencies should be aware of monthly admin fees as a legal and useful way to diversify their income streams.
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