BLOG: The sale of OpenRent – a watershed moment

The sale of OpenRent to CVC was a watershed moment for the letting industry. It proves that there is still a huge amount of confidence in the long-term future of the UK letting market. However some letting businesses are in much more demand than others.

The Renters Rights Act has had a significant impact on letting agents, and there have been winners and losers. OpenRent has been one of the winners.

A lot of agents used to earn most of their income from introduction only contracts. The new regulations have made it much more difficult for agents to operate on this basis because the risk of them being fined for a mistake that a let-only landlord has made without their knowledge has increased significantly.

As a consequence, a lot of letting agents now refuse to deal with landlords on an introduction only basis. This has driven many of these landlords into the arms of OpenRent and the other online agents.

OpenRent has also benefited from an influx of landlords who used to let and manage their own properties.  Many of these landlords are now too frightened of a compliance fine to handle the complex paperwork necessary to comply with the new regulations. A portal that ensures that they let their property in a compliant way is an attractive option for them.

Who are the winners and losers?

However, many traditional letting agents have also benefitted from the introduction of the Renters Rights Act (RRA). The well run letting agents spent many months preparing for the introduction of the RRA and most of them now see it as an opportunity, not a threat.

Many…have also been able to increase their fees to reflect the extra legal and compliance work.”

They have already benefited from significant numbers of their landlords switching from introduction only contracts to managed contracts because they are too frightened of being fined over a maintenance issue. They have also seen an influx of landlords who used to manage their own property but now too frightened to continue to do so. Many of them have also been able to increase their fees to reflect the extra legal and compliance work that the RRA requires them to do.

Another very significant change is that letting agents are beginning to move from a reactive approach to repairs to a proactive one. In other words, they are re-inventing themselves as asset managers not just letting agents.

For example, when a tenant gives notice they might carry out a comprehensive inspection of the property and recommend that the landlord should fit a new kitchen and bathroom. The cost might be £5,000. However if this were to enable the rent to be increased by £1,000 per year, this would give the landlord a return on capital of 20%.

This sort of proactive approach will improve the lives of landlords, tenants and agents by providing better quality homes, longer term relationships, more stable future income and higher returns for both the landlord and the letting agent.

Two-tier structure

What we are now moving towards is a two tier letting agency: a heavily automated service for landlords who want to pay the lowest possible fees and a greatly enhanced service for landlords who want to achieve the maximum rental returns.

Adam Walker is a business sales broker who has specialised in the property sector for more than 35 years.