Are Your Holiday Letting Charges Properly Authorised?

Recent audit investigation feedback from the Office of Fair Trading (OFT) highlights the importance of ensuring that any holiday letting charges, fees or benefits received by an agent in connection with the performance of a holiday letting service are clearly disclosed and authorised through the appropriate letting agreement documentation.

In the holiday letting industry mainly, it is common practice for agents to charge guests additional fees such as booking fees, processing fees, guest hampers, guest cleaning fees, administration fees, internet charges or credit card surcharges. However, a critical compliance question often overlooked is: are you properly authorised to charge and retain those fees?

Understanding the OFT’s Position

The OFT has confirmed its view that where an agent receives a booking processing fee that constitutes a benefit connected with the performance of the holiday letting service, that fee should be disclosed in the letting agreement. Under Section 104 of the Property Occupations Act 2014, agents are required to disclose any benefit received in connection with expenses incurred, or otherwise in connection with the performance of the service they provide.

For example, if an agent charges a guest a 1.75% booking processing fee and retains that fee as consideration for arranging or processing the booking, the OFT considers this to be a benefit received by the agent in connection with the performance and service they provide. Consequently, the fee should be properly disclosed and authorised through the letting agreement with the owner.

This requirement is not limited to booking processing fees. The same principle may apply to other amounts retained by an agent where there is a benefit connected to the letting service.

Common Fees That May Require Authorisation

Many agents routinely charge fees such as:

• Booking fees or levy
• Processing fees
• Internet fees
• Guest Hamper Packs
• Amenities charge
• Guest Cleaning fees
• Credit card surcharges
• Resort or service fees
• Cancellation Fees charged to guests

Where an agent receives a financial benefit from these charges, it is important to consider whether that benefit has been fully disclosed and authorised in your agreements signed with the owners.

An agent’s ability to charge a guest does not automatically mean they have authority to retain the funds of that charge. The authority to do so should be clearly disclosed in the agreement signed with the owners.

Understanding Whose Money It Is

A point that is often misunderstood from a trust accounting perspective is that money received from a guest does not automatically become the agency’s money simply because the agent has charged the fee.

When a guest pays for accommodation, booking fees, cleaning fees, or other charges and those funds are deposited into the trust account, those monies are generally received on behalf of the owner and must be accounted for accordingly. In other words, the starting position is that the funds are owner monies held in trust. The authority for an agent to deduct and retain commissions, fees, or other benefits comes from the letting agreement documentation, typically the Form 6, together with the addendum and schedule of charges that forms part of the appointment and authorises you to deduct your appropriate charges.

Without clear authority, an agent may find it difficult to justify why they have retained part of the funds received from a booking.

The Importance of Disclosure

Failure to disclose fees that benefit the agency can expose the business to potential breaches of legislative disclosure requirements and may lead to disputes with owners who were unaware of, or did not authorise, the agent to retain those fees.

Questions You Should be Asking

To ensure compliance, agents should regularly review their charges and letting agreements and ask:

• Are all fees, including fees charged to guests, properly disclosed within our letting agreement?
• Do we have clear authority to retain these fees/charges, i.e. the owners have signed the agreement?

If the answer to any of these questions is uncertain, or if your agreements do not clearly disclose the fees being charged and retained, it may be time to review your agreements to ensure the appropriate authority is in place. We recommend discussing with your industry accountant or auditor if you are uncertain.

If you believe you are charging fees that may not be properly disclosed, it can be as simple as including a clearly worded clause within an addendum, or schedule of charges that advises the owner of the fee and confirms the agent’s entitlement to retain it and getting the owners to sign the new agreement. For example, the agreement may state that a 1.75% booking processing fee is charged to guests and retained by the agent, or that internet charges or guest hampers collected from guests will be deducted from the accommodation before distribution to the owner. The key is that the fee is clearly disclosed, transparent, and agreed to by the owner.

Conclusion

The OFT’s position serves as an important reminder that agencies should not only focus on what fees they charge, but also whether they have the authority to charge and retain them. Where a booking fee, processing fee, internet charge, cleaning fee, or any other amount provides a benefit to the agency, that benefit should be clearly disclosed and authorised through the appropriate signed letting agreement documentation with the owner.

Whether it’s a booking fee, processing fee, internet charge, guest hamper packs, cleaning fee or any other amount that benefits the agent, the safest approach is to make sure it’s clearly disclosed in your letting agreements. After all, money received from guests and deposited into the trust account is generally owner money first, and it’s the Form 6, addendum and schedule of charges that give you the authority to deduct your commissions and other agreed fees.

Taking the time to review your agreements now could help avoid compliance issues down the track and reduce the risk of disputes with owners about fees that have been charged and retained by the agent without proper authorisation.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.

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Accommodation & Management Rights Enquiries
Phone: (07) 5430 7666 or email accom@holmans.com.au