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The identity parade

Questionable tenants imageLetting agents and landlords are regularly – but almost always unfairly – described as ‘rogues’ – overcharging tenants for their services and failing in their responsibilities to boot. Little though, is said about rogue tenants, sub-letters, fraudulent applicants and illegal immigrants who use every trick in the book to get the keys to one of your properties.

With the letting agent’s responsibilities laying with looking after their landlords’ interests and new pressures brought by responsibilities under the Right to Rent legislation, how crucial is it to get this element of your business absolutely right?

Andy Halstead imageAndy Halstead, Chief Executive. Let Alliance, says, “Reliable tenants provide a better return for landlords and enhance the reputation of a letting agents’ business. With the decline in social housing stock and difficulty in obtaining a mortgage without a substantial deposit, tenant demand has never been so strong.

“Fraud at the point of tenant application is increasing and it is crucial that landlords only allow genuine tenants with the means to pay the rent, to occupy their investment property. When things go wrong it is invariably very expensive for the landlord. For the letting agent, tenants who fail to pay the rent or breach the tenancy agreement damage their businesses reputation, they lose out on fee income and lose landlord customers.”

So just how far do you have to go to be confident that you have done your best to ensure the tenant you have introduced is a good one?

The first stage is to be fully aware of the potential problems that can arise and what protection is available. Even agents who have ‘never’ had a problem tenant need to appreciate that the issues are probably increasing, rather than decreasing.

The good news is that we have a selection of excellent options for agents to choose from, in terms of information, checking and insuring against potential problems, so it isn’t too arduous to fulfil your obligations to your clients.

HomeLet, Let Alliance, Rentguard, Endsleigh, Towergate, Blinc and Direct Line are just some of the leading and experienced providers of referencing and insurance services.

UNDERSTAND THE ISSUES

Endsleigh Insurance recently published a survey of 500 landlords and 1000 tenants that found that almost half of landlords (47 per cent) believe that the Government is not doing enough to protect landlords, saying that the Government favours tenants, with almost a fifth (17 per cent) of those surveyed feeling that current rental contracts do not adequately protect them from issues with their tenants.

Just 50 per cent of landlords are happy with their tenants while 80 per cent of tenants are happy with their landlords – and poor tenants and damages ranked as the landlords’ biggest concern.

That concern is understandable, even though the overwhelming majority of tenants are looking for a rented property as their home; but there are some tenants who have no intention at all of paying their rent, or fall into arrears and become consistently late payers through a variety of circumstances, sometimes not within their control (redundancy etc.).

Paying the rent is only one potential issue. Sub-letting on an industrial scale is relatively new while the well established misuse of property in creating cannabis farms continues and the even more worrying issue of drug manufacture and distribution combine to make one wonder why anyone would ever buy property to let.

The latest concern is possibly the airbnb game, where a tenant rents a property but lets it through online ‘vacation’ sites for significantly more than they are paying in rent, leading to complaints from neighbours about endless unknown occupants and damage to the landlord’s property.

THE DEFRAUDED LANDLORD

In a recent case reported in The Telegraph, Richard Johnstone, 63, a professional landlord, who lives in Cumbria, only found out that his tenants had been subletting his property in Newham, London, through flatsharing websites after he had asked them to leave.

He arrived one morning to find a group of people who had been promised they could stay in the house – each of whom had been defrauded of £1,500 – and his real tenants absent.

When he tried to go into the property, he found that glue had been put in the locks, there was extensive damage inside, and one of the tenants had been selling drugs from a shed in the garden. Restoring the property to a habitable standard cost him £7,000.

Mr Johnstone said, “Short-term letting websites are a disaster for landlords. Often my tenants weren’t even in the property when they were subletting it.

“There should be checks on who owns a property when it’s put on these sites. These people were being lied to by my tenants, who said they owned the property.”

To provide some protection when tenants sublet, agents and landlords should make sure there is a clause in their contract, either compelling a tenant to tell them if they want to use Airbnb or other such sites, or preventing them from doing it at all.

If the contract doesn’t say anything about subletting or sharing, the landlord can be held responsible for whatever the tenant does, including antisocial behaviour, injuries or breakages and invalidating the mortgage – which is possibly the most serious issue.

Experienced agents will say that they can tell a “good ‘un from a ‘wrong ’un” but that undoubted skill won’t stand up in court if a landlord sues you… with increasing pressure from tenancy fraud, when it does happen a landlord is bound to feel aggrieved and will usually try to place the blame squarely at the feet of the agent.

Referencing is the most powerful tool. HomeLet and other reputable referencing companies process very large numbers of reference checks and, over time, have learned to identify inconsistencies and unusual responses to the various checks they perform which increases the probability of identifying fraudulent applications. A comprehensive reference check increases the probability that such erroneous applications will be discovered before a tenancy is granted.

WHAT CONSTITUTES A GOOD REFERENCE?

Martin Totty image“The real objective is to help secure the right tenancy for the right tenant. The more comprehensive the level of background check, the more likely you are to secure the right tenant,” says Martin Totty at HomeLet.

The real objective is to secure the right tenancy for the right tenant. The more comprehensive the level of checking, the more likely you are to do that. Martin Totty, HomeLet.

He adds that the “basic requirements include a check of the potential tenant’s credit profile, ability to pay the rent, history of any rental defaults and proof of earnings. In addition, some agents choose to conduct an even more in-depth check, which could involve a review of the tenant’s bank statements to be confident the tenant can afford the rental commitment.”

KEY THINGS TO CHECK:

Right to Rent – this recently introduced legislation makes landlords and letting agents responsible for checking the residency status of prospective tenants in England;

Affordability – the tenant should be able to afford the rent for the duration of the tenancy – and if they can’t, a guarantor should be requested;

History of defaulting – a previous default is an important risk factor in assessing a new tenancy application but this is hard to check as there are no public records. HomeLet referencing includes a check of its HomeLet Default Database, which is unique data on defaulting tenants.

Tenancy Agreement imageHowever, timescales are often tight when landlords want to get tenants in and the rent flowing and corners can be cut to do that, but Andy Halstead says it doesn’t have to take long, “At Let Alliance we take an intelligent approach to our referencing. Our aim is to complete all Ultimate references within 48 hours – by treating each person being referenced as an individual we can take account of their particular circumstances, when required.

“It doesn’t matter if there is one occupier or four sharers, our aim is the same. With today’s stringent regulation if we’re checking right-to-rent, for example, it will take longer but our referencing team is always chasing outstanding requirements to get the completed references back to letting agents in the quickest possible time. Whilst speed is often important, the quality of the reference is never compromised. Landlords should always use the services of a professional letting agent.”

BELT AND BRACES

Rent Protection products linked to comprehensive referencing provide further protection for the agent and landlord but of course, such products afford protection only when ‘something has gone wrong’ and it’s better to do everything possible to prevent that occurrence in the first place.

However, can the agent convince his landlord that a full reference guarantees that the tenant will not default on rents?

“No;” says Andy. “It is impossible to reference the future. Life happens and even the best tenants can fall ill, get divorced or lose their job. Life changing circumstances can result in the tenant being unable to pay the rent.

“Every tenancy in the UK should be protected by Rent Guarantee & Legal Insurance. For a relatively nominal cost, landlords can guarantee their rents and cover all legal costs when seeking vacant possession. Letting agents can protect their fee income and make sure that they retain landlord customers when things go wrong. It is bordering on the reckless to allow a substantial investment asset and yield to be placed at risk rather than purchase a nil excess rent guarantee and legal guarantee through a professional letting agent.”

CONTACTS:

blincref.com
endsleigh.co.uk
homelet.co.uk
letalliance.co.uk
rentguard.co.uk

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