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Property Hawk

Rent to Rent is Immoral

‘Rent to rent’ sometimes known as rent2rent is the latest get quick scheme dreamt up by the property ‘fast buck’ merchants. 

What is Rent to Rent? 

Well, ostensibly it involves predator like behaviour from opportunist tenants, who rent a property that they then let out as an HMO,  letting out the individual rooms separately. This tenant then makes a profit by drawing in a larger rent from the multiple tenants than the rent they are paying out to their unsuspecting landlord.

Opportunists or vultures?

The ‘rent to rent’ exponents claim that their behaviour is entirely legal and is purely exploiting an opportunity presented by lazy landlords who have failed to see the opportunity of multiple lets in their property to maximise their rental returns.

As a landlord who has both let properties on a room by room basis and now chooses to let the entire rental property; I can tell you that this is rubbish!  Firstly, any landlord knows that if they have a large house and fill it with a load of professional tenants or students renting separate rooms then they will generate more rental revenue. However, experienced landlords also know that the hassle factor of having half a dozen footloose tenants renting a large house instead of one family is much greater.  The turnover of the individual tenants is likely to be much higher.  This generates higher advertising and marketing costs for a landlord.

But the main thing is that a house of six is going to result in a much greater ‘wear and tear ‘on the rental property and its interior, resulting in a more intensive refurbishment and repair regime. On top of this there will be greater demands on toilets, showers, kitchens, which could possibly require a significant amount of capital expenditure to make the buildings suitable for multiple occupation.  This is not withstanding the fact that the fire safety requirements for a HMO are far greater than for a single let in the same property.  Not only that, HMOs are subject to a different regulatory regime where the landlord is required to obtain a licence from the Local  Authority.

Rent to rent – immoral & illegal?

At the heart of ‘rent to rent’  is how many landlords are actually aware of what their tenants are up to.  I suspect very few.  Most Assured Shorthold Tenancy Agreements specifically exclude sub-letting without express consent.  This includes Property Hawks own Free AST which states in Para 3.10 that:

“ The Tenant hereby agrees with the Landlord as follows:-
3.10 Not to sublet or part with possession of the property.”

Some ‘rent to rent’ ‘experts’ suggest that you can let to high end corporate clients, others are a little bit more down market with their aspirations looking to let property to LHA recipients.  Either way they seek to gain control of a landlords’ property often misleading both the landlord and their tenants about the true validity and legality of the situation.

This makes most protagonists of ‘rent to rent’ not only immoral in that they are misleading their landlord, but also illegal, flying in the face of their tenancy agreement.

Is ‘rent to rent’ illegal?

The short answer is probably and almost certainly so.  It potentially invalidates the landlord insurance.

An industry expert points out that it is vital that landlord insurance also represents the risk. HMOs are generally not covered on a standard landlord policy which would more than likely lead to any claims being declined. Many insurance companies will also insist on an AST between the landlord and tenants/occupants and the insurance will also specify that there is no subletting. The long and the short of it is anything outside of the “normal” process of letting a property could invalid your insurance, now imagine you have a claim for a fire and your insurance is invalid, maybe that guaranteed rent wasn’t such a good idea.

In addition it is ultimately likely to be against the conditions of a landlord's buy-to-let mortgage, which means in theory the buy-to-let lender could call in the loan. Resulting in the forced sale of the landlord's property.  The essence of whether 'rent to rent' is illegal is whether the agreement between the parties is legal.  One legal expert recently commented that the agreements that he had come across varied from 2 to 10 years.  Most are poorly drafted and if they are not drafted as a commercial lease then there are real doubts about their legality.  Those rent to rent agreement that just grant licences to the subsequent occupants will not be worth the paper they are written on for the tenants.

Landlords safeguarding themselves against ‘rent to rent.’

There are obviously some properties that are more at risk of appealing to these scammers. Larger properties in metropolitan areas are obviously their main target.  These houses are ripe for sub-letting on a room by room basis.  The best way for a landlord to safeguard against this happening to their rental property is to ensure a regular inspection regime of your rental property.  This is always good practice, whatever property you are letting out.

‘Rent-to-rent’ promoters

As is usual with these property get rich schemes.  The media space very rapidly becomes full of those scammers who are desperate to tell you how they made a fortune, and can now charge you a small fortune to share the benefit of their ‘experience.’  What they never explain clearly is that if they are making such a fortune why are they so keen / desperate to tell the world about their scheme. 

I suspect that neither is it as profitable or they are as successful as they try and make out!

The Guardians take on ‘rent to rent’

Do you have a view on ‘rent to rent’? 

Have you been affected by it? 

Please post your comments below.

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Comments (6)

Rent to rent
I personally don't see it as such a huge issue...it goes on all the time to be honest. Much of it, just renting one room extra, so a rental of a three bed to 2 people for instance, or possibly where one tenant goes abroad, that room may be rented out by them during the period of absence.
I thought I'd seen something about the government making it easier for tenants to sublet....
#1 - Har hari - 09/16/2016 - 20:06
Rent to rent vultures
It's a serious issue. If a tenant does this then they are invalidating the landlord's insurance. I had it happen to me where my house was let to a group of four tenants supposedly. None of the tenants who signed the original lease were living there when I came over to inspect a year later, there were 7 tenants sharing, the place was an absolute pit which cost me £8000 to reinstate. I later heard from the neighbours that at one time there were probably at least 12 tenants living there.
The point is that you have no idea who they are, what they are doing and the massive increase of wear and tear not to mention issues of health and safety fall on the owner not on the tenant "landlord" who just scarpers having made loads of cash and no doubt moves on to the next one. These are probably the worst landlords possible, because at the end of they day they are effectively unregulated. The tenants who were living there told me how bad he was as a landlord, threatening them, never fixing anything, making them find the next tenant if they moved out or else not giving them the deposit back. Basically doing everything that landlords get a bad name for.
The only answer is to frequently inspect your property which I now do, and do it on a fairly random basis. I am also thinking about installing a webcam above the front door so I can see the comings and goings of who goes in and out of the house. That way it's not an invasion of their privacy but if I see extra people in and out every day that would make me suspect something.
#2 - Fran - 09/16/2016 - 21:07
And what about the right to rent laws....landlords have a duty to check everyone and know who is living in their property
#3 - Chris - 09/16/2016 - 21:15
Wow!
I'm so amazed with this biased article. I myself don't do Rent to Rent and will most likely never do but I did receive training on it.

To simply cal EVERYONE doing R2R a vulture, immoral and opportunities is again typical for an article where only one side is explaine.

We have been trained and some of the things they train you on is to make sure you are level with the owner, they must check with their insurance if they are OK letting to multiple families, they or the investor must check with the lender if they are happy. The investor should bring the property up to HMO regulations, who pays for that depends on the agreement.

I know investors doing this scheme and being very upfront with the landlords. Most of the time those landlord are tired of running their buy to let and are happy for other to take management as long as they are paid a certain income (so they keep the property for capital gain).

As a member of Property Hawk, using the software I'm very disappointed in this one way view. If you really call yourself landlords you should be aware that some people actually are honest and that NOT all landlords out there actually know about HMO.

Sure there are vultures out there, ruining the business for those who really want to help tired landlords, but there are just as many vultures out there renting family lets that are completely out of regulations.

There will always be people misusing something for there own greater benefit. But there will always be those who actually care and help. Unfortunately you only see the first ones.

Marcel
#4 - Marcel Daems - 09/17/2016 - 11:16
Rent to Rent
I think this article was very fair as it was spotlighting Landlords who do not rent their homes out to Multiple occupants, but a reasonable number of friends as tenants, and who do not have 'agreements' in place for rent to rent, but who find they can be victem of Rent to Rent. My husband & I own a property that we have let over a number of years to some Chinese students (3 bedroom house with maximum of 3 students) the last Tenant (lets call her Sami..not her real name)about 2 years ago seemed to take over responsibility of introducing a new student, when a previous one left (without our knowledge) the house has been kept clean, the entire rent was paid by her on time and my husband makes regular 3 monthly visits to inspect the property. Although concerned at the loss of individual tenants, as these had been replaced by new ones and until May, we were given the new details when requested, we werent too worried. Having visited the property today (unannounced to check the gardener had done their job) it turns out there are now 5 new tenants living in our 3 bedroom house. Sami no longer lives there, but has her own website where she has been able to procure these new tenants, who she has issued with individual tenancy agreements of her own !. We are now faced possibly with a HMO, with people in it who are not named on our tenancy agreement and do not have a tenancy agreement with us at all. We now have to start unravelling this mess. So, this is not a critism of rent to rent if it is above board, honest,legally organised and benfits everyone, not underhand, and illegal as Im sure we have been subjected to.
#5 - Kathryn - 10/04/2016 - 19:22
Interesting piece ! I was enlightened by the specifics - Does someone know where I would be able to find a template Residential Lease Agreement 2 version to fill in ?
#6 - james brown - 10/30/2016 - 07:10
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