LANDLORDS VETTING THEIR PROSPECTIVE TENANTS?
A landlord's ideal tenant should be:
well presented, non smoking, professional, courteous, accommodating, reliable; pay the rent on time, never bother the landlord, never complain; never have noisy parties, never sublet, never bother the neighbour and are generally no trouble whatsoever to the landlord.
The above are all desirable but above all, what landlords want in a tenant is honesty. If a landlord has an honest tenant it means that they can manage their investment property simply and effectively. It also means that landlords can sleep easier at night. Of course, other qualities are important. A tenant who tells a landlord to their face that they will never pay rent and that they have trashed your shiny new apartment is probably really not what a landlord wants either. However, in my experience with honesty there comes along the other aspects of a good tenant; prompt payment of rent, good communication, the efficient resolution of any problems relating to the tenancy.
Without getting into the realms of social philosophy, honesty cuts across social and financial divides. I have landlord friends that have let to well presented tenants in respected professions such as lawyers, only to find that at the end of the tenancy the tenant has done a ‘runner’ and the landlords investment property is left looking like a bombshell has hit it. Being lawyers, they knew every legal trick in the book about tenancy law. Unless you as a landlord are completely on top of the residential lettings legislation, then an unscrupulous tenant will be able to exploit every legal loophole going.
Again we come back to honesty as being of overriding importance for landlords rather than social background or intelligence. Having said all that; the latter is useful. Remember, frequently landlords will need to work as a team with their tenant. For instance, the boiler goes wrong. It is always beneficial that the tenant has the intelligence to describe what part is not working so that the landlord can do some initial fault finding before calling out the plumber.
I think finding the perfect tenant has certain parallels with identifying the qualities of your perfect partner. On the one hand you don’t want somebody too thick, because this would be hard work. Equally, the dynamics of the landlord tenant relationship means that if the tenant is a little less smart than you, then this immediately puts the landlord in the ‘driving seat’. This hopefully means that the tenancy will proceed smoothly and without complication.
All this said, how does a landlord spot an honest tenant? Well there used to be two schools of thought. One that said:
“I know an honest person when I see one. Getting a professional tenant reference is just a waste of money.”
Unfortunately these sentiments are no longer true for landlords. There are some very plausible tenants who make a profession out of ‘scamming’ unsuspecting landlords. These tenants are polite, well turned out, appear well educated and to have good jobs. Unfortunately once in, these ‘professional’ tenants can make a landlords’ life hell. So landlords should follow these basic steps to letting if you want to avoid being saddled with the ‘tenants from hell’.
There are five steps that landlords can take to vet a prospective tenant. The first three are essential. The others landlords may wish to undertake depending on a landlord’s time and resources. They are as follows:
1. Credit referencing.
Tenant referencing agencies are also used by letting agents. Tenant referencing agents carry out checks on the prospective tenant’s credit worthiness and authenticate the tenant’s personal details. These agencies normally offer various levels of service. Landlords should at least opt for the basic package which will check the following:
This type of financial check on tenants is available online for between £12-25 and once the enquiry form is submitted by a landlord, the results of the credit check can be e-mailed back immediately.
The most important information to come out of these credit checks is whether the prospective tenant has a County Court Judgement (CCJ). If they have a County Court Judgement (CCJ) it is bad news as it means that in the past a creditor has had to take the tenant to court because of non payment of debts. Often landlords will find that individuals are serial debtors and have a number of County Court Judgements (CCJ)’s against them. The general rule for landlords is ‘don’t touch these tenants with a barge pole’ as 99% of them will be ‘bad news’. The other essential outcome from this is that it should verify the address of the tenant. This should help a landlord to confirm the tenants’ details and any story the tenant has volunteered, giving the landlord a chance to assess the tenants’ honesty.
Often the reference agency will provide a score of the tenants’ suitability for landlords. This score comes with a suggested course of action for a landlord. For instance anything above a score of 1000 would suggest that the tenants are a low risk to a landlord. Between 1000-750 the tenant may represent a moderate risk of default. Below 750 might be associated with a warning about the suitability of the tenant and advising the landlord strongly not to let to the prospective tenant. Reasons why a prospective tenant generates a low score are the tenant has:
These credit referencing scores and reports are useful supplementary guidance but I would caution landlords about interpreting them too literally. There are some categories of tenant where this system is inappropriate. For instance student tenants will score very badly because these tenants have a limited credit history and/or they move address frequently. In these cases where it is hard to verify the credit background of the landlords’ prospective tenant or they have a low score, landlords could consider using a guarantor if they are still keen to take the tenant on. Don’t use tenant referencing in isolation; instead landlords should consider it with other sources of information to help them to build up a picture of their prospective tenants risk profile.
Finally, the tenant verification process should involve an identification (ID) check. identification (ID) fraud is becoming an increasing problem for landlords. Landlords should therefore verify that their prospective tenants are who they say they are. Landlords should get the tenant to show some identification (ID) with a photo such as a passport or European style driving licence so that the landlord can see the tenants’ name and an identifying picture.
2. Employers reference
This should simply confirm to landlords the employment status of the tenant. Is the tenant employed where they say they are? Importantly is the prospective tenant on a full time contract or is their temporary contract just about to finish? Therefore casting doubt on the tenants’ ability to pay the rent in the future. It should also give the landlord their salary details; which is useful in assessing the tenant’s ability to pay.
Landlords can calculate the tenants’ affordability of the rent in respect to their income by multiplying the monthly rent by 30. This gives landlords an indication of the minimum salary that would typically support this level of rent. For example, a monthly rent of £1000 multiplied by 30 equals £30,000. If the prospective tenants’ salary is £20,000, then the landlord should start to question how the tenant is going to afford the rent without sub-letting or receiving benefits. Whilst the outcome of this shouldn’t be taken as ‘gospel’, again it gives a useful guide to landlords.
3. Bank reference
These references are likely to be the most difficult and time consuming to obtain by landlords. In order to get one the landlord will first need written authorisation from their prospective tenant to allow the bank to respond. The bank will then charge the landlord a fee for their services; which at best is likely to be very vague. The bank will probably respond with non-committal wording such as “we see no reason why the tenant will not be able the meet the rent”. This is hardly a thumping endorsement and probably means the tenant has no money in their account. The proviso being that if the bank gives the prospective tenant a huge overdraft; in theory the tenant could pay rent for a few months. Given all the effort and time involved and that the enquiry is only about a prospective tenant, my advice to landlords would be, don’t bother.
Instead a much better solution is for landlords to simply get their prospective tenant to let them have their last 6 months bank statements. Sounds intrusive – well not really, as the landlord you are only trying to establish that the tenant can afford to pay the rent that they say they can afford. These bank statements provide an invaluable insight for landlords into the financial position of your prospective tenant. Is the tenant paid what they say they are? What are the tenants’ regular out-goings, will the tenant be able to make their rent payments. Does the tenant have any worrying habits, such as a gambling problem, which could ultimately cause the tenant to default on their rental payments. If the prospective tenant refuses, then maybe the tenant has something to hide. Most good tenants won’t even question it. All this information helps landlords to build that risk profile I talked about earlier.
4. Landlords reference
Where the applicant for the tenancy is currently living in rented accommodation it is useful for a prospective landlord to obtain a reference from their current landlord. I would suggest landlords ask the following questions:
The landlords reference, given that many landlords are private individuals is one reference that can be easily falsified by the prospective tenant. All the tenant needs to do is to give a friend’s details instead. If a landlord is suspicious or wants to make very sure, phone this referee up. The landlord should be able to tell quickly if the details are genuine.
The other things about landlord references is that if a landlord has a bad tenant, there is a big incentive for this landlord to give a misleading reference just to get rid of their bad tenant. Given that as a prospective landlord; one of the primary concerns about a tenant is will they keep up to date with their rent, this means that this type of reference is not totally reliable. It is also why getting the tenant to produce their bank account statements is such a good idea for landlords. One glance of these bank statements should show the landlord all they need to know, including verifying that the tenant is indeed paying their rent each month.
On the same topic I would draw landlords attention to the dilemma faced by many letting agents in seeking references. I recently had a letter requesting a reference for a tenant of mine. The wording of this request was so vague that effectively it was all but meaningless. A letting agent on a ‘finders fee’ is primarily concerned with getting a tenant. They will therefore not always be looking too hard to find problems with the prospective tenant.
Finally, there are an increasing number of prospective tenants who were previously home-owners having elected to sell their property & rent. In their situation a landlord’s reference will not be possible. In this situation a landlord should request copies of their last 6 months mortgage statements as evidence that the prospective tenant was not behind with their mortgage payments. If the tenant refuses again, maybe they are trying to hide something from the prospective landlord.
5. The tenants’ personal reference
If a landlords’ reference is sometimes a bit tenuous then a personal reference is not worth the paper it is printed on. Don’t even bother with this.
Risk profile of the tenant
Ultimately, in deciding whether to take on a tenant, landlords must ask themselves the question ‘how risk adverse am I?’ This needs to be considered against the commercial requirement to get a paying tenant. If landlords receive positive results from the first three types of check; it is reasonable to say that these tenants represent a fair risk to most landlords. Landlords should remember to use the research results to cross check against information that about them to verify their honesty levels. If landlords are ever tempted to go just for the ‘honest face’; research undertaken by the Residential Landlords Association shows that where no tenant checks are undertaken; landlords are 7 times as likely to end up taking court proceedings. In short – landlords should make sure they do it.
Landlords using a guarantor
Sometimes, the tenant vetting process throws up results that are less than conclusive to a prospective landlord. Does the tenant struggle on the affordability test? In which case; if a landlord likes the look of the tenant then they could always consider using a guarantor. A guarantor is simply an individual, often a close relative that undertakes to assume the financial liabilities of the tenant including the event that the tenant stops paying rent. Where a guarantor enters into a tenancy agreement he or she normally agrees to meet the full obligations under the tenancy agreement on the tenant's behalf. This may include rent arrears, damage to the property, or other liabilities and obligations to a landlord arising from the tenant's failure to comply with the lease covenants. The guarantor is contractually bound to accept these legal liabilities of the tenant and will be sued if they don't comply. The guarantor would usually need to be a home-owner with steady long-term employment if they are to satisfy the requirements of a good credit score to become a guarantor.
The use of a guarantor is particularly common for:
Once the tenant has found an individual who is prepared to act in this way; the prospective guarantor should be then subject to the same credit check that the tenant undertook. Assuming that they ‘check out’, then landlords should try to meet the guarantor in person early on in the process to explain exactly what is entailed. Once a prospective guarantor understands the process, and they are still prepared to proceed, then the landlord will need to get them to sign a Deed of Agreement. It is worth pointing out to the prospective guarantor that it has to be a Deed to be enforceable under contract law. It’s always a good idea for a landlord to get the Guarantor to sign a copy of the tenancy agreement to prove that they were aware of what they were signing up to.
I also prefer the guarantor to be a homeowner. This has several advantages. Firstly, especially if a prospective tenant guarantor has lived there some time then the chances are that even if the tenant ‘does a bunk’, they won’t, and you will be able to contact them. Secondly, the fact that the guarantor is a homeowner means that it is likely that they have some financial collateral, therefore if the landlord does take action to reclaim their money they have assets which the landlord can claim against.
Landlords can check that the guarantor owns their own property by doing a search on the Website at the Land Registry . The search costs £2 to execute.
It’s worth reiterating the point that in a situation where the tenant has limited financial resources, the evidence points to the fact that landlords have a much higher chance of reclaiming any debts from the guarantor than from the tenant.
A letting agent friend told me about the ideal guarantor. His name is ‘Big Mike’. He is 6ft 5’, tattoos and a body builder. Nobody messes with ‘Big Mike’. On the face of it as a landlord your initial thoughts are that you don’t want any dealings with this guy as a prospective guarantor. However, ‘Big Mike’ is actually the landlord’s best friend and this is why. For instance the tenant stops paying rent. The landlord sends the tenant a letter with a copy to ‘Big Mike’. Still no rent, so the landlord reluctantly goes to ‘Big Mike’ for the money as guarantor. Now ‘Big Mike’ isn’t happy that he is suddenly in a situation where he as the guarantor has to cough up the rent for the tenant. If you as a landlord started calling on the tenant, even sending a fax to their work place this would constitute a legally actionable case of harassment. However, ‘Big Mike’ as the guarantor is unconstrained by such flimsy bits of legislation is able to exert the appropriate level of ‘encouragement’. Low and behold the tenant suddenly finds the ‘readies’ and the tenancy is back on track.
Despite all these potential horror stories for landlords, and before you get too paranoid. Landlords should remember that most prospective tenants are perfectly decent law-abiding people who will occupy the property, pay rent and leave the property at the end of the tenancy as they found it. What you as a landlord are trying to insure is that risk is minimised, and you manage to filter out the small proportion of ‘scammers’ who will ultimately move on and find a landlord that is less prepared and less organised than you.
FORMS FOR LETTING PROPERTY
FINANCE AND TAX ON RENTAL PROPERTY
RENTAL PROPERTY REGULATIONS
INVESTING IN BTL PROPERTY
WHAT PROPERTY TO BUY
BUYING OFF PLAN
KNOWING THE RISKS
PROPERTY INVESTMENT CLUBS
MANAGING YOUR RENTAL PROPERTY
NON - PAYMENT OF RENT
GETTING YOUR MONEY BACK
THE TENANT WONT MOVE OUT
THE TENANT DOES A BUNK
RAISING THE RENT
REDUCING THE RENT
REPAYING THE TENANCY DEPOSIT
FAIR WEAR AND TEAR
DAMP, MOULD AND CONDENSATION
LETTING RENTAL PROPERTY
LEGISLATION ON LETTING PROPERTY
ALTERNATIVE DISPUTE RESOLUTION
HOUSING ACT APPEAL DISPUTES
THE LANDS TRIBUNAL
RIGHTS OF LIGHT APPLICATION
APPEALS FROM LEASEHOLD VALUATION TRIBUNALS (LVT's)
POSSESSION - SECTION 8 NOTICE
POSSESSION - SECTION 21 NOTICE
SECTION 21 TIMETABLE AND PROCESS
GROUNDS FOR POSSESSION
HARASSMENT BY LANDLORDS
RENT DISPUTES BETWEEN LANDLORD & TENANT
FAIR RENT (RAC)
MARKET RENT UNDER AST
LEASEHOLD VALUATION TRIBUNALS
MODIFICATION OF RESTRICTIVE COVENANTS