Even though you may not feel like it, being a landlord means you are maintaining a business, and as such you have to be sensitive when running it. If you are going to be successful as a landlord, there are mistakes you cannot afford to make. Here are 5 of these mistakes:
Poor Tenant Vetting
So, tenant screening? You’ve probably done that along with other background checks, but how about social media? It is not uncommon: social media is the perfect vetting tool. Social media shows you who your tenants‘ friends are, their habits, and their behavioural patterns. Simply put you may well get a full profile of your tenants from their social media sites, and employers do this regularly. Forget the circumstances surrounding the tenancy, you may know the tenant, or the tenant might be a distant relative, but the truth is you don’t really know anyone, and the first time you meet potential tenants, they are like salesmen; all smiling. Little wonder Marc von Grundherr of Benham & Reeves says, “All tenants seem lovely at the viewing. It’s like a first date. But if you don’t vet them properly, it can be the costliest and most painful thing ever.”
As a landlord, you must be smart, and there is absolutely no wisdom in not insuring your properties. Some landlords skirt the budget (some don’t have one) in such a way that provision for insurance is totally overlooked. Hazards cannot be avoided in most cases, they can only be managed. If a property were to catch fire, or there was a flooding incident, an all-inclusive insurance policy would take care of the situation seamlessly. Spending money on an insurance policy can actually be a way of saving you from more expenses in the future.
Getting Lost Financially
With so many issues to keep up with, it wouldn’t be a shock if you lost track of your expenditure. What may help is proper bookkeeping; if your books are well kept, it will be easier to identify expenditure incurred in the running of the business. Without proper bookkeeping, you may end up drowning in a pool of endless debt. Income and expenses have to be recorded on a spreadsheet to avoid such an occurrence.
Breaking the Law
There is just no excuse for breaking the law. Most landlords are aware of the laws that exist, yet they break them, as they believe they are the “Alpha and Omega” of their property. Wrong, they might be the owner of the properties, but they have no right to infringe upon the tenants. The most common breach is housing discrimination: the law explicitly states that an applicant cannot be refused the right to rent because of their race, gender, religion, or disability.
No Plan for the Future
So, currently in the UK, landlords are getting good rent fees, so good that most of them aren’t actually thinking about the future. Their actions may come back to haunt them later. Good times don’t last forever, so why not make a sensible plan for the future?
Most landlords learn on the job, and rightly so. If necessary steps are taken, you will be successful as a landlord. On the flip side, mistakes can ruin you. Avoiding the above-mentioned mistakes will ensure that your business thrives.
Landlords can ensure that they never make any of these mistakes by contacting our landlord advice helpline. Get FREE advice on landlord issues from qualified lawyers who can help with anything from tenant disputes to arrear and debt recovery.
Are you a landlord in need? Give us a call now on 0800 368 7554
Tenant Referencing FAQ’s
Tenant referencing is a process involving a number of checks done by landlords or letting agents to confirm the reliability and credit worthiness of prospective tenants. These checks are done with a number of factors put into consideration. These factors are;
Poor Income To Rent Ratio:
This shows that the salary of the potential tenant is enough to pay the expected rent regularly. Landlords and letting agents usually work with a 2.5 ratio; meaning the gross salary of the tenant should be at least 2.5 that of the rent, taking into account other expenses the tenant will probably have.
Credit checks could show details on past rentals, addresses, or if money was owed. Some of this information could be used to contact past landlords or letting agents. Landlords and letting agents usually ask for references from previous landlords. At this point, they look out for tenants with histories of property damage, late payments, and other relevant information. In situations where there were issues with the tenancy, landlords may refuse to provide referencing or ignore the request for referencing.
Breaks in employment are one of the factors landlords and letting agents look out for. Regular breaks within a period of about one year or six months usually stick out like a sore thumb and have question marks written all over them. Short-term employment is also considered questionable – what happens after the employment is over, are there any other jobs lined up, or does the prospective tenant have a history of short-term jobs, and did they ever affect tenancy in the past?
Credit checks could reveal consistency, borrowing and timely repayments over a period of time. A good payment history goes a long way in a landlord’s eyes.
Information On Bankruptcy
Bankruptcy remains on an individual’s credit report for about 10 years. Landlords check for discharged bankruptcies and pending bankruptcies. Unlike discharged bankruptcies, pending bankruptcies always bear the possibility of the tenant being relieved of all financial duties, not excluding owed rent.
Debt Load Status
A credit check will show the landlord how much the tenant owes. A tenant with a huge debt load will have more financial obligations and may seem too much of a risk for a landlord.
It is important to note that credit checks cannot be done without the permission of the prospective tenant.
- In Scotland, it is prohibited to charge tenants a fee for drawing up a lease for an assured or assured shorthold tenancy. This is the kind of fee not applicable in England under the new tenant fees bill. In Scotland, it is a government ban from August 2016 that prohibited these fees.
- It is also prohibited to charge a premium for these ASTs. Section 90 of the Scottish Housing Act of 1984 defines premium as ‘any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge’ which means that any fee demanded by landlords or letting agents to aid the letting of a property to you among other interested persons is illegal.
- Guarantor fee: This is paid in some parts of the UK for drawing up the guarantor’s deed upon the landlord‘s decision that you would need to provide a guarantor. However, this fee is not applicable in Scotland.
- Tenant charge for referencing, inventory and credit checks are not applicable in Scotland. Though these charges have always been illegal, the new laws strictly prohibits any loophole through which the agents and landlord may try to charge them.
- Check out fees: These are not applicable in Scotland. They refer to the fees paid to an inventory company upon the demand of your new landlord to carry out an inventory of your things before you move into his property after the signing of the tenancy agreement. Although the landlord pays part of the checkout fee, it does not apply in Scotland and does not apply to all tenants where it does.
- Administrative fees: These are the charges the letting agents heap on tenants and landlords. These are the whooping £400 for drafting agreements. They are extortion considering that they end up merely editing old one copies.
- Additional person fee: This covers the paperwork involved in processing any other applicant and there is a fee for each additional applicant. However, for those entering an assured or assured shorthold tenancy agreement in Scotland, this fee is not applicable.
- Permitted Occupier fee: This fee covers the special situation where a person who is almost 18 years old or above would not be permanently staying in the rented property. The fee covers any paperwork that might go into the processing of this arrangement.
Yes. Legally, you have to. There is a law called the ‘Right to Rent Act’, which was introduced by the Immigration Act of 2014. This law stipulates that landlords have to check the ‘right to rent‘ of their potential tenants, lodgers included. The ‘right to rent‘ of a tenant could be either ‘unlimited’, ‘limited’ or ‘no right to rent‘. This check has to be carried out 28 days before the start of the tenancy.
Therefore, failure to check the ‘right to rent‘ of a potential tenant is a violation of law, on the part of the landlord. Such a landlord is then liable for punishment, which could be a fine of up to £3,000 or possibly a prison sentence.
Landlords are to carry out this check by looking at the immigration status of their lodgers, that is, asking them to provide documents that demonstrate their permission to live and rent property in the UK, and how long for. These documents include an international passport, work visa, certificate of entitlement, and Biometric Residence Permit.
The landlord should, first of all, certify that these documents are original. Copies of them should then be made. When making the copies, care should be taken to capture all necessary parts. For instance, when copying a passport, details such as nationality, date of birth, photograph, and expiry date must not be missed for any reason. Landlords must also keep a record of the documents and note the date of doing so.
In a case where the lodger has a limited right to stay, a follow-up check will be necessary. This check should be carried out either at the end of the lodger’s permission to stay in the UK, or 12 months after the initial check. If the follow up check reveals that the tenant has no more right to stay, the landlord is duty bound to report this to the Home Office. Failure to carry out the follow-up check, or report it to the Home Office, where necessary, can be cause for a penalty for the landlord. However, the follow-up check won’t be necessary if the tenant‘s right is unlimited.
Some people are exempted from this check. These include: (1) people with a ‘time-limited right to rent‘, or with limited leave to remain in the UK (2) people with indefinite leave to remain or right of abode in the UK (3.) people with ‘discretionary right to rent‘ – which is granted by the Home Office – and (4) citizens of the UK, the European Economic Area, and of Switzerland. In the case of the last category, the landlord has to ascertain that the potential lodger truly belongs to one of these groups.
Those who claim to have on-going application with the Home Office, that their documents are with the Home Office, or that the Home Office permits then to rent, may be excused. But, the landlord has to confirm this with the Home Office.
A landlord can choose to do the check or hire a renting agent to do it for them. Whichever they choose, the responsibility lies with the landlord in the case of any infringement.
While carrying out the check, landlords should take caution not to breach other laws like the Discrimination Law and Data Protection Law.
It can take anywhere from a couple of seconds to a few days. How long it will take depends on a couple of factors:
- The agency handling the credit check
- How soon the tenant submits the required information and the written consent for a credit check
- If a landlord has been approved to run a credit check on a prospective tenant
Getting Approved To Run a Credit Check On a Prospective Tenant
Before a company will help you run a credit check on a prospective tenant, they need to verify that you are truly a landlord. This is to avoid running illegal credit checks for an imposter. You will be required to submit information to confirm your identity. The information required can vary from company to company. Some of them are:
- Verification of current address: This can be your phone or electricity bill.
- Documents proving identity: This can be your passport or driver’s license.
- Documents proving ownership of a rental property: These documents can include your mortgage statement, utility bills, insurance documents, and proof of title.
When you have been approved, the company can then proceed to run credit checks on your prospective tenant. Getting approved can take somewhere from 2 to 10 days, depending on how many other landlords are getting approved at the same time, and the particular company involved.
Charging a Fee For Credit Checks
You can decide if you want to run credit checks for free or charge a fee for them. Some landlords charge a small fee, which can save them a bit of money in the long run. The advantage of charging for a credit check is that it deters individuals who have poor credit. However, there are landlords who do not charge fees for worry of losing good prospective tenants who will be discouraged by the fees. If you decide to charge a fee for a credit check, you can deduct the amount from the tenant’s first month rent, if they do eventually rent the apartment. A second option is to have it added to their security deposit. Another possibility is to run credit checks only on tenants who provide a deposit for the apartment. This shows they are committed to renting it.
Save Time and Money By Verifying Information
If you verify some items on your own before running a credit check, you will reduce the amount of time it will take to get a credit check result, and save yourself some money too.
- Confirm the prospective tenant’s identity by asking to see their ID. You can then confirm that the face and name on the ID are the same as the individual. Make a copy of this.
- Confirm employment status by calling their current employer.
- Confirm the prospective tenant really lives at the current address they wrote down on the application.
If you find the applicant has lied about any of these, you can terminate the running of a credit check. You don’t want a dishonest individual for a tenant.
Checking potential lodgers on search engines or social media is fine. Remember that a lodger, more often than not, is someone you do not know anything about up until the time of them coming to lodge with you. You know nothing about their background or character. This stranger is then coming to share your house with you, and probably with your family too – if you live with them.
So, essentially, it’s vital to find out more about this person. You should not be content with the fact that the potential lodger is at peace with the ‘right to rent law’. You have to to carry out a more extensive background search on the potential lodger. Find out about their security status, and whether they ar at any security risk. You have to find out something about their character, personality, temperament, career, and interests. These things, if gained access to, will help you to decide whether the prospective lodger is someone you want to share your house with.
Social media and search engines can be quite useful in digging up the desired extra information about a potential lodger. Through the person’s media presence, such as through their Facebook posts, tweets, and the conversations generated by those, much about the person can be learnt. Google searches on people can also expose a lot about them. Such searches can lead to what the individual has written, and what has been written about the individual, such as articles and blog posts. Also, whether the person has been involved in any crimes, scandals, and so on, are some of the things that a social media or Google search can reveal.
Through such disclosure, the landlord gets to know what they are up against. Popular search engines and social media platforms as Google, Bing, Facebook, Google+, Twitter, LinkedIn, pipl search, and Graph Search can be utilised in achieving the desired result.
Landlords should, however, use discretion to know what to search for and what not to. Attempting to pry into a potential lodger’s protected files or personal conversations, like emails and chats is unacceptable. Morally, going to such an extent is wrong. Again, landlords do not have to take whatever they find on social media too far. There are people whose media presence may be altogether different from their real personality. So, make sure your search doesn’t mislead you.
If a tenant fails a credit check, you do not have to worry. Even if a potential tenant will make a good tenant, they can still fail a credit check for a number of reasons, and in some cases you may still be able to rent your property to them. This might sound strange, but understanding why tenant checks are done will make it clearer.
What a Tenancy Check Looks For
A tenancy check is used to check:
- If a potential tenant is who they claim to be
- If the applicant is employed and earning the amount which they claim to earn
- If the applicant has a bad history of debt or bankruptcy
- If the applicant can afford to pay rent for the property
From these checks, a tenant is given a credit score with a “pass” or “fail” grade which will include a “risk rating” showing if the applicant is at a high, medium or low risk. This is then used to advise a landlord on whether to accept an applicant or not. It is completely up to you what you do in regards to this information, but if you find that you really like a tenant who failed a credit check, you will want to contact the company that ran the check and find out the reason for the applicant’s failure.
Reasons Why a Prospective Tenant Might Fail a Credit Check
A prospective tenant could fail a credit check if the company carrying out the process cannot verify the individual’s current address. This can occur for reasons which are not the applicant’s fault. These include:
- The applicant is not involved in making bill payments at their previous or current apartment.
- The applicant hasn’t lived long enough in their current location for their name to be included in the electoral register.
- The applicant’s name is not the name on the lease agreement document of the current address.
If any of these turn out to be the reason for the credit check fail, you can ask the applicant to provide a reference letter which will be given to them by their current landlord, verifying they are actually living at the said address. You can also contact the landlord yourself, as well as check the land registry to verify the property actually belongs to the landlord whose name is on the reference letter.
Some reference agencies fail an applicant if they calculate the salary they earn as too low. Some agencies calculate that a tenant’s salary should be three times the monthly rent if they are to comfortably pay the rent. They will, therefore, fail anyone who has a salary less than three times the monthly rent.
In a case where an individual fails a credit check because of their salary level, you can request for a “guarantor” credit check. If the guarantor passes the credit check, they will have to sign the lease agreement, alongside the applicant, stating that they will pay the rent should the applicant fail to make rent at any particular time.
- Pay Attention to Ads: An advert is the number one means which you use to communicate and reach out to an applicant. It builds a picture of who you are to a prospective tenant. Bad tenants or individuals who are more likely to behave in a way that will cause a landlord to lose money will usually target private landlords. Private landlords, in most cases, do not take background checks seriously, and are more likely to display cheap adverts. A bad tenant will often avoid rentals which are controlled by well-established leasing offices. It is easy to figure out if a landlord will be less scrutinizing by the detail on their advert. An advert that makes it clear that an applicant will undergo background checks and has to follow leasing rules will deter individuals with bad motives.
- Pay Attention To Your Rent: This is why it is important to make sure your property is in top-notch condition. Charging rent which is too low will most likely attract applicants with the intention of exploiting you, because it shows you are lacking in confidence. However, charging too high will discourage good applicants and invite malicious individuals who just need a roof over their heads with no intention of paying rent. You have to ensure your rent is at a competitive price with other rental properties.
- Don’t Display Your Property as a Prolonged Vacant Property: Bad tenants look for ads that show a property has been vacant for a long time. It shows the landlord is desperate to have the vacancy filled and will be willing to accept anything. Avoid making ads that show off a reduction or discount in rent.
- Ask Prequalifying Questions: When an applicant sends an email or contacts you by phone call, ask prequalifying questions such as, why do you want to move? When would you like to move in? This will help you figure out if the tenant is worth the trouble. An applicant who wants to move in as quickly as possible is most likely getting evicted for being problematic or failing to make rent.
- Keep a Clean Property: If a property is well maintained, kept tidy and looks secure, it gives the impression that the landlord pays close attention to what goes on in and around the property. This will dissuade bad tenants from applying.
- Run a Background Check: Always run a background check on applicants to confirm all the information they have provided. You can have them pay a “credit check” fee. This will discourage individuals who have no good intentions from applying.
Data Protection Act dictates how an individual’s ‘personal data’ should be held and ‘processed’ by a business or an organisation. An individual’s data is regarded as personal if:
- a living individual can be identified from the data, or from other information in your possession, or that likely to come into your possession.
- the data relates to an identifiable living individual, in person, family life, business or profession.
- the data is obviously about a particular individual.
- the data is linked to an individual so that it provides particular information about that individual.
- the data is used, or is to be used, to inform or influence an action or decision affecting an identifiable individual.
- the data has any biographical significance in relation to the individual.
- the data concentrates or focuses on the individual as its central theme rather than on some other person, or some object, transaction or event.
- the data impacts, or has the potential to impact, an individual whether in a personal, familial, business or professional capacity.
Information about an individual that has any of the above characteristics, including the individual’s race or ethnic group, political or ideological leaning, religious belief, health, address, bank details, membership of trade unions, sexuality, and/or criminal offences, charges or allegations.
The Act also defines the ‘processing of personal data’ as obtaining, recording or holding of said information. So, the Data Protection Act applies since you will be obtaining and recording, that is, processing, such documents as a passport, work visa, and biometric residence permit, which undoubtedly possesses sensitive information about the person. So, care should be taken not to breach any of the provisions of the Act.
The Act means that anybody whose personal data/information is to be obtained has the right to know that such information about them is being obtained and processed, why it is being processed, and who else it may be to revealed to. So, a potential lodger has to be informed of why their immigration documents and others are being demanded, that a record of it will be kept, and the purpose of doing so.
You must also adhere to the following. (i) Don’t hold the data longer than required. The ‘right to rent act’ allows landlords to hold the tenants‘ data during the time of tenancy and 12 months after, no longer. (ii) Make sure that the data is processed fairly and lawfully. (iii) Don’t ask for, or hold, more data than relevant. So, information such as ethnicity, sexuality, political standing, and religious belief should not be demanded. (iv) Ensure the security of the data obtained. (v) Make sure not to process it against the right of the individual. These are part of the requirements of the act and must be adhered to.
Proof of Identity
The potential tenant would have to confirm their identity by showing identity cards or other valid ID documents. This part of the process is a security measure.
Reference From Former Landlords or Letting Agents
This is a pretty straightforward step: former landlords or letting agents provide information on how reliable the tenant in question was, based on their experience with them. This is a very valuable part of referencing because landlords then know what they need to look out for.
Landlords and letting agents need to find out if the intended tenant is financially able to pay their bills as needed. They would also need to check that the tenant has not been declared bankrupt previously.
Proof of Employment
Regular income means regular rent payment. Landlords and letting agents are often advised to get written proof of income and employment. The employment evidence should show the employment status, start of employment, length of employment, and salary. If self-employment is the case, bank statements and details from an accountant will help draw a conclusion on the financial eligibility of the tenant.
Proof of Residency
Landlords or letting agents need to confirm that the potential tenant is a resident of the UK before letting them rent a property. To this end, they might ask the tenant for a council tax or utility bill receipt from the last 3 months.
Right to Rent Check
These are immigration checks done to confirm that potential tenants have been granted legal right to live in the UK. This part of tenant referencing has been made compulsory for all landlords and letting agents. Tenants are asked to provide their passports to this effect. People from The United Kingdom and its colonies, Switzerland, and The European Economic area have automatics right to rent in the UK. If the tenant cannot provide a passport, the following documents could validate the right to rent:
- A certificate of naturalization or registration as a British citizen
- EEA/Swiss national passport/identity card
- EEA/Swiss family member Permanent Residence card
- Biometric Residence Permit with unlimited leave
- UK immigration status document endorsed with unlimited leave
- Passport or travel document endorsed with unlimited leave
- Registration Certificate or document certifying permanent residence of EEA/Swiss national
People from other countries would have to show their visas and the time allowed to rent in the UK.
A lot goes into renting a property. Apart from finding the exact property that suits your lifestyle and needs, you still have to provide references and documents that will convince the landlord to accept you. In most parts of UK, it is a part of the letting process for a landlord or letting agent to check that potential tenants are reliable and can afford to pay the rent on time. Here are some of what prospective tenants should expect when renting a property:
The landlord or letting agent will usually ask for a number of documents to confirm that the tenant is who they say they are. This could be in the form of a photo ID, such as a passport or driving license. In some cases, landlords are willing to accept a signed utility bill from your former or current home, or a signed bank card from your bank.
From February 1, 2016, a prospective tenant will need to show a document that proves they have the right to stay in the UK and rent an apartment. For British citizens, a passport, birth certificate or any other form of identification is proof enough. For immigrants, passport and immigration documents will suffice.
Another check that will be carried out is what is known as a credit check. This check shows if the tenant has a history of meeting their financial obligations. The landlord or letting agent will need to get permission from the prospective tenant before carrying out this check. However, a bad credit report can affect the landlord’s decision to give the house to the person in question. It is, therefore, wise that before applying to rent a house, prospective tenants should first check their own credit report to find out where they stand and correct any problems that may be recorded there.
The landlord or letting agents may want to find out from previous landlords if the prospective tenant is reliable and trustworthy. With this check, they will also find out if the tenant is known for keeping up with rent, or if they have a history of delaying rent payment. If the prospective tenant is renting for the first time, they may be required to provide the contact details of their parents or guardians.
Finally, landlords or letting agents will require prospective tenants to provide at least one guarantor. A guarantor is someone who is willing to sign a legally binding agreement stating that they will pay the rent if the tenant is unable to. In most cases, the guarantor could be the tenant’s parent or guardian. Additionally, most landlords expect the guarantor to be a UK resident and a property owner.
It is a good thing to do a CRB check on a potential lodger. This record will make the criminal past and present of the lodger known to the landlord. The landlord will known if the person they wish to accommodate is violent or not, and whether the lodger is going to respect them and their home or not. The landlord will also know how safe their home, property and possibly children are with the lodger under the same roof as them. Unfortunately, making all these vital discoveries is difficult as the CRB check doesn’t exist anymore.
After the Criminal Record Bureau (CRB) merged with the Independent Safeguarding Authority in the year 2012, the CRB check ceased to exist. The body that replaced it is the Disclosure and Barring Service (DBS). This body offers two kinds of checks: Standard Check and Enhanced Check. Those checks, unfortunately, can only be made by employers on behalf of their employees, not private nor self-employed individuals. As landlords are neither employers, nor lodgers employees, none of these kinds of checks can be made.
What is left is another kind of check called the Basic Disclosure Check. This type of check is basically for self-employed individuals, visa applicants, personal liquor license applicants, and other companies that feel like doing it. It is particularly for people living and working in Northern Ireland and Scotland. It is done by a body called Disclosure Scotland. Though meant for people in Scotland and Northern Ireland, people in other places can access them if they need to, at a cost of £25. It takes 14 days to be ready.
There wouldn’t be much sense in landlords making potential lodgers go through the Basic Disclosure Check. That is because it only contains either the details of convictions regarded as ‘unspent’ under the rehabilitation of Offenders Act 1974 or states that there are no ‘unspent convictions’. What’s more, landlords are likely to take responsibility for the cost, should they force a potential lodger into getting the check. Moreover, the spent or unspent convictions which the Basic Disclosure Check covers may not be clear enough to enable landlords to take decisions. So, what’s the point?
Landlords should, therefore, go through other avenues of ascertaining a potential lodger’s criminal status or disposition. These include an oral interview and carrying out a search engine and/or social media search on the lodger. As unreliable as these methods may seem to be, they are actually quite helpful.
When a prospective tenant finds a home they love, they want to be able to sign the contract and move in as soon as possible. Completing tenant referencing is one of the most important steps that must take place before signing the contract, so it is essential that this happens as soon as possible. Once the landlord or tenant referencing agency has received the necessary documents and permission, tenant referencing should not take more than 48 hours. Actually, depending on who is in charge of the referencing, it can be from a few hours to a few days.
According to the Association of Residential Letting Agents (ARLA), carrying out credit checks, collecting references, and attending viewings can take an average of eight hours to complete. However, in some cases, this can take a number of days or even weeks to conclude. The group also pointed out that even though most agencies make use of a standard tenancy agreement format, drawing up an agreement can take up to five hours. All of these build up to what may delay the signing of contract. Additionally, an average of seven or eight hours is needed for miscellaneous paperwork and administration. All in all, tenant referencing can take up to 48 hours before it is complete. This timeline however is not etched in stone. A lot of other factors can contribute to a long delay such as:
- Delay in proof of employment – Tenant referencing can get delayed if the employer of the prospective tenant takes too long to respond to a request for proof of employment. Proof of employment is an important factor in tenant referencing. Most companies have a ready-made template that employees can send to their employer or supervisor to complete, and this can be accepted as a proof of employment. But where the prospective tenant is self employed or a freelancer, this can be a problem.
- Landlord reference – Another factor that can delay tenant referencing is when the prospective tenant’s current or former landlord is delayed in sending in their reference. Most landlords, due to their busy schedule, will not be able to respond on time, and this delay will slow down the referencing process.
- Conflicting information – Most of the time, due to one reason or another, the information submitted by the prospective tenant and the one submitted by their employer or former landlord is conflicting. When conflicting information like this is detected, it can slow down the process while further checks are carried out to determine the veracity of the information submitted.
The best tenant referencing agencies have tons of experience in tenant referencing and have perfected the process to make it as smooth, efficient, and quick as possible. As long as the prospective tenant can provide the information needed as soon as possible, the process can be carried out and completed within the stated 48 hours. However, if there is an issue on the part of the tenant, either through delay in sending information, or sending in conflicting information, the process will surely slow down and may take days, if not weeks.
Breaching the new tenancy fees bill is a civil offense to be enforced by the Trading Standard. The schedule 5 of the Consumer Rights of 2015 will be amended in the bill to provide for that.
- A whooping fine of £5,000 will be slammed on any landlord who breaches the provisions of the bill by intentionally charging any of the prohibited fees. The same applies to any letting agent.
- A fine of £30,000 awaits any landlord or letting agent who is known to have defaulted in the above regard before and has breached the provisions of the bill again.
- Trading Standards does not always place this fine on defaulting landlords and letting agents. It has, according to the bill, 6 months within the time a breach comes to its notice to notify the landlord or letting agent about the breach while the offender(s) has 28 days to respond to the notification from where the Trading Standards will decide whether to impose the fine or not. When it does not impose the stipulated fine, it directs them to repay the fees to the tenant with interest.
- It gets more interesting. Section 10 of the bill stipulates that the head of a corporate body, a CEO or director, will be personally held accountable and prosecuted if the company breaches any of the provisions of the bill, if it comes to be established that the company did so with the full knowledge of the boss.
- The fines of £5,000 for defaulting landlords and letting agents and £30,000 for repeated offenders (those that breach the provision twice or more within 5 years by making tenants pay for any of the banned fees) are also applicable to those who refuse refunding a holding deposits.
- Another penalty is banning of the landlord or letting agent. Under the amended Housing Act of 2016, a local housing authority can apply to a court to ban the landlord or letting agent who has breached the provisions of the tenancy fees bills for a period of up to a year. This will stop the offending landlord from renting out their property and the letting agent from acting as one till the end of the ban period.
However, the bill, when passed, will not be able to prosecute any tenancy fees offence committed by any landlord or letting agent before its passing.
To Check The Credit Worthiness Of Prospective Tenants
Landlords do credit checks to avoid financial complications with future tenants. Credit checks also enable landlords and letting agents to find out if the prospective tenant has any CCJs against them or has been declared bankrupt at any point.
A credit check gives the landlord an idea of what to expect from a tenant financially. Landlords check past evictions, credit irregularities, and debt load that presents a picture on how the tenant would behave with respect to rent payment; regularly and completely.
For Details On Past Tenancies
Financial complications aside, landlords and letting agents try to avoid tenants who have had issues in the past, such as extensive property damage based on carelessness and negligence, inability to take responsibilities in terms of their obligations as tenants, letting property to others without the consent of the landlord, carrying out or partaking in illegal activities, late or no payments on utility bills and all the other problems landlords do not want to face with tenants.
To Avoid Questionable Tenancies
Background checks and identity checks are run by landlords and letting agents to avoid letting their property to criminals. Criminal checks are also done by some landlords. There are usually financial costs applied to such tenancies when such checks are overlooked for whatever reason: money, time or familiarity with the tenant in question. In worst case scenarios, there may be a lockdowns on such property, and loss in income on it.
What Are CCJs?
County court judgements are court orders issued to individuals when they fail to pay money that they owe. When a person owes a creditor, and seems unwilling to pay, the creditor may apply to a county court for a judgment against the person to ensure they get paid. If the court decides there is indeed a debt to pay, a CCJ is issued, stating how the debt payment could be made.
When it comes to tenant referencing, CCJs definitely raise flags, but are not always a strike against prospective tenants. CCJs stay on a credit report for about 6 years and may have already been paid off. Landlords also check what the CCJs were for, if they were for rent or other housing-related reasons.
Tenancy referencing involves a different number of steps towards checking the history of a tenant; residency checks, employment and checks, and CCJ records.
The first steps in tenancy referencing would be:
Collection of ID and proof of address: Prospective tenants would be asked to provide their passport (recent and original if possible), working visas for non-UK residents, proof of current address (council tax receipts or utility bills receipts from within the last three months). Confirming the identity of prospective tenants is crucial to landlords and letting agents, nobody wants to rent their property to fraudsters or criminals.
Collection of holding deposits and holding deposit forms: A holding deposit would cover the cost of referencing in case the tenant fails the referencing stage or decides not to take the property. It is also a way of checking if prospective tenants are willing to have referencing checks done on them.
Holding deposits are usually returned after tenancy agreements are signed, or a some may be returned if the tenant pulls out. It is best for both parties to be fully aware of the terms applied when making holding deposits that would cover referencing.
What Other Steps Are Involved in Tenant Referencing?
The next steps would be credit checks, employer and income checks, references from previous landlords, and a right to rent check. Some landlords also do criminal background checks.
What do Criminal Background Checks Involve?
The criminal history of UK citizens is held by The Disclosure and Barring Service, or DBS. Landlords or letting agents may want to work with an umbrella body that has regular dealings with the DBS.
The tenant would need to fill an application form and provide valid identification details. DBS checks take about 8 weeks. At the end of such checks, the tenant would receive certificates of their criminal history, which they may choose to show the landlord after a request is made.
What Happens If a Tenant Fails the Referencing?
Failing tenant referencing does not always mean the property can not be let to the tenant involved. The next step for such tenant would be to get a guarantor. A guarantor would be liable for any costs incurred and unpaid by the tenant during the tenancy. The guarantor would have to read the tenancy agreement, and then sign an agreement accepting any costs incurred and unpaid by the guarantee.
The tenancy fees bill was released on the 1st of November 2017. It focuses on some of the excesses of landlords and letting agents as part of the government’s initiative to ensure transparency in the market by discouraging landlords and agents from charging exorbitant and unnecessary fees to the tenants. However, the bill is not intended to apply to all of the UK; only England. Also, the bill centres on assured shorthold tenancies so that it substitutes for “tenancy” as far as the bill is concerned. It covers other licences to occupy a house, excluding holiday lets. That was clarified in order to avoid any use of the bills provision to avoid complying to it. Generally the only fees allowed under the bill include rent, late payment fees, fees incurred for the replacement of tenant‘s lost keys, or fees for any damages caused by the tenant during their tenancy. Now, the provisions of the bill include:
- Landlords and letting agents are not allowed to request that tenants pay fees for the renewal of tenancy, as condition for grants or for the securing of references.
- The landlord must refund the deposit held within 10 days after the completion of the tenancy agreement. This is the money paid to the landlord by the tenant to keep a property for them till they were able to come and rent it. It is 15 days if the tenancy agreement is not completed. Schedule 2 of the bill covers deposit holds. However, the bill states that if it turns out that said tenant does not have any right to rent a property according to law, usually owing to immigration status, the landlord can retain the deposit provided they were not aware of the tenants legal status as at the time of collecting the deposit. Also, if the tenant provides false information, especially when it is found out that this makes them not suitable for the property. Another could be that the tenant fails to follow all the steps that would lead to the signing of the tenancy agreement.
- The bill also amends the consumer rights act of 2015, thereby ensuring that any letting agent who advertises on the website of third parties must publish details of all relevant fees, client money and any redress scheme which they are a member of.
Landlords and letting agents are required to get written authorization from the prospective tenant before they are allowed access the tenant’s credit report. Failure to get written consent from the tenant would mean the information gathered might not be usable. The tenant involved may take legal action against the landlord or letting agents.
Credit reports have the following basic information:
- Name, address and employment details: The name of the individual in question. Credit reports are put together with information retrieved from creditors and lenders associated with said individual. It is important to employ consistency when filling out details like name, date of birth and so on, on applications and other documents.
- Credit reports may contain previous, as well as current, addresses, based on how many different addresses may have received mail. An individual may dispute an address on their credit report that has been wrongly included.
- Employment details may show in a credit report, also added to the details for identification.
- Credit reports show how many credit accounts an individual has, outstanding total credit balance, number of credit applications made in 6 months, how much available credit is used by the person, electoral roll status, unpaid debts from previous tenancies, CCJs, bankruptcy, IVA records, and financial associates.
- They also contain public records that contain information collected from state and county courts and from collection agencies about overdue debts. The information available may include suits, bankruptcies, liens and foreclosures.
- Credit reports DO NOT contain bank account balance, salary, credit counselling history, marital status, religion, sex, or child support payments (except in cases of delinquency).
How Much Can a Landlord See in a Credit Report?
Landlords and letting agents cannot view all the information on a tenant’s credit report. They can only see publicly available records like court judgements, records of insolvency, and voter registration. They do not have access to information on the tenant’s credit loans, cards, and other sensitive information that may be available on the credit report.
What if the Tenants are Too Young to Have Established Credit History?
Landlords can rely on employment references and other checks in this case. Guarantors may also be used as needed.
What Information would a Landlord Need to Run Credit Checks?
On the consent form for a credit check, the tenant would need to provide the following:
- Name in full
- Date of birth
- Social security number and (or) Individual Taxpayer Identification Number
With tenant referencing, the landlord can determine whether you will be able to pay the rent in full and on time by learning about your employment and financial situation. Landlords that carry out tenant referencing are professional and take their business seriously. Tenant referencing is made up of a series of important checks that will provide the landlord with insight into the prospective tenant’s background and financial status. These checks involve written and signed verification of the tenant’s employment and income from their place of work. It also involves a reference from the prospective tenant’s current or previous landlord confirming residency history and their ability to pay the rent in full and on time. These checks may also include residency confirmation, a full credit history check, affordability potential, and any outstanding case or county court judgments.
These checks are meant to confirm information the tenant has already provided and will likely show how honest they were when providing the information. If the landlord feels the prospective tenant is dishonest or untrustworthy, they are less likely to overlook minor issues that the referencing may reveal.
The tenant referencing process is usually initiated by the landlord or letting agent with the tenant’s permission, so, in essence, nothing is done without the prospective tenant’s express permission.
One of the ways to speed up tenant referencing is to ensure that prospective tenants know what is expected of them, so that they can have it available on request. To begin with, they would need to complete a form that details their employment history, prior residences and other information that will be cross checked against the referencing details. Prospective tenants should be sure to have all the necessary documents ready where possible. Some of these documents include letters from the bank confirming their bank details. It is also a good idea for the tenant to give their employer a heads up that they may be contacted to provide details of employment. The prospective tenant’s current or former landlord also needs to be aware that they may be contacted to provide details of stay in their property. These individuals should know to expect email correspondence and/or phone calls from the landlord or referencing agency concerning the details they are expected to send across. Every property has more than one prospective tenant vying for it, and a complete set of documents and an honest application will sway any landlord rather than the prospect of a delay.
Because of a hectic schedule, these individuals may not be able to provide the needed information fast, so the tenant may need to remind them after a few days. As a prospective tenant, the best option is to inform the necessary people once you decide that you need to move house. This way, they are prepared to give you the needed documents as soon as they are requested. The referencing process can be delayed tremendously if any of these people fail to respond in a timely manner.
A guarantor is a person who agrees to meet the terms of a tenancy agreement in the event that the tenant is not able to meet it themselves. It serves as a layer of security for the landlord who might view the tenant as high risk and so would need more assurance. Consequently, the guarantor serves as a surety in the deed. A tenant is said to be high risk when it is not seen that they do not have good credit or a constant source of income to cover payment of rent without hitch. Therefore, a student without a good job renting a house would be considered high risk. That is why a discussion of guarantors in tenancy nearly always involves students. However, the economic situation in the UK, and the world generally, has placed far more people at high risk.
But, if the issue of guarantors is centered on students, it means that the guarantors are often their parents, grandparents or stepparents, who are seen to be in a position to honour the surety. Landlords are always very particular about the people they accept as guarantors for the tenants, because such a person would be responsible for paying rent arrears if they pile up for too long, and for damages and overall violation of the terms of the tenancy agreement.
It is important for anyone about to act as a guarantor to have a full understanding of what is involved. For those acting as guarantors for their children, it is easy because they understand their child’s character and financial situation. So, they are less likely to run into any surprise. However, in cases of joint tenancy where two or more students are renting a house, it can get tricky. Serving as a guarantor for your child in a joint tenancy means guaranteeing for the other tenants in the event that those others damage anything, you are responsible for it if they aren’t able to come up with the payment.
To be able to serve as a guarantor in a tenancy agreement, one has to own one’s own house which the landlord will hold charge of in the event that both you and the tenant are not able to come up with the rent. Basically, the guarantor should have a better credit history than the tenant and a stable source of income. To determine this, the landlord is free to run the same kind of background checks they are required to run on the tenants on the guarantors.
Whether you like it or not, at some point in the lifetime of your buy to let property investment, you are likely to have a tenant who causes you problems. Whether it is delay a in payment of rent or non-payment of rent, or causing nuisance to other tenants and neighbors with noise. Other common issues you are likely to face are: damage to property, failure to tell you about needed repairs, keeping pets when pets are not allowed, carrying out illegal activities on your property, leaving without proper notice, subletting your property to meet rent and so on.
As much as we want it, there is no way to guarantee that a tenant will be trouble free. This is why carrying out proper tenant referencing is important. When you carry out proper checks for the tenants before accepting them into your property, you are minimizing the likelihood of having these issues.
In the first place, asking prospective tenants to complete an application form is a good way of finding out how serious they are about renting the property. A typical application form should include:
- Contact information, including mobile phones, landline and email
- Previous addresses going back up to three years
- Current address
- Utility bills that show proof of previous addresses such as gas, electricity and water bills
- Employment information
- Bank information
- Guarantor details
- Next of kin details
- Identification details, such as driving license or passport
- National insurance number or something similar
- Declaration of any county court judgment, pending or unfinished conviction or previous financial difficulty
The best way to run a referencing process is to make use of a referencing agent. They understand the best way to get the necessary information to find out the type of person your prospective tenant really is. It is possible to accept a reference directly from the prospective tenant. However, you need to be aware that some people have ways of getting falsified records. These records look very much like the original, so you need to ensure that the one you are holding is authentic. Even after accepting references from the prospective tenant, you should also do your own checks. For instance, you can write to the previous landlord at their own home to verify the information contained in the reference that you were given. You can also confirm the employment information given to you by making a hand-delivered request for a reference to the employers’ actual address. You can easily get this information by looking the company up online. For previous residence, you can check that the landlord on the record actually owns the property by checking them up on www.landregistry.gov.uk. On this same website, you can find out if the same landlord is the owner of the property that the tenant rented.
The bottom line is, even if you accept references directly from the prospective tenant, ensure that you do your own checks to ensure that the references provided are real and carry authentic information.
A landlord needs to get written permission from the prospective tenant before running a credit check. This written permission can be gained through a clause which will be included in the rental application form, or by a separate document which the tenant will sign.
- Clause Inclusion In a Rental Application Form
The landlord can achieve this by including a clause in the application form, somewhere at the bottom, where the prospective tenant can see it. This clause is intended to get the applicant’s consent in written form. It can state that, by agreeing to sign the application form, the potential tenant is agreeing to a credit check.
- Separate Document
Another way of getting written consent for running a credit check is for the landlord to create a separate document asking for the prospective tenant’s consent. By signing the document, the applicant is giving their consent in written form, and both landlord and tenant can keep a copy of the signed document.
Information Needed For a Credit Check
When you’ve gotten the prospective tenant’s consent to run a credit check, there is certain information you will need. This includes:
- Full Name
- Date of Birth
- Social Security Number
These should be included in the “Credit Check” Consent Document, which the prospective tenant has to sign.
Mistakes to Avoid
It is true that a credit check can help you in choosing the right tenant for your rental property. However, you also need to avoid certain mistakes.
- Make sure that you get written consent before carrying out a credit check. This will save you a lot of legal trouble.
- Do not discriminate. Ensure you run a credit check for every tenant applying for your rental property. Running a credit check only for someone of a particular race, gender or colour is against the Protected Characteristics Law.
Do not base your conclusions only on a credit check. There are individuals who can supply false information. Be sure to get a reference from a previous landlord and current employer for the prospective tenant.
Tenancy checks can be simple or comprehensive. A simple tenant reference report contains only the credit check score. A comprehensive tenant report, on the other hand, is much more detailed and contains much more information. Carrying out a detailed tenant reference report is aimed at providing an in-depth analysis on whether an applicant is suitable for a rental property. A comprehensive tenant reference report contains the following information:
- Identity Verification: This confirms the name, face and address which has been provided by an applicant. It is aimed at verifying that the applicant is not using a false name or posing as another individual.
- Credit Check: A credit check confirms the individual is not in debt, or has a history of debt and bankruptcy. Credit checks confirm the salary of the applicant and also takes a look at their bill-paying history. If the individual has not been paying their bills in a responsible manner, it goes to show they might not be responsible with rent payment.
- Reference From a Current Employer: The agency handling the reference check will contact the current employer of the applicant to confirm their salary status. This is used to confirm the applicant is truly employed and not giving false information about their employment or the salary they are earning. The employer can provide a written reference for documentation purposes.
- Reference From a Previous or Current Landlord: The tenant will be required to make a reference available from a current or previous landlord. This will be in written form and is aimed at confirming the applicant was a good tenant in the previous property they occupied. In some cases the landlord will be contacted directly to ensure the applicant does not provide a false reference. If the applicant provides a false reference, this shows they are hiding something.
- Ability To Afford The Property: By bringing together information from the credit check and the employment status of the applicant, the agency handling the reference report will then be able to give a comprehensive analysis. This analysis will outline if the applicant will be able to comfortably afford the rent.
Through the combination of the above information, a landlord will then be able to make an informed decision on whether to rent the property out to the applicant or not. It can be a good pointer on whether an applicant will make a bad or good tenant.
Landlords can do credit checks on potential lodgers. The interactions between the lodgers and the landlord involve money, so it is necessary for landlords to find out the past credit records of potential lodgers. This will ultimately help prevent the possibility of landlords and tenants running into any credit-related quarrels in the future.
Credit checks will help landlords to get to know more about those they want to rent their properties to. It will enable landlords to confirm the personal information provided by the lodgers such as their name, address, employment history, and social security number. Landlords can also access other relevant information about their potential lodgers, such as their credit history, including a list of banks, loans held, credit cards, mortgages, etc. As well as public records including tax issues, history of bankruptcy, and history of eviction, if any.
Landlords are not, however, expected to wake up one day and start immediately running credit checks on potential lodgers. The consent of the prospective lodgers must be secured first, and this must be in writing. If a prospective lodger denies their consent/permission, it means that the landlord cannot access the credit records of the potential lodger. If, on the other hand, the lodger gives their permission, the landlord can then proceed with the process by providing a form for the potential lodger to fill out. The form should have entries for Name, Current Address, Address for the Past Two Years, Date of Birth, Current Employer, and Social Security Number.
After obtaining the required information from the lodger, it will then be handed over to a Credit Agency, of the Landlord‘s choice, for the checks. Meanwhile, as the agency is working on the check, the landlord may decide to carry out some basic checks like the name, current employer, and the current address of the lodger.
Once the result of the check is available, the landlord should look out for the following: record of late payment, record of financial instability, evidence of eviction, huge debt, and evidence of lawsuits. If the check contains any or all of those, then the lodger has a bad credit history. The landlord should also look out for evidence of fraud, or if the lodger has lied in the references provided.
In the case that the potential lodger has bad credit, has been involved in fraud, or has falsified any of the references, it is not advisable for the landlord to take on the lodger. Someone like that can simply not be trusted.