How to vet your prospective tenants

Lawpack on March 27, 2020

You’re a landlord who is letting out your investment property. Who is your ideal tenant?

Here are the qualities you should be looking for in the ideal tenant. They should:

  • not smoke, and be professional, well mannered and well presented;
  • pay the rent on time, not bother their landlord very often, and never complain;
  • never have noisy parties, never bother their neighbours, never sublet, and generally not be any trouble to their landlord.

But the most important quality in a tenant is that they are HONEST. Landlords who have honest tenants can manage their investment property effectively and simply, as an honest tenant usually pays their rent on time, communicates well, and resolves any problems concerning the tenancy efficiently.

But how can landlords spot an honest tenant? You may think that you can trust your instincts when you meet a tenant for the first time, but there are some very plausible tenants who make a profession from ‘scamming’ landlords. These tenants are usually polite, well presented and have good jobs, but once they’ve signed the tenancy agreement, they can make a landlord’s life hell!

If you’re thinking of trusting an ‘honest face’, note that research undertaken by the Residential Landlords Association has shown that where no tenant checks are undertaken; landlords are seven times as likely to end up taking court proceedings.

Make sure that you’re not duped by these tenants, by following our five essential steps to tenant checking:

1. Credit referencing

A tenant referencing agency carries out checks on a prospective tenant’s credit worthiness and verifies the tenant’s personal details. These agencies offer various levels of service, but landlords should at least opt for the basic package which will check the following:

  • Electoral Roll to check out the tenant’s current and previous address
  • County Court Judgments (CCJ), bankruptcy and any court-based voluntary financial arrangements to find out whether the tenant has a poor credit history
  • An affordability check to make sure that the tenant can afford the rent on their stated income
  • Validate the tenant’s bank sort code and address to make sure that it’s legitimate
  • Check the details that the tenant has given the tenant referencing agency against any relevant stored data

The most important information a tenant referencing agency gathers is whether the tenant has a County Court Judgment (CCJ). If the tenant has a County Court Judgment (CCJ), this isn’t good news as it means that a creditor has previously taken the prospective tenant to court because of their non-payment of debts. If you find out, during the tenant checks, that the tenant has a number of County Court Judgments (CCJs) against them, DON’T let them sign a tenancy agreement.

Often the tenant reference agency will provide the landlord with a score of the tenants’ suitability as a tenant and it may suggest to the landlord a course of action. If the tenant gets a really low score, it may be due to the fact that the tenant has:

  • never used a credit card or borrowed money
  • no fixed address and/or they are not listed on the Electoral Roll
  • lived at their current address for a period of less than six months
  • been in employment for less than six months
  • been, or is, a student, or has a low income
  • a history of debts, late payments or Count Court Judgments (CCJs)

The tenant referencing agency’s scores should be used as guidance, but landlords shouldn’t read them too literally. For example, students will have a bad record as they move around frequently and they have a limited credit history. If this is the case, you can use a guarantor if you want to let out your investment property to students.

The tenant verification process should also involve an identification check to prevent ID fraud. Ask your prospective tenant to show you their passport to prove their identity.

2. An employer’s reference

With tenant referencing landlords can find out whether a prospective tenant is in permanent or temporary employment. If the tenant’s contract is about to expire, can they pay rent in the future?

What is the tenant’s salary? Landlords can use an employment reference to find out if the tenant can afford to pay the rent and, as a guide, you can calculate the tenants’ affordability of the rent in respect to their income by multiplying the monthly rent by 30. This will give you a rough indication of what the tenant’s minimum salary should be to be able to pay the rent. For example, a landlord wants to charge a monthly rent of £1,000. Multiply this by 30 and it equals £30,000. If the prospective tenant’s salary is £20,000, how is the tenant going to afford the rent without receiving benefits or sub-letting the investment property?

3. A bank reference

Landlords will find these tenant references to be the most difficult and time consuming to obtain, as they need written authorisation from the prospective tenant to allow the bank to respond. The bank will then charge a fee for their services and, even then, the bank will probably respond with a non-committal answer (e.g. ‘We see no reason why the tenant will not be able the meet the rent’). As the tenant could easily delve into their huge overdraft to pay the rent, a bank reference is probably not worth the bother.

If you can and the tenant is willing to give them to you, it may be wise to ask the tenant to provide you with copies of their last six months’ bank statements. These will show you the tenant’s monthly outgoings and they will flag up any worrying habits, such as a gambling addiction.

4. A landlord’s reference

If your prospective tenant is currently in rented accommodation, obtain a reference from their current landlord. Ask the following questions:

  • How long has the landlord had them as a tenant?
  • What rent do they pay?
  • Did they pay the rent promptly and in full each month?
  • Did they ever get into, or are presently in, rent arrears?
  • Have they cared for the investment property and its contents?
  • Would the current landlord accept them as a tenant again?

To prevent a prospective tenant from falsifying their landlord’s reference, you could always check it by ringing the current landlord up to verify the details.

Also, remember that a current landlord may give a glowing reference just to get rid of a bad tenant, so it may be wise to check with the tenant’s landlord before the current landlord as they will have nothing to hide. Also, you can check the tenant’s bank statements to make sure that the rent is being paid each month.

Bear in mind, too, that letting agents are on a ‘finder’s fee’, so they may not be as thorough in their reference checks.

If your prospective tenant has not rented before and is a homeowner who has decided to sell their property and rent, you obviously won’t be able to get a landlord’s reference. In this case a landlord should ask for copies of the tenant’s last six months’ mortgage statements to check that they were not behind with their mortgage payment. If the tenant refuses, has the tenant got something to hide?

5. The tenants’ personal reference

As with the landlord’s reference, a personal reference is very subjective. So, again, don’t worry too much about it.

Related Link:

Top tips on letting for first-time landlords

Lawpack on March 27, 2020

As the housing market slows, more and more people are being driven to rent property and rents are reaching record highs. Many people are also becoming landlords for the first time as they can’t sell their property and decide to rent it out instead.

Demand for rental property has never been so high and it’s a great time to generate extra income as a landlord.

But what are your obligations as a landlord and how do you get ready for tenants? Here are our top tips on what you need to think about when renting out a property and what you need to do to protect yourself, your property and maximise your rental income.

1. Preparation

Before potential tenants view the property, make sure that it’s clean and that you have finished any DIY. Will you let the property out as furnished or unfurnished? Remember that if you’re providing ‘contents’, then you need wider insurance cover.

2. Health and safety

It’s vital that you comply with fire, gas, electric and furniture regulations. These obligations are discussed in detail in our book The Complete Guide to Residential Letting, written by a solicitor specialising in landlord and tenant law.

You must make regular safety checks and keep records to protect your tenants. Safety checks also help to ensure that your insurance is valid.

3. Using a letting agent

Letting agents are useful if you don’t have time to manage your rental property, but they take between 8-15% of the rental income profit. Although they help you to find tenants, do still get involved with the tenant interviews as it’s important that you’re comfortable with the person moving in. Also, do make sure that you’re getting the most competitive deal from your letting agent.

4. Finding tenants

If you’re letting out the property without using a letting agent, then you need to reference the tenants yourself. Websites, such as Rentcheck’s Tenant Checking Service, can do it for you at a fixed price. It’s vital for you to find out if your tenant is able to pay the rent with a credit check.

5. Know landlord and tenant rights

When renting out a property it’s important that you know your obligations as a landlord. If you want to enter the tenant’s home, for example, then you must give the tenant at least 24 hours’ notice. Lawpack’s Landlord’s Letters provides you with all the template letters you need to help you easily liaise with your tenant.

6. Draw up a tenancy agreement

A tenancy agreement is a great way of protecting your rights and the property. Lawpack’s tenancy agreements are all solicitor-approved and include a long list of terms and conditions, which outline, among others, whose responsibility it is to upkeep the property. A tenancy agreement outlines in writing how long the tenancy will last and the notice period needed to evict the tenant.

Find out more on the dangers of not making a tenancy agreement.

7. Take a deposit

Getting a deposit is a good way of protecting against any damage and all landlords must register a tenant’s deposit with an approved Tenancy Deposit Protection (TDP) scheme. It’s usual for the deposit to be 4-6 weeks’ rent.

8. Make a property inventory

Making a detailed and accurate property inventory is vital if you want to protect your rental property, particularly if it’s furnished. A property inventory proves how the property looked and what was provided the day the tenant moved in and is proof of evidence should there be a dispute over the deposit or any damage to the property.

9. Get insurance

It’s important that you get landlord insurance cover, as most standard house insurance policies don’t provide the level of protection landlords need. A good insurance policy should cover professional tenants, students and DSS tenants, loss of rent, unoccupied periods, alternative accommodation, tracing and accessing leaks, accidental damage, legal expenses and liabilities, plus rent protection.

10. Create an Energy Performance Certificate

By law landlords need an Energy Performance Certificate, detailing the energy efficiency of the property, in order to let or sell it.

10. Eviction

If your tenants are becoming a nuisance and you need them to leave, then you need proof that the tenants have broken the terms of their tenancy agreement. If the tenants are in rent arrears you can start eviction proceedings with Lawpack’s Section 8 Notice.

Find out more on the eviction process with Lawpack’s Tenant Eviction Kit.

More information