tenancy agreement

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.

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Why a written tenancy agreement is necessary

Lawpack on March 27, 2020

Having a tenancy agreement is vital for any landlord. It’s so important to get the tenancy in writing as it protects your property, sets out your obligations and that of your tenant’s, plus it prevents potential disputes between you and your tenant in the future.

Although there is no legal requirement for you to create an assured shorthold tenancy (AST) in England and Wales, all landlords should ensure that their tenants have signed a written tenancy agreement prior to letting them into the rental property.

But in Scotland all landlords must have a written tenancy agreement for the tenancy to be a provate residential tenancy (PRT).

The disadvantages of not getting it in writing

If you make arrangements informally with your tenant, there may be arguments later about the tenancy terms, even if these were clearly discussed when the tenant moved into the property.
Once a tenant is in occupation, you cannot then force them to sign an agreement that varies the terms of their tenancy, so it’s essential that this is done before the tenant goes in.
You will not be able to use the accelerated possession procedure to evict the tenant, where there is no written agreement.

The advantages of getting it in writing

A formal agreement protects your position and regulates the tenant’s use of the property.
If you intend to take a damage deposit, which has to be protected under one of the statutory tenancy deposit schemes, you will need to make an agreement.
If no written tenancy agreement is provided, you’re required, by law, to provide the tenant with written details of the main terms of their tenancy within six months; so you may as well provide a proper written agreement to begin with.
Housing Benefit offices require tenants claiming benefit to produce a signed tenancy agreement.

Lettings not needing an agreement

Although all tenancies should have a formal written agreement, licences don’t always need them. For example, written agreements are not necessary in the following circumstances:

Letting a room in your house to lodgers. However, we still do advise you to get it in writing with a Lodger Agreement.
Bed-and-breakfast accommodation.

But even if a formal tenancy agreement isn’t provided in these circumstances, there should always be some paperwork to prove the terms of the letting, in case there is a dispute at a later date.

More information

When landlords need a rent book

Lawpack on March 27, 2020

Rent is the money which a tenant pays the landlord in exchange for their right to occupy the property.

In England & Wales and Northern Ireland the payment of rent isn’t absolutely needed to create a tenancy, but in Scotland it’s vital.

For lodgers the money paid isn’t rent but is simply a licence fee as lodgers don’t have tenancies.

Homeowners should be careful not to describe money paid as rent if they’re not creating a tenancy as it causes confusion and may give the occupier more rights than they intend, but you cannot avoid creating a tenancy by falsely describing a rent payment as something else.

Providing a rent book to a non-tenant will not in itself be enough to allow the tenant to assert that they are paying money as rent despite its title.

The requirement for a rent book

It’s compulsory for all landlords in Northern Ireland to provide a rent book for all tenancies and landlords commit a criminal offence if they fail to do so.

The offence is committed every time the rent is demanded and every 14 days during the tenancy in any case, so landlords who don’t provide one can find themselves being prosecuted for multiple counts of failing to provide the document.

Each carries a substantial fine.

In England & Wales and Scotland a rent book is only required:

where the rent is described in the tenancy agreement as being paid weekly; or
where the rent is actually paid weekly by agreement irrespective of the wording of the agreement.

Where rent is being demanded or paid weekly, it’s a criminal offence to fail to provide a rent book.

Keeping it up to date

Where a rent book is required to be provided it’s also an obligation that it’s kept reasonably up to date.

The purpose of one is to provide a receipt for payments for the tenant and a log of rent paid for the landlord.

Therefore it’s useless to have such a book and then allow it to become hopelessly outdated.

Rent in advance or arrears?

Where payment is due it falls due on the morning of the day stated in the agreement, but the tenant has the whole of that day (until midnight) to make payment.

Where it is stated in the tenancy agreement that rent is payable in advance (such as in Lawpack’s agreements), the tenant will be deemed to be in arrears for the whole period that they are obliged to make payment for once that payment is outstanding.

So if a tenant is supposed to make a payment on the first day of each month in advance for the coming month the tenant will be one month in arrears if they don’t make payment on that day.

Where rent is payable in advance there is no requirement in law that the payment be apportioned and this is only required if the tenancy agreement allows for it.

So if a tenant makes advance payment for a full month and then departs the property part way through the month (even if they do so with the landlord’s agreement), then the landlord is under no obligation to refund the money for the unused portion of that month (even if they relet the property) unless they have specifically agreed to do so.

Which tenancy agreement do I need?

Lawpack on March 27, 2020

You’ve got your rental property and found your tenant – all you need to do is get them to sign a tenancy agreement. But which one do you need.

If you’re a landlord who thinks tenancy agreements are unnecessary, think again! A tenancy agreement is vital as it sets out the rights and obligations between you and your tenant and, as a result, protects your property and your finances. But you must use the correct tenancy agreement for the right type of tenancy concerned.

Lawpack has a wide range of tenancy agreements, including assured shorthold tenancy agreements, non-assured shorthold tenancy agreements, private residential tenancy agreements, company let tenancy agreements and lodger agreements. But which tenancy agreement should you use?

England and Wales

AST or non-AST?

Most tenancies in England & Wales are assured shorthold tenancies (ASTs) and are regulated by the Housing Act 1988.

Some tenancies are exceptions, however, and you may need to use a non-assured shorthold tenancy agreement if any of the following applies:

The rent is at the rate of over £100,000 a year
The tenant is living in self-contained premises in the same building as you
The tenant is a limited company
The property isn’t the tenant’s main home (e.g. a weekend cottage)
It’s a holiday let

Find out more about non-AST tenancy agreements and which one you need to use below.

Assured Shorthold Tenancy (AST)

Assuming your tenancy is an AST, slightly different forms of tenancy agreement need to be used depending on whether:

there is one or more tenants living in the whole flat or house, or
there are a number of tenants who all have separate tenancy agreements for their own room, with shared use of the rest of the property

Lawpack publishes the following AST tenancy agreements you can use:

Unfurnished Tenancy Agreement / Furnished Tenancy Agreement

You can use either of these AST tenancy agreements if you, as the landlord, don’t live at the property. Both tenancy agreements can be used for a single tenant who occupies the property on their own, or a group of tenants who jointly occupy the property and share responsibility.

If the tenants are sharing and sign this tenancy agreement as a group, it’s best if they are all family or friends as problems can arise if you’re letting to people who don’t know each other and they want to leave the property at different times.

Tenancy Agreement for a Room

It may be preferable for you to get them to sign a tenancy agreement for their individual room, which gives them shared use of the rest of the property. When giving your sharing tenants a separate tenancy agreement, it’s best to use a non-resident house share/flat share agreement.

This tenancy agreement can be used if the tenant is living in a room in the property where you, as the landlord, are not resident.

Under this AST tenancy agreement, the tenant has exclusive occupation of their designated room and will share the use and facilities of the house or flat (e.g. bathroom, toilet, kitchen and sitting room) with other occupiers of the furnished property.

Non-Assured Shorthold Tenancy

In England & Wales non-assured tenancy agreements are also known as ‘common law’ tenancy agreements as they are governed by underlying common law and are not regulated by the Housing Act 1988.

Lawpack has the following non-AST tenancy agreements you can use:

Contractual Tenancy Agreement (Non-Assured Shorthold Tenancy Agreement)

This non-AST tenancy agreement (for England & Wales) should be used if:

The annual rent exceeds £100,000 a year
The premises being let is self-contained accommodation in a property that has been converted from a single property to multiple units (e.g. a house converted into flats), where you (the landlord) live
The property isn’t the tenant’s principal home (e.g. a weekend cottage)

This common law tenancy agreement can be used for a single tenant who occupies the property on their own, or a group of tenants who jointly occupy the property and share responsibility.

Company Let Tenancy Agreement

This Company Let Tenancy Agreement should be used if you want to let a house or flat in England or Wales to a company.

This common law tenancy agreement should be used where the tenant is a company and the occupier of the property is an employee or visitor of the company, with their family.

What if I use an AST by mistake?

If you accidentally use an AST instead of a common law tenancy agreement, don’t panic. It doesn’t mean that your tenant isn’t entitled to live in the property and doesn’t have a proper tenancy. But some parts of the tenancy agreement – those relating to the AST – will be misleading and could cause problems later down the line (e.g. you may have difficulty evicting the tenant at a later date).

Other letting agreements

Holiday Letting Agreement

This rental agreement can be used if you’re letting out a furnished property in England & Wales on a holiday let basis (e.g. for a limited period or holiday). It can be used with most types of holiday let properties (e.g. a house, apartment, flat, caravan or cottage).

The Holiday Letting Agreement is specifically excluded from the Housing Act 1988, so tenants have no security of tenure and must vacate the property at the end of the fixed term, or if found to be in breach of the terms of the Holiday Let Agreement.

Lodger Agreement

You can use this Lodger Agreement when you want to rent a room in your furnished home and are happy for the lodger to share the common parts of the property (e.g. bathroom, toilet, kitchen and sitting room) with you. But this Lodger Agreement can only be used in situations where the property is your principal home.

Scotland

Private Residential Tenancy agreement (PRT)

PRTs are similar to ASTs in England & Wales. You can use a short assured tenancy agreement if you, as the landlord, don’t live at the property.

Lawpack has the following Scottish PRT tenancy agreements you can use:

Unfurnished Tenancy Agreement / Furnished Tenancy Agreement

Both of these PRT tenancy agreements can be used for a single tenant who occupies the property on their own, or a group of tenants who jointly occupy the property and share responsibility.

Tenancy Agreement for a Room

This tenancy agreement can be used if the tenant is living in a room in a furnished property where you, as landlord, are not resident.

Under this PRT tenancy agreement, the tenant has exclusive occupation of their designated room and will share the use and facilities of the house or flat (e.g. bathroom, toilet, kitchen and sitting room) with other occupiers of the property.

Other letting agreements

Holiday Letting Agreement

This agreement can be used if you’re letting out a furnished property in Scotland on a holiday let basis (e.g. for a limited period or holiday).

It can be used with most types of holiday let properties (e.g. a house, apartment, flat, caravan or cottage).

Lodger Agreement

Northern Ireland

Private Tenancy

Lawpack has a Northern Ireland Tenancy Agreement which complies with the regulations that apply to private residential tenancies in Northern Ireland.

This private tenancy agreement can be used for a single tenant who occupies the property on their own, or for a group of tenants who jointly occupy the property and share responsibility.

The terms and conditions included in this tenancy agreement meet the legal requirement in Northern Ireland that a ‘Statement of Tenancy Terms’ must be given to the tenant. Plus it includes a Property Inventory of Furnishings, which all tenancies are required to have by law in Northern Ireland.