Letting to an agent:
Rent to Rent means you rent your property to a “middle man”, an agent who then re-rents (sub-lets) to an occupier, a tenant.
This has become a popular formula for some landlords. It removes the hassle of dealing with tenancies, achieves a ‘guaranteed” rent for (usually) around three years, and the owner gets the property back in pristine condition, or so the theory goes.
On the other hand, the agent will be renting the property off the owner for a bit less than the market rent, making a profit on the deal for their trouble when they rent to a single or multiple tenants.
The practice has been heavily promoted by the “investment guru brigade” as a way for individuals to get into property without the need for a large investment. But unfortunately some of these would-be property gurus are amateurs with little experience at best, if not rogues at the worst, so things can go horribly wrong.
That’s not the whole story of course; there are some genuine, professional and highly experienced agents offering this type of service, and some local authorities do so as well, but even so, owners need to be careful. There are some gaping chasms of risk that owners can fall into with this practice, so buyer beware.
First off, the legalities:
This is a rather complex and in some respects an indeterminate area of the law. There are in effect two tenancies here, one between the owner and the agent, and another between the agent and the tenant. Most likely the latter will be a standard AST (Assured Shorthold Tenancy), but the former is not, because the tenant is not an occupier, one of the main requirements of an AST.
The former would most likely be a contractual tenancy between owner and agent, but there are instances, dependent on the circumstances of the tenant’s letting, and how the property’s being used, where the former arrangement could be a commercial tenancy under the Landlord and Tenant Act 1954.
A commercial tenancy, if not set-up properly, can give the agent renewal rights, which could cause no end of problems for the owner when the term comes to an end. Likewise, even a straightforward arrangement with a contractual tenancy and an AST can present problems if at the end of the term the tenant remains in place. Here, under section 18 of the Housing Act 1988, the owner will inherit the tenancy, with all the problems that may entail.
Secondly, a trustworthy agent:
Can the agent be trusted to set-up a proper legal framework that fully protects the owner? And will they pay the guaranteed rent, even if there are void periods? Owners should be mindful that they should be dealing only with experienced agents who are members of one the recognised professional associations. Also, the agent should be using a knowledgeable solicitor to arrange the legalities.
If in doubt seek legal advice and get the agent checked out properly.
Thirdly, the regulatory risk:
There are now some swinging penalties for not following the rules and an innocent owner can get drawn into the fray. So if a rogue agent were a carry out internal alterations, increasing the number of lettable rooms to cram in more tenants, then things could get nasty. An illegal HMO (House in Multiple Occupation) is created which when not properly licensed carries fines of up to £30,000.
Evicting a rogue agent and the tenants he has rented to could take a lot of time and hassle, let alone all the expense involved.
Given the number of these types of lettings over recent years, there are likely to be more examples of a case which came to court last month:
A rogue letting agent from Hertfordshire was fined £72,000 after it was said he had been “breaking almost every regulation in the book”. Watford-based Muhammad Siddique was found guilty of 15 offences dating back to 2017.
Siddique had been operating three illegal HMOs without the knowledge of their owners, despite the owners thinking they were rented to single families. Inspectors found he was seriously breaching health and safety regulations and failed to provide gas and electrical safety certificates.
St Alban’s Magistrates’ Court heard that Siddique had been a franchisee of estate agency chain, Open House, but his franchise agreement ran out in 2016, terminated when the company became aware of his failure to meet compliance procedures.