Are you a property investor that is considering a Rent to Rent for your portfolio?
Sometimes called a guaranteed rent agreement, these are commercial agreements that fall outside the scope of the Landlord & Tenant Act 1954. Having a written agreement is crucial and you should always obtain legal advice, as many are not professionally drafted and are of very poor quality.
These propositions have increased in popularity but can come with a real sting in the tail, as one of my clients has found out to their financial and emotional detriment.
These are three way arrangements: You as the overall owner, a middle man that pays you a fixed rent and is your tenant, usually a lot less than the market rent for each unit if let separately and the ultimate occupier who pays their rent to the right to renter middleman (usually a market rent), therefore they are the tenant to the right to renter. You have no direct contractual relationship with the person occupying your property, and you have no say on who they are. This is starkly different to a traditional landlord and tenant relationship which is a direct legal relationship with each other.
As my own client found out, this arrangement can attract unscrupulous and incompetent people both financially and legally. My clients agreement was headed as a guaranteed rent agreement, it was very short, non-standard and was signed without legal representation. It turns out that the right to renter was dubious because they only approached those that were over retirement age and / or in declining health. They were not honest about their own financial position. The tenancy agreements they gave out were signed by them but occasionally stated my client as the landlord. They had no insurance cover and refused to deal with licencing, despite the portfolio properties being in a selective licence area. The inevitable licence breaches resulted in action being taken by the local authority, causing a lot of stress to our client who was in poor health.
They were also dishonest with the occupiers, stating they were only agents, but taking rent payments in cash and not providing rent books.
They took deposits without protecting them.
When they failed to pay the rent due to our client, they continued collecting the occupiers rent but refused to take calls or respond in any way to our client.
There is a very good reason why most Buy to Let lenders do not permit these agreements.
If you already have an agreement like this in place, remember that you as the property owner remain liable for getting your licence and any breaches. Therefore, keep checking that the property is being used in accordance with the licence.
There is no redress scheme, code of practice or complaints system.
If you have an investment property that you wish to discuss contact Mercian Law either on our website web chat function, or by calling 01827 215679 to discuss how we can be of assistance and the fees involved.
Please note that this article does not constitute legal advice. Mercian Law Limited have tried to make this article as accurate and complete as possible at the date it was written. The laws of England and Wales change frequently, and you are advised to take legal advice before embarking on any legal action.