Bad Rent To Rent

Bad-Behaviour

Two cases that have come across my desk this month have highlighted the potential pitfalls of rent to rent (or guaranteed rent). They make grim reading for landlords, councillors and enforcement officers. All of us would do well to understand how rent to rent works so that if it goes wrong, the right people are identified for enforcement. For landlords it is also important to make informed and wise decisions about management of our assets. They also serve to highlight the jaw dropping complexity of law, redress and enforcement when or if- the landlord themselves is the victim of sharp practice (or worse). 

What Is Rent 2 Rent? 

Lets be clear. There is nothing illegal about rent to rent. To explain the basics for those unfamiliar with the term, it is where an intermediary rents the whole property from a landlord, then lets out the property by the room, taking control of the property and making an income (or perhaps hoping to make an income) from the difference between rent paid to the landlord and rental income earned from the tenants. They undertake to take on the responsibility for the property and take the headache away, but they do not as a matter of law fully absolve you of your responsibilities. You are still the property owner albeit they do at least have day to day control. 

Given that description, PDPLA members may wonder whether why, having gone to the trouble of buying a property and taking the risks associated with property ownership, they should let an intermediary have some of the income potential. As an association, we have long encouraged active and skilled self management of property with the landlord retaining as much of the income as is reasonable once legal duties have been met as a financially and personally rewarding activity in its own right. 

For many of us it is a source of pride as well as income. That said, there is no doubt something superficially attractive about those letters that offer guaranteed rent with little or no loss of income, particularly with a sharp drop in demand for student properties and ever increasingly complex legislation, the notion of handing the keys over and forgetting the whole deal can seem worth exploring. 

But the old adage "if it seems too good to be true, it probably is" has not gone away. our first problem comes with the way rent to rent, which has exploded as the latest "get rich quick scheme", is marketed to landlords. 

What Is Rent 2 Rent? 

The first step for a recently trained rent to rent hopeful are freedom of information requests to local authorities requesting lists of contact details of HMO landlords (which we have long campaigned to have refused on privacy grounds), Next step, those letters that are the bane of HMO landlords, arriving almost daily in garish coloured envelops. If one in a few thousand letters finds its mark the others going into the recycling have paid for themselves. 
Since we have not consented to this use of our data, you could complain to the Information Commissioners Office (but will you bother)? It should ring a bit of an alarm bell though, can anything good come of sharp practice? 
Often what is offered is a "company let" with "guaranteed rent" sometimes with the promise of a "Government Backed Scheme". Our advice is to find out if these things are actually true, if they are not quite what is offered, given the letter is touting for business you could, if you thought about it, speak to the Advertising Standards Authority (about the advert) or if you sign and the claims turn out to be untrue (or if you suffer a loss while doing your checks), a private landlord could probably complain to the Competition and Market Authority about unfair commercial practice, but we are fairly certain even the most nerdy PDPLA member would have given much thought to calling in the CMA in their hour of need. 
In the last few years, with, it seems to me at least, rent to rent and rent to serviced accommodation have spawned an almost cult like following, complete with messianic group meetings and an industry of helpers and mentors waving calculators in the air, pointing video cameras at themselves and posting snippets of self proclaimed wisdom on social media. 
Honestly. The cheesy smiles can be seen from space. Well almost anyway. Few if any of them actually own a property of course. Again, not illegal but the key to, well handing over the keys, is making sure the person (or company) you are trusting are up to the job and are not putting you at risk.

Exploited Landlord 1

Our first enquiry came from a member who had been offered guaranteed rent with a government backed scheme. The approach came via an agency for an unlet student property. The problems started when the landlord was asked to pay unexpected maintenance bills for an alarm system that had been installed by the rent to rent business (along with some rather unexpected stud walls) 
On examining the matter, the agent who provided the introduction service had used a "company let" agreement. That seems to be par for the course, except that it stated the company could place 2 of their employees in the property. Not what either party intended. 
What is much worse is that if failed to identify who would pay for what, the matter that would lead to referral to PDPLA 
We have developed a detailed checklist on our website and the link below link to the PRS "ultimate guide" will serve to highlight the main issues but for quickness, a few of the lessons we have identified are; 
- Make sure your buildings insurance, mortgage (if you have one) and lease agreement (if you have one) allow for sub letting and rent to rent. 
- Make sure you know who you are dealing with, take up references and carry out financial checks as you would with any tenants. if the rent is "guaranteed" who is providing the guarantee? if the company has no assets and a short trading history, is the guarantee underwritten by an insurance policy? Do they accept rent to rent businesses? Is there a personal guarantee from a director? Are they a homeowner? 
- Do not use a company let agreement. it is the wrong thing, does not help with the detail and runs the risk of coming unstuck. Make sure you use a dedicated rent to rent agreement and identify who will pay for what expense (boiler, roof, broken window, fire alarms, reinstatement of works) A line by line agreement from a specialist solicitor will pay for itself many times over 
- State the maximum number of people who can reside in the property and set out who is responsible for the licence. Our advice is to ask for reports (you may have a very limited right to inspect the property if you have commercial lease in place) 
- Make sure you can bring the agreement to an end, this is a complex area of law, see the guide below but you could inadvertently create an agreement with an implied right to renew, making it all but impossible to prevent a forced renewal (imagine now trying to sell the property) 
- If there is an infringement of the newly proposed (in Portsmouth) additional licensing plans, if they are implemented, or if mandatory licensing is infringed, either by intention of the rent to renter, or otherwise, you may find Portsmouth City Councils Private Sector Housing team visiting the property. Hopefully they will go for the person collecting the rent, but they could enforce against you. You would have a reasonable excuse, in theory, if you did not know of the infringement but as soon as you become aware you MUST act, or at the very least inform the authority of any infringement. We are actively encouraging the local authority to consult trading standards prior to any enforcement action to look into the contract and follow the guidelines in OFT v Foxtons [2009] which suggests that landlord who are not full time landlords (single and small portfolio, overseas, pension supplement) are to be regarded as consumers. In short, if a landlord has been duped by an unscrupulous (or incompetent) rent to rent business, the first target for enforcement should be the rent to rent business- the people with day to day control- and not the landlord, who may have been lured into a false and misleading sense of security, nurturing the belief such matters are being taken care of by a professional.

Exploited Landlord 2

Our second case involves a partnership with a member who is an investor and not actively involved in day to day management, working and living away from the city and an agent/rent to rent business owner. There is no written agreement. Over a period of time the relationship seems to have changed from a partnership to an agency relationship, to a rent to rent agreement but without any formal record or written agreement or terms of business, as we understand it. 
There are elements of all 3, the agent/rent to renter appears to have adopted a "pick and mix" approach to the arrangement to suit himself. So much so, it is genuinely hard to know which if any enforcement authority to start with (or perhaps just go to all of them and hope they can sort out the muddle). 
Again the lack of a proper agreement is shocking but hardly an isolated case. We say the blame sits at the door of the rent to rent agent in this case from what we have seen so far. To repeat, rent to rent is not illegal and there are reputable providers working hard to provide a good service for landlords and tenants alike, but our two recent cases show that this is by no means always the case.
We are still digging into this one, but it appears that the rent 2 rent operator may have sold some properties that the landlord believed he had an ownership share in, with no involvement of the landlord or any sharing of the proceeds while in other properties, the owner has no idea of when or whether they are being let, what income is received or how or why his 'share' fluctuates as it does....

PDPLA Recommendations

By way of comparison an old fashioned letting agent owes you a duty of care, a duty not to make a secret profit, a duty to declare a conflict of interest, and to account to their landlord client in full. 
Rent to rent could never work like this but done well, the phone will never ring and the agreed rent payment will arrive every month. 
Rent to rent operators, unlike agents, are not obliged to belong to a redress scheme at present although some do. The PRS, one of the 2 redress schemes, reports an increase of 50 rent to rent company complaints in the year ended August 2019 to 71 complaints 2 years later, a 42% increase in complaints from this sector (although to an extent this could relate to sector growth). 
Redress schemes are anticipated for landlords in the forthcoming rent reform legislation and it would be madness to create a loophole for rent to rent businesses so change will follow but for now there is an element of wild west about the emerging sector. 
Rent to rent has grown in the past 5 years, it was simply not around in anything like the numbers that exist now when PCCs last licensing agreement ended in 2018. If PCC do proceed with additional licensing (and even if they do not) we anticipate many problems identified from inspections and from tenant and community complaints will emerge in "rent to rent" properties, as well as the complaints they receive from properties across the city 
Where it does transpire that rent to rent is a feature or an underlying cause, we are seeking robust assurances that PCC will take the trouble to look at the whole picture and at the very least target enforcement or Penalty Charge Notices at the culprit, rather than targeting the landlord who may also be the victim, deserving of protection from the many public bodies who have a role to play. 
We would also like to see cross agency working if (or perhaps when) a sector wide problem emerges. As we have seen there are a lot of agencies involved. But we landlords must also play our part, research any deal that is offered and make sure we are confident before we sign any documents or hand over any keys. Brightly coloured envelopes anyone? 

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Written & oral information and advice from the Portsmouth & District Private Landlord's Association is given in good faith, but no responsibility whatsoever is accepted by the Association or it's officers for the accuracy of it's information & advice nor shall the Association be held responsible for the consequences of reliance upon such information.

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