Doing a bit of extra work before a tenancy is granted such as having applicants complete credit checks or provide references, can save landlords a lot of hassle and legal costs in the long run.
If your tenants have rented privately before, you can try to get a reference from a previous landlord or agent. A reference should only be concerned with the tenant's ability to carry out his or her rental obligations. i.e. payment of rent, adherence to tenancy agreement, upkeep of property.
Some applicants may not be able to provide a reference from a former landlord. This could be for any number of reasons. They may not be able to contact their landlord, they may not have rented before or they may have been living in another country. If an applicant cannot provide a reference from a former landlord you should consider what other references you would accept.
Some landlords and agents do not require a reference and are happy to let the property on completion of a satisfactory credit check. If you have decided to ask applicants for references you should provide this service to your own former tenants.
If you are renting to young people, students or someone who is in temporary employment they may not have a regular and steady source of income. In these situations, you are within your rights to ask that the tenants provide a guarantor.
A guarantor acts as a type of insurance against non payment of rent or damage to your property. Typically a tenant will ask a friend or family member to act as guarantor. By consenting to act as guarantor, this person is agreeing to make good any payments that the tenant owes to you. If the tenant falls into arrears or causes damage to the property that leaves you out of pocket, you can take legal action against the guarantor if he or she refuses to pay.
You need to draw up a contract between yourself and the guarantor which clearly states what the guarantor's liability is. This contract must be signed by you, the guarantor and, ideally, a witness for the guarantor. Typically a contract will include the following items:
- the date at which the Guarantor form was signed
- the name of the Guarantor
- the name of the landlord
- the name of the tenant that is being Guaranteed
- the address of the property that is being rented
- the start and end date of the fixed terms of the tenancy
- how much rent is being paid
- the terms of the guarantee
- a list of obligations to which the guarantor agrees
The guarantor's liability needs to be laid out explicitly. If you have decided to rent a property to a group of people and the tenancy agreement states that they will be jointly and severally liable for rent and damages, you should make it clear whether this extended liability will also apply to the guarantor. If you vary any of the terms of the tenancy, such as increasing the rent, the guarantee will no longer be valid.
A credit check is an important step in vetting applicants. You cannot conduct a credit check on any applicants unless you have their permission. You will have to pay to have a credit check carried out but can pass the cost of this on to the applicants. You cannot pass any additional charges on to the applicant just the actual cost of the check.
There are many companies which provide this service. Some provide a more detailed check than others.
Bad credit will stay on someone's record for quite a long time and a bad credit rating is not always indicative of a risky tenant. Someone may have a bad credit rating due to a failed business venture or a previous relationship. An alternative to credit checks is to ask applicants to provide bank statements, payslips and receipts for payments of bills.
Admin fees and other charges
You must be very careful when issuing fees or charges to applicants for a property. You can pass some charges on to applicants, such as the actual cost of a credit check which is charged to you by another company but you can't profit from these charges and whatever you ask the tenant to pay should reflect the actual cost. Make sure you give applicants a receipt for any fees they pay and a written explanation of what these fees cover and in what circumstances they will be refunded.
You must make sure that any fees you expect the tenant to pay are clearly marked anywhere that the property is advertised. If the fees are variable and likely to change depending on the applicant's circumstances your adverts, including any online listings, must still say that fees apply but you don't have to give a figure. If you don't clearly state that other fees will apply you can be sanctioned by the Committees of Advertising Practice.
It is illegal to ask someone to pay a fee to make an application for a property or to view a property. Fees, other than those for a credit check, should only be charged once the tenant has been accepted and only if the tenant was made aware of these fees in advertising for the property.
If you are using an agent, the tenant should not be expected to pay "administration fees" for tenancy agreements or keys as these should be included in the service you have purchased and paid for. If you are managing the property yourself, be upfront about any fees that you will expect tenants to pay and make sure these fees are clearly references in all your adverts for the property. Remember, you cannot profit from any fees you levy on a tenant.
If you ask a tenant to pay a "holding deposit" for a property, you should issue a receipt and stipulate, in writing, what this holding deposit covers and under what conditions it is refundable. A holding deposit is generally different from a security deposit which you will hold for the duration of the tenancy.
A holding deposit may become a security deposit once the tenancy agreement is signed. At this stage you have 14 days to protect the security deposit. If you fail to protect the deposit within this timeframe you can be fined by your local council.