Landlord Blog: There are no guarantees when it comes to letting property
Published: 27/03/2014
Life seldom comes with many guarantees and life as a landlord certainly doesn’t! That can even include ‘guaranteed rent schemes’ as Rob Denman discusses in his latest landlord blog.
“Now I’m not a particularly pessimistic person but I do agree with the old adage that if something seems too good to be true then it usually is! And this seems to be what landlords who have taken out a rental guarantee are beginning to find out.
“Guaranteed rent scheme supposedly do what they say on the tin; they guarantee a landlord an agreed amount of income regardless of whether the property is occupied or empty. Often maintenance charges are also covered.
“It’s no surprise that the amount received by the landlord is less than the rental potential – this is where the agent makes their money. But this is not the problem I allude to with guaranteed rent schemes.
“When a landlord agrees to one of these schemes they are, in effect, signing over their property to a company for a set amount of time. This can often span into five, even ten years (and will likely be subject to your mortgage lender’s approval). This company will then take charge, finds tenants and sublet the property. They will act at the point of contact for the tenants; in short you will have little to do with the property other than receive your guaranteed amount, something that in these continually vulnerable times sounds pretty cushty.
“However it is because of this ongoing financial instability that landlords should approach with caution.
“While there are a number of well-established agents and companies who offer guaranteed rent there is a large proportion who are just regular Joes, one-man bands, who are often simply landlords themselves and have seen an opportunity to use this experience to their advantage.
“But this experience may not translate into financial backing and they could over commit themselves. Should they then go bust or into administration trouble then really hits paradise.
“In this situation a landlord may find themselves left with tenants residing in the property but receiving no income. Technically the tenant hasn’t anything wrong – they had been paying their rent on time to the company who, in their eyes, is their landlord - so it can be difficult, if not a little unfair, to have them removed. It’s therefore likely that you could have to go to court to evict a subtenant.
“There’s also the added complication that you have no existing relationship with the tenants, in fact they don’t know you from Adam, and as I constantly remind landlords establishing good communication with your tenants is key to a harmonious tenancy.
“These types of schemes may seemingly remove a landlord from the letting equation and protect them against rent arrears, void periods and other financial risks associated with renting out property but this doesn’t mean they are immune from responsibility. If the agency fails to comply with landlord law and regulations it is not them that are punished – the landlord is and to the tune of up to £20,000.
“I’m not saying landlords should avoid these types of schemes. As I’ve said there are creditable companies who offer this type of guarantee and, if you’re happy with taking a cut of the rental potential of your property that it offers, then this could be a good route for you.
“As with everything related to letting property, just make sure you enter into a situation with realistic expectations and your eyes wide open.”
Content correct at time of publication