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Rent to rent’ or ‘guaranteed rent’ is becoming an increasingly popular model for landlords and letting agents, particularly in and around London. In a guaranteed rent arrangement the landlord grants a lease to the company, usually a lettings agent, for a period of time, usually 2-3 years.
The letting agent then finds the tenants to occupy the property on a short term basis. This sounds mostly like a managing agent, but the difference is that in a guaranteed rent scheme the ‘middle man’ takes responsibility for paying the rent, even if the property is empty for a period of time. Also, in a guaranteed rent scheme the landlord has no contractual relationship with the tenants themselves, only with the ‘middle tenant’.
Guaranteed rent can take away many of the stresses that landlords face, they won’t lose rent in empty periods, and they also don’t have to worry about maintenance costs, finding tenants and processing deposits, references and tenancy contracts. However, that does not mean that all guaranteed rent arrangements are perfect. There are a few common mistakes we see, so we’ve put together some tips to avoid these.
1 ) Do not use an AST agreement
An assured shorthold tenancy agreement (AST) is a type of tenancy agreement that has strict legal definitions. You can only have an AST where the tenant, or one of the joint tenants, is actually living in the property. Using an AST agreement between the landlord and the middle tenant is wrong, and it won’t contain all the terms you need.
2) Do not use a standard company let
Although this is slightly better than an AST, downloading a standard company let agreement that was not designed for guaranteed rent will not cover the issues that are specific to guaranteed rent. Some companiy lets will prohibit the tenant from granting their own tenancies, which is exactly what your middle tenant will want to do.
3) Do not forget about HMO licenses
Sometimes the middle tenant and the landlord can both assume the other one is responsible for the HMO license. Not holding one can lead to prosecution, so it is important to remember.
4) Do not breach mortgage terms and conditions
Even if your mortgage gives you permission to grant tenancies, this might only be AST tenancies. You should check what you are allowed to grant before signing onto a guaranteed rent scheme, as failure to adhere to your mortgage terms can result in repossession.