Tenant Referencing: How to do it & what happens if you don't
With the abolishment of Section 21 (no-fault evictions) on the horizon, and with UK tenant arrears on the rise amidst the cost of living crisis, landlords conducting tenant referencing is more important than ever.
Tenant referencing plays a crucial role in securing dependable renters, and the consequences of accepting an unsuitable tenant go beyond mere financial implications. Inadequate reference checks can significantly impact your experience as a landlord, potentially causing sleepless nights and even eroding your motivation to remain in the private rented sector.
Before you schedule a property viewing, it's important to pre-qualify your potential tenant. Assess factors such as their income adequacy to cover the rent, whether they have pets, and if there will be additional occupants. Tenant referencing serves as a valuable tool for mitigating these risks, although it cannot completely eliminate them. Furthermore, it is a prerequisite for certain insurance claims and mortgage applications, making it an essential step in responsible property management.
What is a tenant reference check?
Let's delve into the realm of tenant reference checks, commonly known as tenant referencing. This process revolves around assessing the suitability of a potential tenant for your property.
The extent to which you conduct this assessment is entirely at your discretion, but the primary objective remains consistent: to gather essential information about the prospective tenant's financial stability, reliability, and behavioural history.
Some landlords or property agents opt for a straightforward approach, typically involving a credit check. On the other hand, others prefer a more comprehensive and exhaustive background investigation. A credit check, in particular, is a critical component, especially when considering potential issues i.e. rent arrears down the road.
You have the flexibility to either personally oversee this reference check or enlist the services of a professional to manage it on your behalf. This process grants you invaluable insights into your potential tenants, and neglecting it can have adverse implications for claims and property management.
What does a credit check involve?
When conducting a tenant reference check, it's essential to review various documents and information to ensure a thorough assessment. Here's a breakdown of the documents and checks typically included in a tenant reference check:
Proof of ID: A copy of a valid form of identification is examined to confirm the tenant's identity.
Proof of Address: Utility bills and bank statements are scrutinized to verify the tenant's address information.
Credit Checks: This assessment delves into the tenant's credit history to ascertain if they have outstanding debts or recent County Court Judgements (CCJs). It's important to note that conducting a credit check requires the tenant's permission.
Previous Landlord References: The tenant's rental history is evaluated to identify any instances of rent arrears, disputes, or property damages.
Bank Statements: Typically, the tenant provides the last three months' worth of bank statements. These are analyzed to gain insights into the tenant's spending habits, savings, and income.
Affordability Checks: These checks assess the tenant's income to determine if they have the financial means to cover the costs associated with the tenancy throughout its duration.
Right to Rent Checks: This verification process confirms whether the tenant has the legal right to rent a property in the UK.
Employment Reference: Verification is conducted to ensure that the tenant's stated place of employment is accurate, and that they receive a regular income.
By examining these documents and conducting these checks, a comprehensive tenant reference check helps landlords and property managers make informed decisions about potential tenants.
The risks involved with not completing reference checks
Failing to complete a tenant reference check can lead to various difficulties and risks for landlords. Here are some potential challenges that may arise:
1. Financial Risks:
Rent Arrears: Without a reference check, you may rent to a tenant who has a history of not paying rent on time or at all. This can lead to financial difficulties and cash flow problems for landlords.
Property Damage: Reference checks can uncover previous instances of property damage caused by tenants. Renting to someone with a history of damaging rental properties can result in repair costs.
2. Legal and Regulatory Risks:
Non-compliance: Some regions have legal requirements for conducting tenant reference checks, such as verifying a tenant's right to rent in the UK. Failure to comply with these regulations can result in fines or legal consequences for landlords.
Discrimination Claims: Without a standardised reference check process, landlords may inadvertently discriminate against potential tenants based on protected characteristics (e.g., race, gender, disability) and face discrimination claims.
3. Disruptive Tenancy:
Behavioural Issues: A reference check can reveal a tenant's behavioral history, such as disputes with previous landlords. Renting to a tenant with a history of disruptive behavior can lead to conflicts and an unpleasant living environment for other tenants.
4. Financial Impact on Other Tenants:
Shared Costs: If you have multiple tenants in a property, one tenant's failure to pay rent can impact the financial burden on other responsible tenants.
5. Increased Vacancy Rates:
Tenant turnover: Failing to screen tenants properly can result in shorter tenancies and increased vacancy rates if tenants decide to move out due to issues with other tenants or the property.
6. Difficulty Evicting Problematic Tenants:
Legal Challenges: Without proper reference checks, it may be more challenging to legally evict a tenant who breaches the lease agreement or engages in disruptive behavior.
7. Property Maintenance:
Neglect and Damage: Tenants with a history of neglecting property maintenance may cause long-term damage to the rental unit, reducing its value.
Eliminating tenant troubles with the Elliot Leigh Guaranteed Rent Scheme
If you haven't already considered it, here's a compelling reason for landlords to join the Elliot Leigh Guaranteed Rent scheme. Not only do we manage your property, handle maintenance and repairs, we most importantly, ensure your rent is consistently paid to you, thereby eliminating any risk of rent arrears or defaults.
Let's talk numbers for a moment. The average rent in London still hovers above £2,000 per month. Now, imagine a tenant defaults just six months into a two-year lease at that rate. That's a staggering £36,000 in rental costs alone that you'd be out of pocket, not to mention any potential eviction expenses that might stack up. By embracing the Elliot Leigh Guaranteed Rent scheme, you wave goodbye to these financial worries and uncertainties.
Discover the peace of mind and financial security our scheme offers. Get in touch with us today to find out more about how we can safeguard your rental income and simplify your life as a landlord. Don't miss out on this opportunity to protect your investment and ensure a worry-free leasing experience.