Most tenants are complete strangers, who as a landlord, you may meet once or twice before granting a tenancy agreement to or handing over the keys to the rental property.
If using a good letting agent, the landlord may not even meet the tenant until after they have moved in.
This leaves the landlord with a few questions, including:
- What are the tenants like?
- Have they rented previously?
- Have they always paid their rent on time?
- Why do they need the property?
- Do they look after their home?
As a landlord, if you were approached by a person on the street and asked for the keys to your rental property on the promise that a stranger would look after it, would you hand over the keys?
Surely the answer from experienced landlords and clued up property investors should be a resounding NO!
But the scary thing is some inexperienced landlords are not far off doing this exact thing when renting out property to tenants.
Tenants can potentially cause expensive problems that can cost even more to put right and the risk of this increases if landlords haven’t vetted them properly.
As much as everyone would like to live in a world where people can be taken at their word, in terms of their character and reliability, unfortunately the truth is somewhat different. The unfortunate reality is that no-one can be taken at face value and it’s advisable to have a reputable tenant referencing company carry out checks on all potential applicants, which will include credit checks, employer references and previous landlords’ references.
Tenant referencing should be completed before offering a tenancy agreement or allowing tenant’s to move in.
The credit check will detail the tenant’s credit profile via credit reference agencies to determine any adverse history such as missed payments or CCJs (County Court Judgements).
A tenant with a low credit score may not be all bad! They may have had problems in the past making payments on finance, or they may have been assessed by the credit reference agency as a risk because of difficulty making payments.
A low credit score doesn’t necessarily mean that you are dealing with a bad or unreliable tenant – an example would be students who have little or no credit history and as such may possess a bad score.
In situations like this, as long as the other aspects of the tenant reference are adequate, a guarantor can be sought for the tenant. However, the guarantor will have to undergo the same referencing procedure.
The tenant reference should detail
- The performance of the tenant during the course of their previous tenancy.
- Payment history
- The condition of their previous rental property at exit
- Whether their previous landlord would rent property to them again
This should help the new landlord get a good indication of the applying tenant’s track record.
The employment reference determines
- Tenant’s employment status
- How long they have been employed
This information will enable the landlord to determine if their wages are enough to cover the rent, bills and associated living costs and also the stability of their employment, i.e. whether they are permanent or temporary employees.
Even tenants in long-term employment could be at risk of redundancy in the current economic climate, and landlords should take advantage of rent guarantee insurance, which protects the landlord should the tenant default on their rent.
It is advisable for landlords to offer a 12 month contract (AST) with a 6 month break clause to allow for flexibility in case things do go wrong during the tenancy.
One month’s rent should be taken in advance from the tenant along with a damage deposit equivalent to 6 weeks of rent.
This allows for a financial buffer in case the tenant fails to pay the last month’s rent at the end of the tenancy or if there is damage to the rental property.