Most landlords in England have, through clenched teeth, accepted that Labour’s soon-to-go-live Renters’ Rights Act will be a good thing if it protects tenants from the worst operators within the private rented sector, even if it means more cost and paperwork as well as hefty fines for not following its myriad new rules.
And one consequence of this legislation that I and any responsible landlord reading this would heartily support is that it will end the often terrible practices seen within one often murky area of the housing market – ‘rent to rent’.
Also called ‘no money down’ or ‘guaranteed rent’, it involves an individual or a company who legitimately rents a property from its owner for say £1,000 a month and then (usually) turns it into a holiday let or House of Multiple Occupation, letting it out for considerably more, and keeping the difference.
On the face of it, it’s a ‘win-win’ for both sides. A property owner gets a guaranteed rent for a set number of years without the hassle of dealing directly with tenants or having to deal with property management issues, while the rent-to-rent landlord clears a chunky profit without the cost of owning the property.
This arrangement is common and is egged on by an education sector which provides sometimes expensive courses to often inexperienced members of the public on how to ‘make a fortune’ via rent-to-rent.
‘Guaranteed rent’ service
I should say, however, that many respectable high street lettings agencies offer this kind of ‘guaranteed rent’ service to landlords and operate the properties in a responsible and legal way.
But the problem, and it’s a big one, is that too many operators within the sector are unscrupulous and operate on the fringes of what is legal.
For example, landlords can find that their ‘guaranteed rent’ dries up, the firm involved has folded and its directors done a flit, and that they then have to spend thousands of pounds evicting the tenants that the dodgy operator has let their property to. I have also reported on dozens of examples over the years where this approach has been taken deliberately in a bid to scam overly trusting landlords.
Twilight world where no rental contracts are provided
And tenants who take rooms within rent-to-rent properties often find themselves in a twilight world where no rental contracts are provided, rents are artificially high and conditions within properties are appalling.
Despite these problems for both landlords and tenants, successive governments have done nothing to regulate the sector.
Until now. The recently enacted Renters’ Rights Act will, in my opinion, chase the crooked operators out of the sector, and not a moment too soon.
Rent Repayment Orders
Firstly and most importantly, Rent Repayment Orders are being extended to include both ‘immediate’ (the rent-to-rent operator) and ‘superior’ (the property owner or freeholder) landlords.
This means, for example, that if a rent-to-rent company mismanages a tenancy and a Tribunal awards the tenants 24 months’ rent, it is both the rent-to-rent operator and the property owner who will be liable to reimburse the tenants.
This change has been introduced within the Act to ensure “criminal rent-to-rent arrangements can be properly held to account”, but how is a landlord to know whether such an arrangement is going to be criminal at the outset? My guess is that many landlords are going to be more careful about who they hand their properties over to in future.
Rent-to-rent is also going to be trickier to make money from
Rent-to-rent is also going to be trickier to make money from when, on April 1st this year, the Act bans Section 21 ‘no fault’ evictions. Many rent-to-rent agreements only turn a profit because, if a tenant stops paying the rent, they can be evicted relatively quickly via a Section 21 and a new tenant found to replace them.
By abolishing Section 21, the Act will soon make evicting tenants more time-consuming and expensive, and, it is fair to predict, will render many rent-to-rent agreements unprofitable.
Rent-to-rent operators will also have to adhere to the many other measures within the Act, including joining the new Landlord Ombudsman scheme and ensuring their properties adhere to the new Decent Homes Standard.
You don’t need to be a visionary to deduce that all this is going mark a significant reduction in the number of rent-to-rent tenancies in England (the Act doesn’t cover Wales, NI or Scotland) as the cowboy/criminal operators are pushed out because, if like me you’re a landlord who relies on their rental income, using a less reputable operator to take over running your property will look like a decidedly risky move.
Tenants and landlords have been ripped off by these cowboys for far too long. The Government should be applauded for tackling the issue.
