News & Blog

How Does ‘Guaranteed Rent’ or ‘Rent to Rent’ Work?

 

Guaranteed Rent also known as Rent to Rent is where an individual or company takes an interest in a property for a period of time from a landlord and guarantees to pay a fixed rent to the landlord. The landlord gives consent to the third party, ‘the Renter’, to then rent the property to other tenants. The Renter and they become the tenant liable for the rent. There are several ways to legally sublet a property, usually involving commercial or corporate tenancies, management agreements, and leases or guaranteed rent schemes.

 

Why do landlords choose to use Guaranteed Rent rather than a traditional letting agent to rent out their property?

The benefits of the arrangement to the landlord is that their rental income is guaranteed regardless of whether the tenants who live at the property pay the rent or if the property becomes empty. The ‘Renter’ would generally also take care of any damage to the property as it is their responsibility to return the property back to the landlord in the same condition as when they took it. This all gives the landlord a peace of mind.

The landlord would not incur any letting, management or renewal fees. The ‘Renter’ would be expected to comply with all the numerous laws and compliance issues that an agent would generally deal with, saving the landlord time and money. The landlord can also request a longer contract with the ‘Renter’, being anything from 1-5 years.  This provides more security for the landlord, so they can possible budget long term. 

 

What are the benefits to The Renter?

As the Renter has taken a lease of the property they become the landlord. This gives them the opportunity to find tenants for the property and they get to keep whatever rent the tenants pay. They generally allow more flexible arrangements with the tenants. For example, properties with multiple rooms can accommodate single tenants who rent a room with some shared areas or facilities.

 

What legal issues should the parties consider?

The agreement between the landlord and the Renter is of a commercial nature so really they should enter into a lease of the property for the period of time the Renter is going to pay the Guaranteed Rent. Also, the parties should have clear and unambiguous terms of business as to exactly how much the Renter is due to pay the landlord and what they are responsible for in terms of the management of the property and the landlord’s compliance with the various legislation related to renting property.

 

Redress Scheme arrangements

Although the Guaranteed Rent model does not fit the traditional definition of lettings or property management work the Renter does have a relationship with both the landlord and the tenants acting as a ‘middleman’.

They find the tenants for the property and they generally undertake property maintenance and repairs on behalf of the landlord. For all these reasons the work they do is very closely linked to the definitions of both lettings and property management work so we recommend that all Guaranteed Rent operators join a consumer redress scheme.   

 

Why is it important to have Redress?

Both the landlords and the tenants are consumers as the Renter is offering a service to both parties. If there is a dispute as to the terms or the service provided then the consumers can escalate the concerns to an independent body. The Renter is providing the consumers with peace of mind that they will deal with letting the property correctly and professionally. Also, the Renter could face suffering a penalty for undertaking work which means they are legally required to join a redress scheme. 

 

The PRS has created three guides for those who may be involved in guaranteed rent or rent 2 rent arrangements

The guides are available in the PRS resources section here

 

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Property Redress Scheme is approved by Government under the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015