Sean's July blog: Referencing is your responsibility!

Letting property is a risky business and ending up with a bad tenant can be a real nightmare leading to not just a loss in monetary terms but in hassle, stress and time. Protecting the interests of your landlord is a primary obligation for an agent and ensuring that you undertake robust due diligence when letting property is essential.

My good friends, Paul Shamplina and Tessa Shepperson, who both sit on the PRS advisory council, have identified the area of poor referencing as a clear and present danger that should be on all agents’ radar. The consequences to the landlord are rent arrears, anti-social behaviour and possession proceedings. In recent years most agents have relied on third party referencing companies to vet potential tenants, however, in a recent court case (Hale v Blue Sky Properties), this was not deemed sufficient and the judge decided the legal responsibility for not doing adequate checks fell squarely on the agent.   

Sadly, I also have had a number of complaints from landlords that have highlighted the dangers of some letting agents not taking referencing seriously. Whilst using a reputable third party referencing service is prudent, it is not fool proof. Agents should undertake rigorous due diligence on tenants and bear in mind that with rental amounts being a significant amount of most people’s incomes, they have a duty to BOTH their landlords and to the tenant to ensure that the commitment being entered into can be fulfilled. It is beholding on the agent to check the information provided, ensure that any warnings or concerns raised by the referencing company and those they have themselves are referred to the landlord. No information is as bad as adverse information and any gaps in the data received should always be followed up. Bank statements, credit card statements, pay slips and certified accounts are hard evidence of income and expenditure. Council tax details and utility bills show residency. However, be aware that all documents can be manipulated so be suspicious and if something does not seem right then follow it up. Check that employers exist and that the person actually works there - a quick telephone or internet search takes minutes but could set your mind at rest. Keep meticulous records and share these with your landlords, then follow these up.

Also, think of the best interests of the tenant, if they take on a property that they cannot afford it, it is in nobody’s interest if they default on their rent and you have to evict them. You should always ask their permission to undertake checks and you should tell them in advance what your criteria are beforehand. Many agents use some form of income multiplier to assess affordability but talking through with the tenant the commitment they are undertaking can be a reality check that is badly needed. Do not take holding or reservation fees before you do your referencing, ensuring that the tenant has the means to service their commitment and are therefore a serious applicant. Whilst you may be able to retain some or all of the fee, this will not compensate either you or your landlord for the delay and inconvenience of a failed tenant. Use higher deposits, advanced rent and guarantors cautiously. Deposits should primarily be used to protect your landlord from dilapidations and damage caused by the tenant. If they are used to offset rent, then if the tenant wrecks the property or runs off with valuable items then any other losses would have to be recovered – or most probably not – from the tenant. Advanced rent is fraught with dangers and legal complications, the tenant often borrows the money and then defaults on all their commitments once the advanced period has elapsed. Guarantors need the same diligent checks and investigation as the tenant and their responsibilities should be clearly explained.

Ultimately, referencing is not a tick box exercise and if the agent takes their eye off the ball then everyone suffers. The agent should be proactive and use common sense. This effectively means, using their judgement and experience to assist the landlord and tenant to enter into a mutually beneficial relationship. If the agent discovers any anomalies, such as spent CCJ’s, criminal convictions or previous rent arrears, they should manage the risk by sharing this information with the landlord. They should manage the expectations of the tenant by ensuring that they are kept up to date.

Agents are professionals who undertake services for a fee and their primary role in lettings is to ensure they facilitate that a tenant will pay the rent when due and do this for the duration of the tenancy. This does not always go to plan and then, often harshly, everyone blames the agent! Now with the courts getting in on the action, isn’t better to be safe than sorry?