Rent-to-Rent: What Every Landlord Needs to Know

For landlords who want rental income without the day-to-day hassle of managing tenants, a rent-to-rent arrangement can seem like the perfect solution.

Someone, maybe but not necessarily a letting agent, takes over control of the property by signing up as your tenant, paying you a guaranteed monthly rent. Whether or not the property is tenanted.

What could be easier or more convenient?

Unfortunately, as is often the case, the easy answer is not necessarily the best one.

In fact, rent-to-rent can be extremely risky.  Things have been made even worse (for property owners) by the Renters’ Rights Act.

The situation pre Renters Rights Act

Rent-to-rent has always had the potential to be problematic. For example, in the video here, recorded in 2018, solicitor David Smith points out that:

• The property owner has little say in what goes on in their property – effectively, they have lost control
• Some people offering this service don’t really know what they are doing or
• They may even be actual rogues or criminals
• If you are asked to sign an agreement provided by them, it could be very prejudicial to you
• You don’t have the various protections that you have when using an agent. For example, the consumer rights rules will not apply, and you may not be able to use the agent redress scheme (as they are not acting as your agent).

The situation post Renters Rights Act

‘Rent to rent’ arrangements have been targeted by the government when drafting the Renters Rights Act, as this arrangement has, in the past, often been used by crooks and criminals.

For example, a criminal property owner will rent to a limited company with no assets. In the past, this would mean that even if tenants obtained a financial award against the landlord (for example, a Rent Repayment Order), they would not be able to recover any money.

Because the property owner (who has the assets) is not their landlord.

This was the decision in the important case of Rakusen v. Jepson.

However, the Renters Rights Act has changed this, and now tenants CAN bring a claim against property owners. For example, this could be

• If their landlord has failed to obtain an HMO license (rent-to-rent is frequently used in an HMO context)
• If the property is in poor condition, or
• Occupiers have been unlawfully evicted or
• Been subject to harassment

So now, property owners in a rent-to-rent situation

• can be fined by their Local Authority for breaches and offences, AND
• Ordered to pay Rent Repayment Orders made in the First Tier Tribunal

Even if the problem is not caused by the property owner.  They are still potentially liable.

This can be very expensive.  Say the property is an HMO and your tenant (the occupier’s landlord) fails to obtain an HMO license.  You can be fined by the Council, AND your tenants can claim against you for a rent repayment order for up to 2 years’ worth of rent!

Then, if the intermediate tenant walks away or becomes insolvent, the property owner may suddenly find themselves dealing directly with the occupiers.

Recovering possession may be far more difficult than you might expect, particularly now that Section 21 has been abolished.

If you decide to proceed with a rent-to-rent arrangement

My advice is ALWAYS to obtain legal advice from a specialist solicitor first. For example, one of the panel solicitors on our telephone advice service.

You may be safe entering into a rent-to-rent arrangement with a reputable organisation such as a Local Authority, University or College. Or maybe a housing charity.

However, don’t count on it.

I have had landlords tell me about horrendous experiences they have had with one of these organisations. So always get advice first, particularly on any form of tenancy agreement which the rent to renter is asking you to sign.

And finally

My advice, though, if you want to carry on being a landlord without the hassle, is that you are far better off using a reputable letting agent.

Mind you, not all letting agents are good either, but there are some fantastic agents around. You just need to search for them.

You will also be much safer using an agent, as they should all now be signed up with an Ombudsman service. And so long as you are not acting through a limited company, you will have the benefit of the consumer protection legislation.