Investing in property remains a popular choice for those with disposable income and, although not as lucrative as it used to be, the desire to join the lettings market still remains strong.
As the population grows, and investment is put into housing to maintain balance, the opportunities to purchase buy-to-let properties are ever-growing.
The attraction of letting out property, due to the steady, guaranteed income, has meant that those without the capital to purchase property want a slice of the pie. Rent-to-rent schemes allow renters to become private landlords without the cost of buying a property, but the risks usually far outweigh the costs and can cause legal implications for landlords.
What is Rent-to-Rent?
The rent-to-rent scheme is a type of subletting where the landlord of a property rents to someone, with the knowledge that the tenant will go on to rent to someone else. The original tenant pays rent (generally below market value) to the landlord and collects payment from the new tenants, pocketing their profit margin.
Although advantageous to the landlord and the original renter, who has been able to join the lettings market without losing any capital, owning a rent-to-rent property opens landlords up to potential fines or legal ramifications if not done properly.
Rent-to-Rent in the UK: Is it Legal?
Although legal when executed properly, if the rules and regulations laid out in the tenancy agreement are not strictly adhered to, then it can become an illegal undertaking.
At Aspire to Move, we don’t recommend involvement in a rent-to-rent scheme, or any form of subletting for both landlords and renters due to the risks involved.
Owning or participating in a rent-to-rent property can:
- Breach tenancy agreements: In standard tenancy contracts (such as an Assured Shorthold) there will be a clause that prohibits subletting without written consent. Violating this could result in eviction and legal costs.
- Invalidate insurance policies: As with tenancy contracts, standard landlord insurance policies do not consider subletting arrangements or HMO properties, which come with their own stringent regulations.
- Incur regulatory fees: If a property is being set up as an HMO without the correct licence, the liability falls to the landlord who may face unlimited fines, Rent Repayment Orders RROs) or enforcement action from the council.
- Cause mortgage conflicts: Most buy-to-let mortgages ban you from entering into a subletting arrangement without written or explicit consent. Without this, you are breaching the terms of your mortgage contract, which means lenders have the right to increase interest rates, demand repayment in full, or force a property sale.
With the introduction of the Renters’ Reform Bill earlier this year, rent-to-rent schemes will only get more complex, putting greater responsibility on landlords to ensure subletting, in any form, isn’t occurring without consent. The Bill describes greater financial and legal implications for landlords for any breaches carried out by rent-to-rent operators, regardless of having direct knowledge or not.
Landlord Protection From the Risks of Rent-to-Rent
Ensuring your property has not become a rent-to-rent without your written permission is important to avoid the burden of legal and financial repercussions. Even if you had no involvement in the sublet, if it’s being performed illegally, you will be liable. If you’re worried about your property becoming a rent-to-rent, follow these steps to protect yourself:
Perform a thorough tenant check
Only let to someone with the appropriate employment, income, and affordability for your property. Avoiding this may mean you miss important identifiers for a future rent-to-rent operator. Further support the tenant’s application by checking references from previous landlords or agencies to establish they are a reputable tenant. You can also conduct credit history checks to assure they have the means to pay rent, as well as checking their Right to Rent.
Create a watertight contract
The tenancy agreement should leave no room for doubt or manipulation. Make sure you include a clause that clearly prohibits subletting and include the terms if it is breached; this could be an eviction period or recovery of legal costs. If you are able, have the contract looked over by a trusted solicitor to ensure there are no loopholes for rent-to-rent operators to exploit.
Carry out regular inspections
Visiting the property on a consistent basis ensures you are aware of the number of occupants, and if they differ from the people you originally let the property out to, as well as checking that the property is being used as a standard rental property. Visiting on a regular basis also means you can spot the early signs of your property being amended to become a HMO. Make sure each visit is documented and photographed in case future legal disputes arise.
The rent-to-rent scheme may seem enticing to both renters and landlords, but the associated risks far outweigh the monetary value which is why Aspire to Move do not allow subletting in any of our properties. Tightened regulations as a result of the Reform Bill only make the consequences of hosting an illegal sublet more damaging.
If you’re looking to find a property to rent in Bath, or are a landlord looking for prospective tenants in the Bath or Bristol area, please contact us today and one of our friendly team will be happy to help.
