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By Paul Shamplina

Founder, Landlord Action

OTHER FEATURES

Shamplina Speaks: How guaranteed is ‘guaranteed rent’?

Something that has been touching a raw nerve with me for some time now is the issue of so called ‘rent to rent’ operators offering ‘guaranteed rent’ to landlords.

It’s a simple concept: the ‘landlord owner’ lets the property to a ‘middleman’ who sublets to an ‘occupier tenant’ at a higher rent than is paid to the landlord owner, making a profit in return for the risk taken. 

The landlord owner, meanwhile, receives a guaranteed rental income for an agreed term, regardless of whether the property is occupied or not, without all the hassle of having to find tenants, deal with the legal obligations, void periods, call outs or repairs. In other words, no risk and ‘guaranteed’ rent payments. 

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The advantages to the landlord seem too good to be true. Sadly, the reality is they often are – ‘guaranteed rent’, it turns out, is often not guaranteed at all. 

In practice, there are a multitude of problems that can rear their head, both for the landlord and the occupying tenant. Unfortunately, in my position I only see the bad and the ugly part of this industry. Namely, operators not giving correct commercial agreements to landlords, making and breaking promises of fixed rent payments each month and failing to comply with legislation and responsibilities for repairs, especially those relating to HMOs.

I highlighted this in last week’s episode of Nightmare Tenants Slum Landlords, which exposed a dodgy outfit called RHP Lettings. The landlord, Gulam Sumar, asked for help after they failed to pass on rent and mismanaged his two Harrow-based HMO properties. 

In this episode of series six, which you can watch on catch up, Gulam and I confront them at their office in Walthamstow. In the picture below you can see us with the cameraman – one of the telltale signs of a bad agent is that they have a buzzer system and won’t let anyone into their office – the staff were literally hiding under their desks when they saw us on the CCTV with a film crew!

Thankfully, I’m pleased to say that following the pressure we put on RHP Lettings, combined with the tenacity of the landlord, they handed both properties back and Gulam was able to collect the full rental arrears of £24,000. But the properties had been left in a very bad state of repair – one of them was infested with cockroaches - which will cost thousands of pounds for Gulam to put right. Of course, he is not the only victim here. The poor sub tenants, whose rents were being paid directly from the relevant councils to RHP Lettings, are also victims. 

In all the years I’ve been doing this, there is a continual repetition of local authorities using dishonorable agents or ‘guaranteed’ rent operators who have no sound financial security or tenancy agreement in place. 

Just last week, it was reported that sub-letting tenants who started receiving Universal Credit during the pandemic were wrongly told they must pay back benefits awarded, after the DWP retrospectively reassessed claims and decided that many with rent to rent arrangements weren’t entitled to the benefit because they didn’t have a tenancy agreement for their sub-let property. The DWP has since apologised for the error, but this highlights the lack of security and risky nature of rent to rent for the ‘occupier tenant’, as well as the landlord.

In the case of RHP Lettings, we believe they had 400 to 500 properties under management on these schemes. This operation was being run on a mass scale and we’ve had many more landlord victims contact us at Landlord Action looking to recover ‘guaranteed rent’ that they’ve never received. There should be severe repercussions for these dodgy operators in the form of harsh penalties enforced by Trading standards. 

The problem is only going to get worse as the rent to rent business model is becoming more common in the private rented sector. 

As Chief Commercial Offer of Hamilton Fraser, I know that one of our brands, the Property Redress Scheme, recently expelled a guaranteed rent operator member after it failed to pay a staggering £150,000 to a former landlord client. The PRS has also reported a 43 per cent increase in complaints relating to guaranteed rent since 2018, including loss of rent, damage to property and sitting tenants.

At Hamilton Fraser, we decided that we should put together a detailed guide to help landlords navigate rent to rent, to discourage landlords from naively passing over their properties without doing the necessary in depth due diligence. If you get it wrong, you risk not only losing out on rent, but also losing control of your property - trying to gain possession through the courts in a rent to rent case is a complex process. 

I would advise anyone contemplating entering into a rent to rent arrangement to read, The ultimate landlord guide to rent to rent from mydeposits. We’ve drawn on our expertise across the business to offer advice and guidance on the key things to look out for.

While there are reputable operators out there, there is a significant proportion of the market who are less experienced in rent to rent. What I find particularly worrying is that individuals that want to get into rent to rent are going on courses to learn about it and taking on properties without having the time or a full understanding of property management or private rented sector regulations, especially for HMOs. 

These operators are also unlikely to have the financial security or buffer to pay landlords when there are defaults, or when a property is voided. We saw a massive upward spike during COVID because tenants left properties before lockdown and they couldn’t fulfil their legal obligations to pay rent to landlords. On top of which, the eviction ban meant that landlords could do nothing to gain possession.

There must be more regulation on rent to rent, and the good news is that this is something Trading Standards are looking at. Hopefully it will also be highlighted in the Regulation of Property Agents reform, which is coming soon. 

*Paul Shamplina is Head of Property for Hamilton Fraser and founder of Landlord Action, and also the star of the Channel 5 show Evicted! Nightmare Tenants

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    I like Paul but I wish he would not be so anti private sector and give more balance to his opinions. For a start how about including social landlords and councils who offer the same schemes and do not honour their agreements. These not for profit landlords give the same deal yet occasionally fail to pay or pay on time, put tenants from Hell into the properties and return the properties trashed even though they agreed to return the properties in the same condition as they took them on. Councils who who say that they will recommend tenants who are suitable to live in the private sector when they are dumping anti-social tenants on the private sector and keep the good ones for themselves! Come on Paul why don't you expose the racket where care leavers are dumped on the private sector which in my area I only get £90 a week for yet social landlords are paid £2,000 a week for housing the same tenant? Very similar applies to to vulnerable tenants who are housed in the private sector and a fraction of the cost they are housed in the social sector.

    Go to any landlord meeting and you will run into landlords including me who have let their properties to social landlords and the social landlord have not honoured the deal.

    Let's put rent to rent into perspective from a landlords point of view - what is the difference between renting your property to a rent to renter and hopefully it works as opposed to renting direct to tenants who do not pay and trash your properties etc? It is the same result. Some property owners do not want to deal with tenants or are unable to do so. The choice is either to sell or leave the property vacant. Giving it to rent2reners at least gives the opportunity providing more accommodation which is desperately needed. If we are not careful rent2rent will become like sale and rent back in effect banned so limiting opportunities to provide more accommodation.

    Why is it that people like Paul and landlord associations never criticize tenants? For every bad landlord I would estimate there are 2000 bad tenants yet the bad tenants are to be forgiven, ignored or protected. Let's get some balance to all this.
    Jim Haliburton
    The HMO Daddy

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    From what I've seen of Paul in the past he's made a right meal out of a straight forward eviction but the media seem to love him for some reason.

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    • S S
    • 13 November 2021 12:44 PM

    May be the answer is to use a RICS or ARLA letting agent. Of course it doesn't guarantee but a GOOD letting agent chooses good tenants - looks after the property and after paying for their service (management fee) the Landlord probably gets the same income as a rent2rent BUT the LL doesn't loose control, knows that the property is being looked after and their investment is SAFE.
    A good letting agent is an asset to the Landlord and it's a shame that the media doesn't focus and encourage Landlords to use a PROFESSIONAL agent

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    Simply being a RICS or ARLA agent doesn't make that agent a good one or even a trust worthy one.

     
    Peter  Yednell

    Cant' agree that ARLA membership means much.. The agent managing an apartment block that I owe a flat in is a member... When I raised with ARLA the undoubted criminal conduct of my managing agent, ARLA didn't want to know..Most voluntary bodies similiar to the likes of ARLA are useless for consumers and only provide a fig leaf of respectability to firms that can be complete cowboys.

     
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