A leading figure in the lettings sector is warning that investors and landlords can be left out of pocket by hundreds of pounds and with tenancy problems if they fall for so-called guaranteed rent' schemes.
Under a guaranteed rent arrangement, the landlord is required to sign over the property to a company or letting agent for a specified period of time in return for a guaranteed monthly income.
The agent then sublets the property and manages the tenancy. Rent guarantee firms make their money on the difference between the rent they pay the landlord and the rent they receive from the subtenant. Most schemes promise to cover any void periods and maintenance costs.
But Mish Liyanage, managing director of The Mistoria Group, says things often go wrong if the rent guarantee firms do not have the financial resources to back up their promises
There are many firms out there offering guarantee rent schemes, many of them very small companies or sole traders. The risk to landlords and investors lies in the financial security of the rent guarantee provider. If they get into financial difficulty or go bankrupt, the landlord many not be able to recoup any monies paid to the scheme says Liyanage.
The landlord or agent could also be saddled with a tenant that is not paying the rent, despite having paid an insurance' to protect them from this.
What the landlord does not usually realise is that their property could be rented to asylum seekers or large families claiming benefits. Subletting to housing benefit tenants for example may be in breach of the buy-to-let mortgage conditions and could result in mortgage companies insisting that loans are repaid says Liyanage.
One of the few ways to protect themselves is by having a commercial lease between the landlord and the company, plus an assured short-hold tenancy agreement for tenants.
Some unprofessional rent guarantee schemes get landlords and investors to sign ASTs and then issue licences to tenants. This fails to provide any protection to the landlord or investor.
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Comments
Hi Simon - could you let me have a look at that doc please
francisdolley@gmail.com.
James - I know of 'plenty' of Letting Agents who are turning to Guaranteed Rent to give their income a boost. Have you heard of Northwood
We only deal with our own City Alex and I doubt you operate there or I would know you.
As far as "guaranteed rent agents" taking our business - they are not. We are refusing to take theirs from Landlords who are sick to death of poor tenants degrading their properties because guaranteed rental agencies (some) rush to re-occupy a property so they do not lose money on a void.
In letting (and I have been in the industry 25 years now) this is a bad business model in my opinion.
Sounds like we are taking away your business :)
Alex,
Guaranteed Rent provider
There should be no reason for an agent to offer guaranteed rent whether the property is empty or not. The whole issue attracts crap properties which attract crap tenants. In my city we have an agent who offers such a scheme - well below market rent but "guaranteed".
A good Landlord with a good property managed by a good agent does not need such a scheme.
Indeed we have been approached by Landlords who used the "guaranteed rent" agency asking us to take their property on and have declined.
While it is true that done badly this business model can be unsafe, it's equally true that conventional Lettings agency done badly can be unsafe. When you compare the two business models on a like for like basis with equal professionalism on both sides, the profit rent model is actually safer, more flexible and more cost effective. There is no need to offer a rent guarantee and if you do them as a landlord you can take out insurance to cover the risk. Many Lettings agents are unable to offer rent guarantees because they are not regulated for the sale of insurance and offering a self insured scheme is also illegal. Anyone who wants the full facts on this let me know, I have a comprehensive 22 page piece of DD on the subject including a barristers opinion and details of a 7 year pilot.