Benjamin Franklin said there were only two things certain in life - death and taxes - however this doesn't stop all manner of businesses offering certainty' in many other areas.
The private rental sector is no different; we're currently seeing a surfeit of companies offering rent guarantee products direct to landlords.
If you haven't come across them yet I suspect you soon will. Such companies are actively positioning themselves as a cheaper alternative to what you or I regard as the traditional lettings agent.
Landlords effectively hand over their properties to the rent guarantee company - in doing this they are provided certainty of rental income each month and have their entire tenant search and management services catered for as part of the package.
What a tempting proposition - guaranteed rent, no void periods, no explicit lettings agents' management fee, all tenant services outsourced - what's not to like But as usual in life, if it sounds too good to be true then it probably is.
Commonly, these operations create their margin by imposing full, market value rents on tenants (if not slightly more than peer properties) and meanwhile delivering to the landlord a lower income than they could fetch on the open market. Clearly, some landlords will be prepared to accept this because of the protection against voids and the certainty of net income but I wonder if landlords properly consider the alternatives.
Consider, for example, a rental property which can achieve an income of £650 per month - typically, a guaranteed rent' company might only offer the landlord £500 per month. Given that many lettings agents charge a 10% management fee per month then the landlord may well be significantly better off by using the traditional lettings agency model. In most instances the property would have to suffer a three months or longer void period before the guaranteed rent' option becomes a winner. And with rental demand at an all-time high, many landlords will consider it worth taking that risk.
Without wanting to tar all such companies with the same brush, there are some who operate with a considerable amount of small print. One example drawn to our attention promoted its offer to guarantee rent for 12 months but in the detail reveals a get-out clause after nine months if the property is not let. No reciprocal provision exists in the landlord's favour, as he or she has to stay with the firm for a full 12-months term or face an early release fee.
One such rent guarantee' firm also operates, what it calls, non-marketable times' during which they do not pay their landlords - in one example this rather odd clause covered the period between 19th December to the 10th January. Perhaps not surprisingly there have been a number of instances where these firms collapsed into administration or liquidation and landlords were left trying to remove non-paying tenants from their properties.
It therefore seems important for agents to warn landlords to be particularly cautious when it comes to schemes of this nature. Guaranteed rent sounds like a wonderful idea and, no doubt, for some it has worked acceptably. However landlords should remember that the sole aim of these companies is to fill the property - given that any costs arising from void periods fall to the company rather than the landlord. This can of course lead to a tendency to apply less scrutiny when selecting tenants. As lettings agents we should be highlighting the risks involved, whilst at the same time promoting the quality service and tangible benefits which our services offer.
My hope is that landlords' prime concern is appointing an agent who can guarantee a quality service and we must make sure that we extol the benefits of the valuable work we do and rightly win the trust of landlords.
*Rob Clifford is Chief Executive of Century 21 UK
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