Rent to Rent is becoming a popular term in the landlord and property investor community and it’s marred with horror stories of unprofessional actors who have failed in their very basic obligations, causing a nightmare for the property investor that’s left to pick up the pieces of the mess they create. Rent to Rent, also known as “Guaranteed Rent” and “Corporate Lets” aren’t always a bad experience, though, and what is important is that property investors engage their own due diligence when it comes to choosing their tenants and this includes whether it’s a traditional tenant on an assured shorthold tenancy (AST) or a corporate tenant, like a rent to rent operator.
It’s important to draw reference to the terms “corporate lets” and “corporate tenants” because not all of those acting in this space will be rent-to-rent operators, some will be legitimate companies who require properties for their staff and contractors but it is always important to delve into the nitty gritty to understand whether they’re a legitimate operator or someone who has studied a three-day course and decided they’re now a property expert with the skills to unburden you of the daily grind of being a landlord.
Guaranteed Rent and “Rent to Rent” is where somebody rents your property without the intention of living in it themselves for an extended fixed period, usually three to five years. This individual, who may be acting as a company, then pays a fixed rent every month, even when the property is empty. The “tenant” who has been granted an interest in the property (we’ll call this person the “renter” going forward) by the corporate let agreement is then permitted to rent the property to a third party, either on a long-term basis (as a single let or house in multiple occupation (HMO)) or on a short-term basis (as serviced accommodation).
The renter then collects the rent from those they let the property to, using this to pay the rent they owe to the landlord and to uphold their obligations as landlords themselves. Think of it like a leasehold buy-to-let property; in rent-to-rent, the landlord becomes the “freeholder” in a leasehold buy-to-let whilst the renter becomes the leaseholder with permission to let the property.
It sounds a lot like subletting, which it is, but it is done legally and within the confines of the contractual agreement between the renter and the landlord. There are several ways to legally sublet a property, involving commercial or corporate tenancies, management agreements, and leases or guaranteed rent schemes.
The benefit of Rent to Rent for the landlord is that their rental income is guaranteed regardless of whether there is anyone living in the property. Without being naive, however, it is important to recognise that the risk of non-payment of rent exists equally in a rent-to-rent operation as it does with a tenant on an AST. This is great for landlords who want to avoid the headache of voids, especially where they rely on the property income to cover their own costs and mortgage payments.
The rent to rent operator should take care of the property, including making right any damage caused to the property by their tenant and maintaining the property as you would expect a landlord to, including annual gas servicing and electrical testing. Serviced accommodation (SA) operators (Rent to Serviced Accommodation, R2SA) should also be PAT testing portable appliances they put in the property for their paying guests to use, including hair driers, irons, televisions, etc. Landlords should be extremely cautious engaging with a rent-to-rent operator that is unaware of basic things like PAT testing.
The benefit of rent to SA is that your property is kept in show-home quality and you should receive the property back in the same or better condition than it was handed over which gives landlords great peace of mind, but again, it is important to do your due diligence on any rent to rent operator because there are some bad actors in the sector; the cost barrier of rent to rent is much lower than property ownership and therefore, the industry attracts some less-desirable operators. It is fortunate that in property, reputation proceeds us pretty quickly and for the bad operators, they rarely last long after their first few victims but there are victims, nonetheless.
This isn’t to scare you off. It’s to give you a complete picture. It would be naive to suggest that rent to rent is a perfect solution, which for many it is but it is not without its risk. Like any industry, not all operators are made equal.
Some more benefits of renting your property to a rent-to-rent operator include being able to take a step back from regulatory compliance, as the renter assumes the risk. They have to comply with the hundreds of laws landlords are required to abide by. You might ask yourself “Isn’t that what a letting agent does?” and it is quite similar, only rent-to-rent operators take on higher risk for increased reward, whilst letting agents don’t assume any risk and you remain liable to your tenants if your managing agent makes a mistake. If the agent fails to protect the deposit in time, you have to pay 3x the value of the deposit in compensation whilst if a rent-to-rent operator fails to protect the deposit in time, they have to pay 3x the value of the deposit in compensation.
Rent-to-rent operators also do not typically charge any fees to the landlord, including letting and management fees or renewal fees, however, certain obligations regularly exist in rent-to-rent contracts including:
- An initial rent-free period to enable the operator time to set the property up.
- Conditions on access.
- Conditions on repair; it is usually expected that the landlord will maintain the structure of the building, it is sometimes expected for the landlord to maintain gas appliances and conduct gas safety checks.
- Deposits paid by the operator are rare in the industry, insurance-based schemes are preferred if any at all.
- Some operators will pay an amount upfront (like a lease premium) which can benefit the landlord if they currently have cashflow difficulties.
Rent to rent saves landlords time, and money and should be completely stress-free. The landlord can also request a longer contract with the renter as most contracts are a minimum of three years, often including a short-term break clause for either party to get out. This provides more security for the landlord, so they can budget long-term without worrying about whether their property income is secure.
With any business, there is always a risk that it could fold and collapse and leave your property empty, but strong communication should enable the landlord to plan for this eventually if it is likely to arise.
For us, the benefits are significant. By taking a lease on your property, we become the landlord and this allows us to find tenants for the property and keep the difference between what we pay you the costs of maintaining the property and the rent our tenants pay to us. We are also able to maximise the revenue potential in the property as experts in single lets, HMOs and serviced accommodation.
There are various legal factors to consider when agreeing with us or any other rent-to-rent operator, this includes ensuring the terms are unambiguous, especially concerning what is expected of the operator, what is expected of the landlord, how much rent is being paid, when it is being paid, when the first payment is to be received and how long the agreement shall last, rights of cancellation and what penalties may exist for breaches of contract as well as who is responsible for compliance with various landlord and property legislation related to renting the property.
Whilst there is no legal requirement to register with a redress scheme, it is recommended that rent-to-rent operators are registered with a reputable Property Redress Scheme, such as the Property Ombudsman or PRS because this gives the landlord peace of mind that there is an arbitration process should a dispute arise. It also makes it clear to the landlord that the operator is serious about their business and not just chancing a “get rich quick” scheme they’ve learned from trainers like Samuel Leeds or other trainers with equally questionable reputations. That isn’t to say Samuel Leeds teaches rent to rent as a get-rich-quick scheme, but it is correct to say that Samuel Leeds promotes rent to rent as something that is easy and that anybody can do with very little training.
Because we find the tenants for the property and they undertake property maintenance and repairs on behalf of the landlord, the work they do is very closely linked to the definitions of both lettings and property management work so being a member of a redress scheme is essential for us. Our letting agency, which has been open since 2017, has worked diligently with landlords and rent-to-rent operators to ensure relationships stay on track and to protect the landlord’s interests by making sure the operator is behaving in the manner expected of them, and stepping in to rescue the situation before it becomes a major legal liability. One of the things we specialise in is fixing problems with agents and rent-to-rent operators.
If you have a property to let and want to find out a bit more about the solutions we offer, give Andrew Hill a call on 07845 555 766 or send us a message on WhatsApp.
