Landlords are growing more concerned about the possibility of protracted voids and rental arrears as rental demand declines and job losses and financial instability rise as a result of the epidemic.
This is fueling an increase in interest in guaranteed rent schemes and its alleged advantages, with providers offering to give a consistent, guaranteed rental revenue and remove the danger of voids, arrears, and evictions for landlords.
In this post, we dissect rent-to-rent agreements in detail and provide interested landlords with a cost/benefit analysis.
How Do These Schemes Operate?
In a guaranteed rent for landlords agreement, the middle renter signs a contract committing to pay the landlords a specific sum of money each month in return for having total control over the rental home and its management.
The middle tenant will advertise the property to attract renters, handle all aspects of tenancy administration, take care of any necessary property maintenance, make sure the property complies with all applicable legal requirements, and handle any necessary legal actions in the event that the renters occupying the property must be evicted.
The landlord and the middle renter agree to a fixed monthly rent that is less than the property’s market value.
The capacity to obtain a high enough rental revenue from the property to pay the bills and turn a profit will then determine the viability of their business.
This is frequently only conceivable by turning a residence with several bedrooms into an HMO and obtaining a better income by renting out several single rooms to various unconnected tenants under separate leases.
Who Offers Them?
Both public and commercial sector organizations run them.
1. Local Government
Many councils provide these programs as a way to grow their stock of social housing, especially in locations where housing demand is unusually high.
In accordance with an agreement you have with the local government, the council will take over as your “tenant” and utilize the home to house people who qualify for council tenancies, refugees, and other social housing needs.
Many local governments also contract out this task to middlemen who deal directly with private landlords and manage and maintain their properties on their behalf.
Normally, landlords who lease directly from a council must supply their own compliance papers and guarantee that their property satisfies certain quality criteria before signing a contract. In contrast, those who use a private facilitating agency will typically have this covered as part of their agreement with the management business.
What Are The Risks And Drawbacks?
Despite providers’ assurances that they will spare landlords the hassle of handling voids, arrears, and eviction, any landlord entering a commercial rent-to-rent arrangement is nonetheless subject to considerable risks.
1. Perpetual Legal Responsibility
Although the promise of generating a rental revenue while absolving the landlord of responsibility is part of the rent-to-rent proposition’s attraction, it’s not always that simple. The landlord is frequently nonetheless responsible even if compliance has been approved by a third party.
The landlord may still receive a fine from the local government if the property turns into an unpermitted HMO, gets too crowded, isn’t fire or gas safe, etc.
2. Contracts That Are Not Appropriate
A common mistake made by landlords and rent-to-rent business owners is using the incorrect form of contract for the circumstances.
You must create a business lease in order to get into a rent-to-rent agreement with a broker who wants to sublet your property.
An AST (a sort of tenancy with a precise legal definition that may only be utilized where the tenant is really living in the property) is a contract that agents frequently engage into with the landlord and grant licenses to the subtenants.
This is false; an AST contract will omit many of the most crucial details of your business agreement while containing a number of pointless clauses.