Selecting Tenants And Tying Up The Deal
Lesley Henderson has been a landlord all her adult life and now runs a family business. She is also the author of the Landlord's Survival Guide.
Having completed your viewings, go home and think things through. Spur-of-the-moment decisions can often lead to mistakes. If you’ve never attempted any of this before, review your options.
- Who did you meet?
- Had any of your prospective tenants ever rented before? If so, could they provide that invaluable landlord reference? If not, why not?
- Did you prefer any particular viewer above the rest?
- Did they have answers to your questions and provide answers or were they evasive?
- Does anyone who seemed interested strike you as significantly better than the rest?
Experienced tenants know the drill
They know that landlords need certain information and good tenants are up front about providing it. If, on the other hand, they’ve never rented before, be sure to run through what you as a landlord are looking for in terms of prompt rent payment and taking care of the unit before agreeing a tenancy.
Talk to tenants
Choice made, ‘jaw jaw is better than war war’. Wise words. This is crunch time. Make sure–especially those of you who are fortunate enough to have units that will be exempt from the new HMO (Houses in Multiple Occupancy) regulations–that you’ve discussed this no subletting issue with your tenants. Don’t be timid or start laying down the law. The overwhelming majority of tenants have absolutely no idea of the rules that govern us as landlords. Most, to be blunt don’t care either. I have never once in all these years been asked for a copy of a Gas Safety Certificate. Amazing. But this first encounter time is the opportunity to break down some of the barriers. Of course tenants are usually less well-off than landlords. But they can still speak, and hear. I cannot emphasise enough the importance of building decent relationships and why that matters.
Take a tenant with a job he’s had for 18 months, who’s lived in your unit and paid on the nose for four months. Then the firm goes bust and he loses his job–through no fault of his own. What do you want:
- an intimidated tenant who doesn’t think he can explain his circumstances to you and maybe get a word or two of advice about Housing Benefit;
- someone who will call you immediately because they know you only accept employed tenants and who explains that the Citizens Advice Bureau says he can get Housing Benefit–but it may take weeks to come through?
Personally–I’d go for the second option every time. That way, I get the chance to negotiate. I’d probably say–‘Well okay, thanks for letting me know. I’ll wait for the rent to come from Housing Benefit if you give me some proof of your claim and I’d like the Housing Benefit cheques to be made out to me direct, so can you ask them for the necessary forms?’
One final consideration
In many ways one of the most important points of all–when will each of the viewers be in a position to move into the unit?
This is really important for landlords trying to fill empty units. Sometimes it can be a fine judgement call indeed between the person your instinct tells you is right–but who hasn’t even given his existing landlord notice … or the two girls who struck you as a bit flighty but who did offer you an immediate cash deposit to hold the unit, plus they were currently sharing a hotel room and anxious to move in immediately. Ultimately, it’s your call. Nevertheless, (very occasionally) that decision will have to be ‘no’ to everyone you’ve seen. Re-advertise.
At the end of the day, selecting tenants is a judgement call. Just be certain that however long it takes you to decide is a great deal longer than it took the average salesman on commission.
However don’t prevaricate. The best response you’ll ever get is when a unit is freshly advertised when it will hoover up the most likely local candidates. Beyond this initial flurry, you’ll often be waiting for stragglers.
A word of warning about references
You have to make checks of some kind, even if your heart (or wallet) is crying out to accept the bloke who seemed okay with a fistful of cash. However, references can only ever be pieces of paper. Behind them, there’s no security, no comeback. Nor is having a healthy bank balance the same thing as having the intention to pay rent.
Many landlords have come a cropper with the ‘loaded’ guy with the patter–or that so-sweet librarian with glowing references (including yours truly). So, do what you can to protect yourself without being so cautious that you lose a perfectly good tenant. Bank/employer references can only ever say so much. The ideal reference is a verifiable one from a former landlord (if you can check it’s not someone’s best friend).
Beware of professional shysters
Out there are some full-time crooks/tenants who operate in rentals. Some go to tremendous lengths to consolidate their ‘stings’. And, where they also affect us independents (who have the limited protection of their gut instincts)–they seem to prefer the anonymity of agents. References can be forged. Utility bills can be appropriated from friends/empty units they’ve previously viewed. Below shows just how far some scoundrels can go.
Young tenants often simply don’t realise how expensive leaving home can be. But again I repeat–whoever you let to, there’s little to beat a system where you select your own tenants and let them know that you’ll be visiting to collect rent personally each month/week or whatever. I know it sounds involved but it works. Everything else is simply trying to replicate less effective versions of the above. Non-payers and party animals usually prefer the anonymity of the agent whose property management department (which knows they’re in arrears) is miles away, and doesn’t know them from Adam. It’s also tremendously difficult for tenants who’ve agreed in writing to your rent collection visits to complain that you’re ‘harassing them’ if you turn up more than once–a regular occurrence from tenants whose agent never goes near the place if the landlord has the temerity to knock on their door and ask what’s happening to the rent.
Whoever you ultimately choose, you’d be reckless not to carry out a credit check. Every financial move we make nowadays is monitored and even the lowest paid people will have some form of credit history. If any problems show up–walk away. You don’t ever want to house a debtor.
Employer references can also be taken, unless you are one of those landlords who will accept the unemployed on Housing Benefit.
However, never kid yourself that anything on paper can do more than lower your risks. Letting is never a risk-free business.
Unless I’ve scared you to death, now’s the time to decide which interested party comes top of your list and call them first. If they’re still interested, make an appointment to meet as soon as practicable to exchange some monies and fill in documents. Your next move must be to meet one of the interested parties (and try calling your second preference for a fall-back position).
With you, at this second meeting, you’ll need Tenant Application Form(s) and Parental Guarantor Form(s)–where applicable–plus a receipt book with duplicates (available from any stationers).
The time for signing leases comes after references have been checked, never before.
Tenant Application Forms and Parental Guarantor Forms
It’s now time to ask your tenant (or tenants) to complete a Tenant Application Form(s) (remember one form per tenant, so take enough) or a Parental Guarantor Form (for young tenants). Run through the details and point out the small reference charges (ask for payment there and then). Cheques for this amount of money are usually accompanied by a cheque guarantee card and should be fine–but cash is better eight days a week.
Once you have completed Tenancy Application Forms, you’ll need a holding deposit. This should be for at least one week’s rent and you cannot proceed on uncleared cheques. Explain why. Some tenants will disappear for a short time to the nearest cash point. Others will want to let the cheque clear first–a less than ideal situation that may make you reconsider your options. Most astute tenants know the score and–if funds exist–anyone working should be able to withdraw £200–£250 within a short time. If funds are so tight that the tenant is waiting for a pay-cheque to clear–ask yourself how this is all going to work when you’ll need the balance of the deposit and a full month’s rent. Another judgement call. If you’re down to a choice of one tenant–carry on–accept the cheque and bank it immediately–but don’t arrange moving-in day and lease signing until that cheque has cleared. Tenants insisting on cheques need to pay you the balance of the deposit plus all advance rent at least a week before the moving-in day–and always check that funds have cleared before signing any leases. They can’t be unsigned–remember that fixed term?
Money talk is alien to some people. But the only reason that you’re a private landlord is to generate money and you need to learn fast how to discuss the very reason you’re all standing around in the unit.
A holding deposit is just what it says on the tin. An agreement not to let the unit to anyone else unless there’s a problem with some of the references. It’s an interim stage. Be patient. This is a long-haul agreement lasting months, possibly years–getting things right often takes a few days.
What to put on the receipt
Holding deposits are informal pre-contractual agreements between strangers bound up by money. Ensure that you write on the receipt that the holding deposit is non-refundable should references/credit checks prove unsatisfactory or if the tenant changes their mind about wanting the unit known as… [insert address, date and sign]. Unless you do this–if the tenant changes their mind or has lousy references–they’ll be fully entitled to a refund and you’re left with nothing.
What happens to the holding deposit?
Explain again that this sum will be deducted from the remaining deposit required for the rental. For example, tenants renting a unit for £l00 per week will need a deposit of four (or six) week’s rent (never more, see Lesson 10 on deposits–you’ll create a premium). This means their total deposit will be £400. Thus the minimum holding deposit should be £100, leaving a deposit balance outstanding of £300. This holding deposit has the specific purpose of covering the landlord’s losses if references don’t stack up or if tenants change their minds. It is not additional pocket money for dodgy landlords.
What if someone better comes along or I change my mind about the tenant whose holding deposit I’ve taken? Refund the first tenant in full if you change your mind.
But of course, there’s bound to be a bit of work involved with making thousands of pounds over the lifetime of a rental.
So, once you’re home with your Tenant Application Forms and holding deposits get on with the referencing process.
Get cracking because time equals money to landlords. Telephone a company for credit references (Yellow Pages). Make whatever checks you’ve decided are essential as quickly as possible by phone, fax, email or snail mail.
And finally – assuming everything is fine with references and checks and you have your guarantor forms back, notify your tenant of the happy news. It is unwise to accept Parental Guarantees from companies unless you can check trading accounts via Companies House.
- 1.Set up a meeting to accept the remainder of the deposit and advance rent, which will begin the formalities of a tenancy and will only be complete and binding once leases have been signed and witnessed.
- 2.(My personal preference), wait until the agreed moving-in date and (so long as cash is available for the remainder of the deposit and the one month’s advance rent) complete all the formalities (exchange of money, inventory, schedule of condition and leases) in one go on the first day of the tenancy. And always take a witness.
Each scenario suits different landlords and I’ve little doubt there are other permutations of the process that suit individuals better. Some landlords prefer to only accept cheques for security reasons and therefore have to work a full week ahead of themselves in order to allow cheques to clear. Others are quite happy to cut down appointments and accept cash. Yet again, it’s your call. There’s only one rule and it’s simple. Never complete the formalities of a tenancy, let alone hand over keys to a property, without some credit reference and the full amount of genuine money.
Some ideas for all those forms you’ll need to use
There’s no common format for reference forms or for Tenancy Application Forms and no real need to buy them. Overleaf are examples of forms I use and which have served me perfectly well. Copy them if you like–or pay someone to draw up something similar. But please don’t try managing without any of them because checks like these are a vital part of your own protection against wilful damage or neglect. You need to decide which forms apply and when to use them appropriately. So, every tenant gets a Tenant Application Form, but obviously a 30 year old won’t be providing parental guarantors–unless their parents are very understanding. And, in case you don’t have details of how to compile one, there’s also a sample employment reference included in this Lesson.
And finally, for bank references
Most major banks have a standard form of reference. Please refer to your Tenant Application Form for account details then ring the relevant contact and ask what they will require/provide.
Tying up the deal before moving tenants into a unit
Assuming you’re doing everything on moving-in day and the unit is prepared:
- 1.Agree a moving-in date and time with new tenants.
- 2.Meet up, enter the unit and go through the inventory and Schedule of Condition in detail with your tenant. Anything added in at this stage is likely to be handwritten so please get your tenants to initial and date any changes. Show them a current Landlord’s Gas Safety Certificate (unless there’s no gas in the building).
- 3.Now we come to money. Tenants should have the balance of the deposit and a full month’s advance rent. Don’t accept excuses here–it’s sheer madness to start off a brand new tenancy any other way–instead really consider whether or not you want them as tenants at all–as this is a very bad first impression.
Example of an employment reference
- 4.Assuming (as in the overwhelming majority of cases) that the money is available, provide two receipts, one showing the balance of the deposit paid which states ‘balance of outstanding deposit’, and another separate receipt for rent, which states ‘rent for–’ and provide the first and last day of the period covered (usually four weeks apart) and the address of the unit. Sign and date one then give one copy to the tenants and keep your duplicates. Alternatively rent books for assured shorthold tenancies are available from many stationers for around £1.50.
- 5.Now run through the lease (unless you’ve already shown them at any previous meetings). Encourage them to read it and, especially for units with one or two tenants, point out the subletting restrictions and explain why this is so important–especially with the new HMO legislation and make sure they understand.
- 6.If they don’t seem overly interested in the paperwork, that’s up to them. Tenants are split pretty much down the middle over these matters. Either they check each comma or they don’t bother to read it at all. If it’s 30 pages long, I hope you forewarned them and brought a good novel if they’re the interested type.
- 7.Fill in both leases (see Lesson 5: Assured shorthold leases) one copy for yourself and one for your new tenant. Sign them and ask your tenant to sign them. Date them, then have them witnessed.
- 8.Some landlords still collect rent, sometimes weekly, sometimes fortnightly but more often, four weekly. Many tenants and landlords however, prefer to have standing order arrangements via the tenant’s bank. The choice for this is for the landlord to make and the tenant to oblige. If you require a standing order, make sure that you have ordered or collected one from the bank for this first day and get the tenant to fill it in before you hand over the keys. Some landlords prefer a combination where, say for the first three months, they meet the tenant and collect rent, then set up bank arrangements once they’re confident a payment pattern will continue. Others simply plump for one method or the other. There are, as usual, benefits and drawbacks to both methods. Some landlords opting for standing orders/direct debits sensibly arrange with their own bank to have statements sent out immediately post rent dates. It’s a very interesting argument–often hotly disputed between independents. Very few people manage to get into arrears with rent collection and interestingly, WH Smith always carries healthy stocks of appropriate rent books so plenty of landlords must still opt for it.
Rent collection services
Set this up from day one and tell your tenants exactly when to expect you. Tenants who run into arrears find it easy to avoid the local lettings agent and an absent landlord. They’re much less likely to want to face the landlord in person. Leaving a note to say you’ll be back tomorrow at the same time can nip an escalating problem of repeated non-payment in the bud.
Rocks and hard places
As a landlord you can get stuck in a number of them until you refine your practice to suit your circumstances and the nature of your units. Being an independent allows you to intervene effectively and early–it’s another significant benefit that shouldn’t be given up lightly.
Leave the tenants a Property Profile. Once at home, telephone the local authority council tax office and provide them with the details of your new tenant who will be responsible for charges from their first day. Water companies will need similar notification (even if the water is metered). Tenants will need to be advised who the gas and electricity suppliers are so that bills can be put in their names–these days tenants swap and change suppliers all the time. But sensible landlords take meter readings to protect themselves and their tenants. I always write mine in the bottom left corner of the lease, that way, when a company tries to back bill your new tenant for the old tenants arrears, you’re all quite certain what the meter said on day one.
Whys and wherefores
Selecting tenants is time well spent. How long all this takes is a matter of the variables. Reading the lesson (which itself shouldn’t take more than 20 minutes or so), this part of the process may sound daunting, but don’t be put off. What I can say with confidence is that after the first or second time, doing anything connected to with letting only takes a matter of minutes or an odd hour–it’s just that the unfamiliar can take a bit of getting used to.
Referencing tenants is one of the topics covered widely on the internet landlord sites, such as the Small Landlords Association, the Residential Landlord Association and the Royal Institute of Chartered Surveyors sites, who may have ideas not covered here. Other information is available through the multiple landlord sites that have mushroomed recently. Experian (tel: 0870 241 6212) (for £10 credit references) and Credit PLC (tel: 0870 060 1414). Other suppliers of credit and other referencing service like Equifax and www.tenantvetting.org.uk are available online.
Alternatively, Yellow Pages lists tenant vetting services and credit checking companies.
- Go home after meeting prospective tenants and give the matter some genuine thought.
- Leave your prejudices behind, being discriminatory is illegal and poor business.
- Make sure you remember when each person will be able to move in.
- Trust your judgement but check whatever is checkable.
- Don’t be indecisive, the first flurry of tenants is usually the best.
- Make your decision and telephone the tenants to arrange a second meeting.
- Discuss holding deposits and Tenant Application Forms when tenants call.
- Don’t discard telephone numbers of other interested parties yet –you might need a fall-back position.
- If other interested viewers telephone you to ask whether or not they’ve been successful, use the first come, first served reasoning and tell them you’ll be in touch if the tenant backs out or proves unsatisfactory.
- References are only pieces of paper–don’t be over reliant on them.
- Always do a credit check–they’re easy, cheap and quick and screen out persistent debtors.
- Ask tenants to pay a combined fee of around £20–£25 for both bank and credit references when they complete Tenant Application Forms (they’ll know this is fair–it’s a good way to start a new business relationship).
- Notice what’s on the bottom of my Tenant Application Forms. One clause will be explained in the deposits lesson, the other is self-explanatory.
- Always insist on a holding deposit of at least one week’s rent. If you don’t get a holding deposit from your first choice, ask yourself why and move to your second preference. Never stop advertising until you’ve taken some money on a unit.
- Always provide receipts for holding deposits with clear terms.
- Make sure the receipt states clearly what the money is for and, in the case of a holding deposit, that it may prove non-refundable.
- When checking references, try to speed things up with phone calls and faxes–but ask people to fill in the forms for your records. Electoral Registers can confirm old address details for example.
- If your tenant’s references are not satisfactory, don’t proceed–grit your teeth and start again!
- Read the whole of this lesson–much of it is very important.