Mediation and guaranteed rent contracts
At the Property Redress Scheme Tenancy Mediation Service, we’ve seen an increase recently in requests for mediation from property owners in relation to corporate lets or guaranteed rent agreements - more commonly known as ‘rent to rent’ agreements - where the relationship has broken down or the rent to rent operator has failed to fulfil their obligations.
What is rent to rent?
‘Rent to rent’, or guaranteed rent agreements, are one of the most popular property strategies in the UK today.
In a rent to rent arrangement, a company or individual will rent a property from the landlord for a period of time, usually three to five years, paying a fixed guaranteed rent each month. The individual or company will then sublet the property for a higher rent than they are paying the landlord, and this is how they make their money from the agreement. For more detailed information on how rent to rent works, read mydeposits ultimate landlords guide to rent to rent.
However, sometimes this can go wrong - perhaps the rent to rent operator can’t fill the property and with reduced income is struggling to meet the guaranteed rent payment, or maybe the rent to rent operator has gone into liquidation.
At the Property Redress Scheme Tenancy Mediation Service our mediators are fully qualified civil and commercial mediators, which means they can mediate on a very varied caseload of disputes, including commercial agreements such as rent to rent arrangements.
Our mediators have already mediated on a number of rent to rent cases, including the following situations:
Rent to rent operator is unable to pay the agreed monthly rent
Rent to rent operator has breached compliance and a remedy is required
Landlord wants their property back from the rent to rent operator during the fixed term lease
Rent to rent operator wants compensation after landlord terminated the agreement early or without following the correct process
Recovering vacant possession, including additional mediation with the tenants in the property
The following two case studies highlight how mediation can help when a rent to rent arrangement breaks down.
Case study one
Dispute: The rent to rent operator was struggling to fill rooms in the HMO she had rented from the landlord and was owed just over £5,000 in rent. The landlord wanted the property returned to them immediately, but the operator had some tenants in the property on Assured Shorthold Tenancies who couldn’t just be removed.
Mediation: The mediator negotiated between the landlord, the operator and their tenants to come to an agreement on a move out date for the tenants, which included a financial agreement to help the tenants afford to move on.
A payment plan was agreed with the landlord and operator to repay the £5000 over a set period of regular payments.
A date was agreed when the operator would return the property to the landlord with vacant possession, cleaned and in good repair.
Outcome: Because all of this could be agreed at the mediation, which was conducted over Zoom, allowing all parties to remain in the comfort of their own surroundings, the outcome was manageable for all concerned. The stress of resolving this situation was minimised and, as court was not necessary, costs to both the landlord and the operator were much reduced.
Case study two
Dispute: The rent to rent operator had been running a five bedroomed HMO, and the operator had not paid the guaranteed rent for several months.
Sadly, the operator had closed the company and done a moonlight flit, leaving the landlord not knowing who was living in his property or how to resolve the issue of unpaid rent.
Mediation: The mediator ensured the landlord got the correct legal advice through working collaboratively with our housing law partner and NRLA recommended supplier, Landlord Action.
Once the landlord had control of the property, the Property Redress Scheme Tenancy Mediation Service contacted the tenants, who at first were reluctant to engage. The mediator took the time to explain the mediation process and reassure the tenants.
As each tenant had their own AST, we were unable to mediate as a group, but eventually one tenant agreed to mediate.
The mediator negotiated an agreed rent reduction based on the tenant having to top up the pre-pay gas and electric meter, which was meant to have been done by the rent to rent operator.
A new AST was signed with the tenant and landlord and a payment plan put in place for the rent owed.
As this tenant was pleased with his outcome, he then encouraged the other tenants to engage, and eventually we mediated with all the tenants. This resulted in various agreements - some vacated but agreed payments, others stayed but with reductions to their arrears and payment plans.
Outcome: Because all of this could be agreed at the mediation, which was conducted over Zoom, allowing all parties to remain in the comfort of their own surroundings, the outcome was manageable for all concerned and the stress of resolving the situation was minimised. As court was not necessary, costs to both the landlord and the tenants were much reduced.
The Property Redress Scheme has created three guides - for agents, tenants and landlords who may be involved in guaranteed rent or rent to rent arrangements - which are available in the PRS resource section of their website here.