Are rent-to-rent's days numbered?
The Renters (Reform) Bill is likely to change how rent-to-rent schemes function and will make landlords liable for the behaviour of rent-to-rent operators.
The NRLA has been invited to feed-in to a consultation that seeks to better understand the business practices of rent-to-rent operators, as well as their impact on tenants and landlords.
Senior Campaigns and Public Affairs Officer, Eleanor Bateman, explains why NRLA members’ experiences are needed and how you can get involved.
What is rent-to-rent?
In an attempt to mitigate the increasing uncertainties involved in renting, some landlords opt to let property to intermediaries rather than directly to tenants.
These third parties (rent-to-rent operators) guarantee a rental income to a landlord, irrespective of whether a property is inhabited, or a tenant accrues arrears.
Often, such arrangements involve the rent-to-rent operator paying a sub-market rent to the landlord in exchange for a guaranteed rental income.
There are several types of rent-to-rent operator, ranging from a local authority long-leasing scheme to a short-term let company. Where a rent-to-rent operator acts lawfully and a tenancy is managed well, these arrangements can work for all.
However, such schemes are scorned by many, who feel they enable third parties – with no material interest in a property – to let to tenants whilst evading their legal obligations. In some instances, landlords may even be unaware that their property is being sub-let.
Why is the issue being investigated?
The prevalence of rent-to-rent schemes, as well as a recent high profile case in which a rent-to-rent operator failed to adhere to local licensing requirements, have led to an attempt by the Government to protect tenants from the effects of poor tenancy and property management.
Currently, rogue rent-to-rent operators can simply ‘shut-up shop’ when faced with enforcement action, but crucially, according to a Supreme Court judgement, a rent repayment order (RRO) cannot be made against a superior landlord (a landlord that grants a tenancy to an intermediary).
However, an amendment to the Renters (Reform) Bill will enable a superior landlord to be held liable for the behaviour of a rent-to-rent operator. The amendment also allows rent repayment orders to be payable for up to two years.
This means that, where a landlord unwittingly enters into a rent-to-rent arrangement with a non-compliant operator – one that fails to get a licence for a licensable House in Multiple Occupation (HMO), for instance – the superior landlord can be held responsible for any rent repayment order, regardless of whether they received the rental income or not.
The loss of fixed term tenancies and Section 21 are also likely to necessitate a change in practice for rent-to-rent operators. Most rent-to-rent agreements are based on fixed term tenancies and stipulate that a property will be returned with vacant possession at the end of the agreement. But the abolition of fixed terms and Section 21 are likely to make this impossible.
In addition to this, where a superior lease is the same length as the sub-lease, it usually means that the subletters will become the tenants of the superior landlord rather than the rent-to-rent operator, leaving the superior landlord with no choice about their tenant.
Given that periodic tenancies will be the default going forward, this is potentially extremely challenging for landlords if they are misled by a rent-to-rent operator posing as a standard tenant, as both tenancies will typically be exactly the same length.
Have you used a rent-to-rent company?
If you have used a rent-to-rent scheme, whether the experience was positive or negative, the NRLA would like to hear from you. We are particularly interested to hear about:
• The type of rent-to-rent operator you have used, whether a guaranteed rent scheme provided by a letting agent or a dedicated rent-to-rent company.
• The type of property let under a rent-to-rent scheme – was it an HMO or short-term let, for instance.
• Any difficulties you have had in using a rent-to-rent scheme (including any that occurred after the tenancy had ended), whether it turned out to be a scam, you didn’t receive the agreed rent, or you had problems establishing whose responsibility it was to protect a deposit or undertake repairs.
• Whether the Renters (Reform) Bill’s changes, which will increase landlord liability and make it more difficult to guarantee vacant possession, will make you more or less likely to use a rent-to-rent operator.
• Good experiences – have you let via a rent-to-rent operator for years and never had any issues?
If you have views on rent-to-rent schemes and the likely impact of the Renters (Reform) Bill on their operation, please tell us. In providing evidence to the consultation, we want to ensure that all views are represented so that any outcomes are workable and proportionate.
Please email [email protected] by 21 February 2024 to help shape our recommendations.
