The pitfalls of rent-to-rent: Navigating challenges through mediation
Mike Morgan of NRLA partner the Property Redress Scheme Tenancy Mediation Service explains more about rent-to-rent arrangements, and the role of mediation in resolving conflicts and disputes that may arise.
Rent-to-rent, or ‘guaranteed rent schemes’ as they are also known, are one of the most common strategies in the private rented sector. The idea is that an intermediary leases a property from the owner for three to five years and then sublets it to tenants for profit. This type of scheme, run correctly, can be a lucrative venture for both property owner and operator.
However, like any business model, it comes with its own set of risks and challenges.
At the Property Redress Scheme Tenancy Mediation Service, we’ve seen an increase in requests for mediation from property owners in relation to rent-to rent agreements.
Here, we will explore the most common ways in which rent-to-rent can go wrong, discuss the role of mediation in resolving conflicts and disputes that may arise, and provide two case studies to illustrate mediation in action when applied to rent-to-rent situations.
Property Management Issues
One common challenge in rent-to-rent arrangements is the potential mismanagement of the property. The operator may fail to adequately maintain or repair the property, leading to dissatisfaction among both the property owner and tenants.
Mediation can play a crucial role in establishing clear expectations and responsibilities, helping to prevent disputes related to property upkeep. It can also help to vary terms of existing agreements or introduce new agreements to help facilitate better management of the property.
Managing tenant relations
Rent-to-rent operators’ biggest risk is finding suitable tenants to maintain cashflow or dealing with high turnover of tenants. In cases where tenants are dissatisfied, disputes may arise.
Mediation provides a platform for open communication between all parties, facilitating the resolution of issues such as disputes over deposits, tenancy terms, and tenant behaviour.
Many rent-to-rent operators may have the skills to successfully let the property but can struggle when it comes to conflict and being emotionally removed from a situation. This is where mediation fits perfectly to resolve issues, while helping to maintain ongoing relationships.
Navigating legal complexities
Navigating the legal minefield of the private rented sector is complex, and rent-to-rent is no exception. Issues such as compliance with tenancy documents, local regulations, licensing requirements, and adherence to lease agreements can pose significant challenges. Mediation can help clarify legal obligations, making sure that both landlords and operators are aware of their responsibilities and reducing the risk of legal disputes.
Financial negotiation
Financial disagreements between property owners and rent-to-rent operators are not uncommon. These may stem from issues such as delayed payments, unexpected expenses, or disagreements over profit-sharing. Mediation offers a structured process for resolving financial disputes, allowing both parties to negotiate and find mutually acceptable solutions.
Communicating effectively
Effective communication is key in any business relationship, which is what a rent-to-rent agreement is. These arrangements can suffer when there is a breakdown in communication between property owner, operator, and tenants. Mediation provides a neutral environment for all parties to express their concerns, fostering a collaborative atmosphere and facilitating the rebuilding of trust.
While rent-to-rent can be a profitable strategy, it is not without its challenges. The potential pitfalls include property management issues, tenant relations, legal complexities, financial strains, and communication breakdowns.
Mediation emerges as a valuable tool to address these challenges, offering a structured and neutral platform for resolving disputes and fostering positive relationships between all parties involved in rent-to-rent arrangements.
By embracing mediation, landlords can navigate the complexities of rent-to-rent and work towards sustainable and mutually beneficial outcomes.
For more information on rent-to-rent, visit the Property Redress Schemes Resources library where you will find a guide to rent-to-rent for landlords.
Case study 1
Situation: Four bed HMO on a five year lease with a rent-to-rent company, with three years remaining on the lease. All tenants were on a fixed term AST.
Due to a change in personal circumstances, the property owner needed his property back. There was no early termination option in the lease and the security of tenure for the tenants had to be the priority.
The mediator explored both parties’ situations, their wants and needs as well as what they were willing to compromise on.
Outcome: The result of mediation was that the rent-to-rent company surrendered the lease and handed the property back to the property owner.
The rent-to-rent company retained the management of the property as a lettings property manager which maintained the ASTs, and the ASTs were transferred from the rent-to-rent company to the landlord.
The property owner paid £6,500 to the rent-to-rent company as compensation for breaking the lease. The ASTs were transferred from the rent-to-rent company to the landlord.
Case study 2
Situation: Five bed HMO where the rent-to-rent operator had disappeared, closing the business with no communication to either their tenants or the property owner.
£20,740 was owed to the property owner in rent.
Initially the mediator contacted the rent-to-rent operator at all last known correspondence addresses, but there was no response so the mediator contacted all tenants individually as they were each on their own ASTs.
Outcome: One tenant responded and after some support and guidance agreed to mediate, and agreement was reached with him which he was happy with. Due to this positive outcome, he encouraged the other tenants to reach out and we were eventually able to mediate with each tenant.
An agreement was reached to reduce arrears equal to the money the tenants had each paid for utilities while the rent-to-rent operator had not paid them.
A lump sum payment in full nd a final settlement of rent arrears was agreed with each tenant.
Room 1 £3560
Room 2 £2750
Room 3 £3000
Room 4 £2500
Room 5 £2300
Four tenancies were transferred to the landlord while the fifth tenant decided to vacate and move on.
