How to Select The Best Available Tenant: Tenant Referencing

Rogue tenants can cause a lot of grief, from unpaid rent to £1000’s in damages. It’s best practice then, before you let someone rent out your property to ensure, to the best possible ability that they are going to be good tenants.

How though, do you determine who is going to pay rent on time? Who is going to look after the property and treat it respectfully, or who is going to dodge rent payments and take 6 months to evict?

There are two key mistakes that landlords make.

1. They eagerly accept the first tenant that comes along in a desire to minimize vacancies as much as possible.
2. They don’t bother to properly reference their prospective tenants.

In this article, we are going to outline some of the key steps every landlord should take when referencing their tenants and running a tenant credit check to avoid nightmare rental scenarios.

For What Reasons Can and Can’t A Landlord Reject a Tenant?

You should ensure that you have a good and legitimate reason for rejecting a tenant’s application. This means understanding on what grounds a tenant might be deemed unfit and understanding the legal implications of rejecting a tenant for the wrong reasons.

For example, you cannot reject a tenant for being married, pregnant, transexual, disabled, or on account of their sexuality, gender, race, nationality or religion. These are called the ‘protected characteristics’ as part of The Equality Act. Additionally, rejecting someone for being over 70 or for having mental health issues would constitute breaking the law.

So what characteristics can you use when judging a potential tenant? Essentially, you need to know that the tenant can and will look after your property and pay the rent on time. This means you can disallow smokers and pet owners as they are likely to cause more damage to your rentals. Additionally, you can run a tenant credit check and ask for and verify their current income to ensure they have the funds necessary to afford the asking rent.

And finally, you can use previous landlord references to get a picture of their rental history to understand what kind of tenant they are likely to be. For example, you might disqualify a tenant who otherwise looks great on paper if their previous landlord tells you that they were unreliable with payments and caused damage to the property.

7 Steps to Effective Tenant Referencing

1. Set Rigid Standards

Before you set about advertising and collecting tenant applications you need to have a clear determination of what will disqualify a prospect.

For example:

• Income

Can they actually afford the rent? We generally suggest they should be earning 3x times the monthly rent.

• Job-status

Are they employed full-time? How long have they been at that job? You want to determine whether they seem like they have a stable income.

• References from past landlords

Do their previous landlords have glowing reviews, or have they left in their wake a trail of smoke and destruction like a Mongol horde?

• Pets and smoking.

Outline your smoking, pet policy, and any other specific policies that might disqualify an applicant upfront in your listing to help avoid time wasters. Be sure to check what legally can and can't be used when setting these policies.

Setting these rigid standards will help you choose between multiple tenants if you get more than one application as well as determine who if anyone is going to be a good fit for your rental.

The key thing you need to determine from these standards, is that they can and will they pay rent on time and in full?

2. Meet Them in Person

Always meet your tenants. Unless you’re completely comfortable renting to them after meeting them don’t try to convince yourself they’ll result in being good tenants.

Ultimately, you are trying to gauge whether this person appears trustworthy, mature, and reliable.

3. Check Their I.D.

Before you start the process of deciding, make sure they’re actually who they say they are, and that they have the “right to rent” in England. You should check every tenant that applies.

Due to landlord legislation, Under section 22 of the Immigration Act 2014, Landlords in England are obligated to check their tenant’s proof of ID and citizenship to help control illegal immigration.

Failing to comply could result in penalties of up to £3,000.

4. Tenancy Application Form

Get interested tenants to fill out a tenant application form. It may be worth having printouts at the viewing otherwise send it to them in an email that same day or use a system like Landlord Studio where tenant’s can fill out an online application with prescreening questions.

Your tenant application form should include:

• Tenancy details: property address, rental period, number of applicants, proposed tenancy start date.
• Tenant’s personal details: tenant’s name, contact details, and time at the current address.
• Current Landlord: details about the current landlord.
• Referee / Guarantor Details: details about guarantor
• Employment details: current and past employment details, and details regarding salary
• Details about occupiers: details about all the people that will occupy the property
• Other details: details such as smoking status, pet status

Hopefully, you will receive more than one application and you can compare them all side by side to determine which applicant suits your rental best. For example, using a tenant credit check you can assess which application is more financially responsible and more likely to pay the rent on time.

Free tenant application templates

5. Tenant Referencing Service and Tenant Credit Check

It’s always a good idea to get everything checked over and validated by a tenant referencing service. These services have traditionally been a little costly, however, today you can get pretty competitive rates. For example, Open Rent offers a comprehensive tenant referencing service for just £20.

OpenRent’s comprehensive tenant referencing service details:

• 3-5 Working Days;
• Tenant Credit Check;
• Linked Address, Identity & Fraud Information;
• CCJs, Decrees, and other court information;
• Right to Rent Check and Advice;
• Affordability Rating;
• Previous Landlord Reference;
• Employers Reference;
• Rent Guarantee Insurance Eligible.

We suggest treating a 3rd party tenant referencing services as a contributing factor to help determine the overall suitability of your prospective tenant. You should always do your own due diligence!

Letting a Property Tenant Referencing

Get a comprehensive tenant referencing a report from £49 or choose one of their lettings and rent management plans with tenant referencing included.

6. Corroborate Their Story

Sadly, not every tenant is honest. In fact, many tenants will supply fudged information on their applications – half-truths or outright lies to make them seem more qualified.

These lies can be hard to spot and so it’s worth putting in a little effort to corroborate the most important information. You can start by doing a quick online search.

Google, Facebook, and LinkedIn.

For example, they might have said they are non-smokers on their application, however, their profile picture shows them holding a cigarette. Or maybe they claimed they worked as a Junior finance officer for HSBC, but there’s no evidence of that on their LinkedIn profile, and their education shows they have a degree in Media Studies.

If, even after discovering holes in their story you still think they will be good tenants, then talk to them about it. They might have a perfectly reasonable explanation.

7. Tenant Guarantor

Getting a guarantor is an increasingly popular option for landlords, especially when renting to students or people with short rental histories. It essentially means a second person will assume responsibility for the rent should the tenant not be able to or is unwilling to.

Free guarantor form template

Other Points to Consider

1. You can’t pass on referencing costs to tenants!

On 1st June 2019, the “Tenant Fees Act 2019” came into force, which is a legislation that focuses on banning and restricting letting agents and private landlords (in England only) from charging tenants with certain fees, which includes referencing fees and credit check fees.  so probably only reference the most likely to succeed in their application.

2. Keep looking for tenants until the deal is signed

Even if you think you’ve found the perfect tenant(s), don’t burn your bridges with your other applicants or even stop the process of looking for new tenants until the lease has been signed, and the first month’s rent and the deposit are paid.

Many landlords make the mistake of trusting the enthusiasm of applicants, they take a verbal commitment to the tenancy and then stop looking for applicants. The reality is, that situations change. Your tenant might decide not to move, or to take a different apartment leaving you back at square one.

3. Rent guarantors insurance

RGI has become extremely popular among landlords over the last few years, particularly because of the tough economic climate, which is causing spikes in rent arrears.

If you don’t know what it is, it’s essentially an insurance policy that covers landlords against loss of rent in the event of non-paying tenants.

If you plan on getting Rent Guarantors Insurance, one thing to be wary of is that RGI companies will have specific requirements before they will offer you coverage. For example, they may require you to run specific checks, or use specific referencing services.

You can stay on top of new laws, regulations, and best practices as well as get helpful and insightful advice from the community by joining a landlord association.

We hope you found this blog interesting! However, do note that it should not be used as a substitute for competent legal and/or other advice from a licensed professional.