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Landlords Warned Of 'rental Guarantee' Pitfalls

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Telegraph 25/3/14

'The eye-catching adverts are certainly compelling: "Attention landlords: Guaranteed rent for five to 10 years. No voids or maintenance costs." It sounds the perfect solution for landlords who don't want the hassle of finding or managing tenants - but "guaranteed rent" schemes can turn into a nightmare if it all goes wrong.

Under a guaranteed rent arrangement, the landlord signs over the property to a company or letting agent for a specified period of time in return for a guaranteed monthly income.

Things can go wrong in these set-ups if the middleman doesn't have the financial resources, or inclination, to back up the guarantee. In the worst case scenario landlords can be stuck with tenants in their property but no rent.

If a situation occurs where the guaranteed rent company receives rent from tenants but doesn't pass it on to the landlord, the landlord will need to take legal action against the company.

Mr Peaker also pointed out that landlords can't escape their responsibilities by handing over their property to a guaranteed rent firm. If the property is overcrowded, not fire safe, or becomes an unlicensed HMO (house in multiple occupation), the landlord could be fined up to £20,000 by the council.

It's also wise to find out in advance the kind of tenants the provider is planning to place in your property. Some agencies specialise in benefits tenants, emergency housing, professional sharers - or students

£400,000 MISSING - AND NO RENT FOR LANDLORDS

Mystery surrounds a "missing £400,000" paid to London Housing Solutions based in Catford, south east London.

London Housing Solutions offered a guaranteed rent scheme to landlords and then let properties to tenants on benefits. Tenants' housing benefit was paid direct to the company.

But Channel 4 News reported last week that £400,000 in housing benefit paid to the company by various local authorities, including Bexley council, had gone "missing" and landlords have gone unpaid.'

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Doubtless 'a rentier' will get ripped off and will pay the guy at property 118 to launch a class action type law suit.

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Doubtless 'a rentier' will get ripped off and will pay the guy at property 118 to launch a class action type law suit.

I did this "guaranteed rent" scheme a few years ago whilst I went travelling. I could not work out how the agent would make money. My only risk was counterparty risk i.e the agent failing. They tried to lock me in to a minimum 2 years (they had options for 5+ but with no inflation risers). I opted for 1 year with the option to extend which they didn't like but accepted. The agent took care of all minor repairs and billed me for them but they fixed any issues the tenants complained about and then "guaranteed" they would return the property to me in the condition in which I gave it to them.

Anyway - one year later they asked me to sign an extension - I signed for another year (they wanted more). They proceeded to raise the rent and force the current tenants out. Finally I thought this was how they were going to make their cash. I was on a fixed rate so after a year they would finally see a return. What happened next shocked me. They let the place to a new tenant at a higher rent. That tenant in turn converted my 3 bed flat into a 5 bed flat with a partition wall and began to rent out the flat to random short term sub letters. I only discovered this after 3-4 months when I tried to re-mortgage and the surveyor asked me to confirm the number of bedrooms in my place!

I then forced the agency to "discover" this and they immediately said they had no idea that this had happened and asked the tenant to move out and remove the partition. All the paperwork the agency showed me suggested that it was a real tenant but I'm sure that they were all working together to skim off the rent, you just couldn't prove it. Anyway, I subtly threatened them with the fact that they were complicit to bank fraud (as I had said it was a 3 bed flat on my re-mortgage application), press articles and council inspections and they promptly "corrected" their mistake and gave me back the keys having repainted the place.

I'm sure there are thousands of properties this is happening too especially in London, where the owners are content to get their rent and the agents are breaking HMO and tenancy contract laws via "a third party" to skim cash off rent. Its all very unseemly but not illegal.

Its obvious that estate agents need regulation but the lobby is too strong for anyone in government to rock the boat.

Edited by katchytitle

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I did this "guaranteed rent" scheme a few years ago whilst I went travelling. I could not work out how the agent would make money. My only risk was counterparty risk i.e the agent failing. They tried to lock me in to a minimum 2 years (they had options for 5+ but with no inflation risers). I opted for 1 year with the option to extend which they didn't like but accepted. The agent took care of all minor repairs and billed me for them but they fixed any issues the tenants "guaranteed" they would return the property to me in the condition I gave it to them in.

Good post IMO and you are aware you'd have been on the hook if they place had caught fire or if the place had been run as illegal HMO.

Also see another post on here about purchase lease options.

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Good post IMO and you are aware you'd have been on the hook if they place had caught fire or if the place had been run as illegal HMO.

Also see another post on here about purchase lease options.

Thanks. Yes - I realised that my buildings insurance would have been void and it probably didn't have the necessary fire doors etc for an HMO place. As long as the agent gets his cash they don't care. I don't think people realise that you can't outsource legal responsibility only bureaucratic tasks. I remember the contract they asked me to sign had a number of paragraphs in it that I just struck out when I signed it giving them further powers. They didn't even bother checking what I had done - the signature was all they cared about.

Edited by katchytitle

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