“Guaranteed Rent” or “Rent to Rent” agreements are a seemingly attractive offer: all of the money of letting out to tenants, but none of the hassle, risk, or uncertainty.
The way that most of these agreements work, is that a property owner will enter into a contract with a guaranteed rent company to rent a property for 2-3 years and it is then down to the company to find occupiers. The rent is paid to the property owner regardless of whether the property is occupied, and the owner has no direct contractual relationship with the occupiers. The company makes its profit from the difference between the rent it pays to the property owner and the rent it can charge occupiers.
This type of agreement guarantees to the property owner a steady flow of income, with minimal time investment. However, when things go wrong, they can go wrong spectacularly.
Common pitfalls involve: not investigating the track record of the company, not understanding that both the property owner and company can be prosecuted for not having an HMO Licence, not checking the guaranteed rent agreement complies with the property owner’s mortgage conditions, not checking the guaranteed rent agreement complies with the property owner’s home insurance, and not being clear who is responsible for landlord obligations (e.g. gas safety checks, smoke alarms, electrical wiring etc).
However, the main issue is what happens if you want to get your property back. Often you will have no idea who is physically occupying the property or on what basis. We frequently see that guaranteed rent companies will enter into a separate agreement with a local authority to house vulnerable people. This creates two further levels of property rights which you do not have any idea about and results in occupiers who the local authority are reluctant to re-house.
With a traditional Assured Shorthold Tenancy agreement, the notice period and process to obtain vacant possession is clear. Give the tenants two months’ notice with a section 21 notice, or two weeks’ notice with a section 8 notice, potentially followed by court proceedings. However, with a guaranteed rent agreement, you will need to comply with the notice period in the agreement, followed by identifying and serving sequential notices on all the other parties the company has contracted with, potentially followed by court proceedings.
Therefore, the property owner may be left in a situation where:
Lisa Eastwood and Oliver-James Topping have recently been instructed in guaranteed rent disputes involving the London Boroughs of Newham and Barking & Dagenham. In these instructions, identifying the framework at the outset and pursuing the matter logically was key to their successful resolution.
The above is meant to be only advice and is correct as of the time of posting. This article was written by Senior Associate Lisa Eastwood and Associate Oliver-James Topping in the Residential Property Litigation Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2023.