Rent2Rent companies are using the wrong letting contracts
Whilst I have never been a fan of the Rent2Rent strategy I have to accept that a lot of investors are using Rent2Rent including Housing Associations, Councils and FTSE 250 companies as well as privateers. As it is the mission of Property118 to share best practice, helping these private investors to get their paperwork right fits within our remit, regardless of any other misgivings I might have personally have about the scheme.
What is Rent2Rent?
The way the scheme generally works is that a contract is entered into whereby a property owner rents or signs up to a management contract for his/her property with an investor/manager which includes permission to sublet in return for promises of guaranteed rent, maintenance, management etc. A profit element is built into the deal by investor/manager in the form of a below market rent.
An example of how things can go horribly wrong is explained in this thread. A property owner was asked to sign an assured shorthold tenancy agreement. To cut a long story short there was a dispute over deposit protection which went to court and the property owner won, even though she had not protected the deposit. She could have claimed substantial damages against the Rent2Rent company but in this instance chose not to. Big lesson learned for the property owner and also the Rent2Renter too!
What are the correct agreements to use for Rent2Rent?
I have consulted with Tessa Shepperson at Landlord Law regarding which type of tenancy agreement should be used. The conclusion was that neither AST’s nor corporate letting agreement are appropriate agreements for the owner and the Rent2Rent company to be using. What is required is a commercial lease drawn up by a corporate property lawyer. Tessa doesn’t get involved with corporate property law so I called in the help of Justin Selig, a qualified and practising corporate property solicitor with The Law department and Landlord Action.
Justin has agreed that subject to demand he will create a legal document template which Rent2Rent companies can download from Property118 for £97 including VAT. The document will be copyright protected so it can only be used by the person who pays for it and any company in which that person owns more than 26% of the shares. It can, however, be used as many times as that person needs to do so. Therefore there is not a requirement to pay £97 each time the document template is used.
If enough people order the agreements they will be available for download by 31st July 2013. If by 22nd July 2013 there are not enough orders it will be deemed that there is insufficient demand, the project will be scrapped and everybody who has paid will receive a FULL refund.
UPDATE – 23rd July 2013
Sufficient orders have been confirmed and paid for and Justin Selig will have the contracts prepared and ready for us to deliver by the end of this month (July 2013)
UPDATE – 29th July 2013
“Rent to Rent” Lease contract templates are now available for immediate download using the embedded order form below.
Tenancy Agreements between Rent2Rent company and tenants
These will typically be standard AST’s, but there are many kinds. Licences may also be applicable if the tenant has another home. A great article to read about tenancy agreements is this one written by Tessa Shepperson.
VAT on Rent2Rent
Some Rent2Rent investors have set their arrangements up under management contracts and fallen foul of VAT. I have spoken to my accountants and had it confirmed that a commercial lease will get around this problem as the owner of a residential property can not elect to tax for VAT purposes. Therefore, the head lessee (the Rent2Rent investor) doesn’t need to charge VAT to tenants either on this basis.