Renting to ‘Council Tenants’


Dave Reaney - Published on 24/08/2013
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Not strictly an accurate title but I have heard novice landlords refer to people on Housing Benefit (provided by the council) as such so many times.Renting to ‘Council Tenants’

So, should you accept tenants who claim benefits?

No one can make that decision for you – but there are some risks to consider, and precautions you can take.

Financial Security

Although it is a generalisation, many benefit claiming tenants do not have much in the way of assets or financial reserves. This can result in delayed rent, or even non payment of rent if some other financial problem arises. In the longer term, it means that if you need to pursue a claim for damages or missing rent at the end of the tenancy, there is a high chance that you will not be able to enforce the resultant court order. Linked to this, for many tenants, is an irregularity of rent payments. Most tenancy agreements reserve rent monthly in advance. Housing Benefit (LHA) is paid 4 weekly in arrears (fortnightly in some areas). This means that the dates rarely match up (monthly rent, 4 weekly LHA) and the amounts for a single payment never match up (annual rent/12, annual LHA/13). For tenants who rely solely on LHA for their rent payment this will also mean that rent is always paid late.

Example:

Rent: £500pm (£6k pa)
1st July £500 rent due £500 owed
29th July £461.54 housing benefit received £38.46 owed
1st August £500 rent due £538.46 owed
26th August £461.54 housing benefit received £76.92 owed
1st September £500 rent due £576.92 owed
23rd September £461.54 housing benefit received £115.38 owed
1st October £500 rent due £615.38 owed

Providing your tenant is entitled to sufficient housing allowance to cover their entire rent (as above) the 13 LHA payments over a 12 month period will equal the 12 rent payments.

You may be asked by your tenant to change your tenancy agreement to 13 x 4 weekly rent periods a year in an attempt to match up rent due and benefits paid. Do not do this – If you needed to evict due to unpaid rent a 4 weekly rent period would prevent you using the mandatory ground 8 in section 8 of the 1988 Housing Act.

Many providers of landlord insurance will charge an additional amount if you let to benefits claimants. If you let to benefits claimants whilst paying for non-claimants then your insurance is likely to be invalid.

Your lender may have limitations on what type of tenants you can let to.

Your tenants benefit may be stopped.

If the council decide to stop paying housing benefit to your tenant, or their situation changes and they are entitled to less, they may not be able to pay their rent. Receipt of Housing Benefit is NOT guaranteed.

What can I do to protect myself?

The first thing to do is to NOT forget to carry out full referencing and credit checks on your tenants. This is likely to show if your tenant has previously defaulted on rent, or any other recorded debt. If you do these checks yourself, it is worth questioning the ‘last but one’ landlord. The current landlord may have a vested interest in giving a good reference to get rid of non-paying tenants.

A deposit is essential in all cases. As your tenant is on benefits, they are unlikely to have a large amount available for a deposit – and yet their lack of assets is the very reason you need as large a deposit as possible. It is probably cheaper to wait for a tenant with a suitable deposit than run the risk of a tenant running up a large rent debt, and not being able to obtain a penny through the courts.

A guarantor is also highly advisable. The guarantor will be expected to cover any bills that the tenant cannot pay. In view of this, your tenants’ guarantor should be a creditworthy homeowner, preferably working full time. The guarantor should be credit checked. If the guarantor is a homeowner, they are less likely to move – making them easier to find – and they have an asset that you can place a charge on if a court order is made against them.

Guarantees are very difficult to enforce and it is important to ensure that the document is legally binding. As a rule of thumb, a guarantee that is not witnessed and executed as a deed will not be enforceable in court. This is one area where DIY or unsubstantiated internet forms are best avoided – the cost of purchasing a professionally worded deed of guarantee is minimal compared with the potential consequences of having a guarantee that cannot be enforced.

Obtain written permission from the tenant to discuss their Housing Benefit claim with the council and make sure your tenancy agreement specifically states that you can use grounds 8, 10 & 11 from schedule 2 of the 1988 Housing Act. If it doesn’t, you will not be able to gain possession before the end of the fixed term even if your tenant owes many months’ worth of rent. I would also suggest that the initial tenancy agreement is only 6 months (not 12) to give you access to section 21 earlier, and (although I dislike the idea) it may be wise to serve a section 21(1)(b) notice as soon as the deposit regulations have been complied with. Doing this means that once the tenant is in a statutory periodic tenancy you can get guaranteed possession date within around 6-8 weeks of the first hiccough in payments whereas with section 8 you ideally need to wait until the tenant owes 2 months rent and you have to give a further 14 days notice, so that means you can commence possession proceedings at least 6 weeks earlier and probably get eviction 2 months earlier.

If it is too early to apply to the Courts for possession under section 21, as soon as the tenant is even a few pounds behind on their rent, serve a section 8 notice under ground 10. You don’t have to follow it through to the court process but this simple action will demonstrate to the tenant that their omission could have serious consequences and, if they have been good tenants, hopefully jolt them back on track.

And finally, as soon as the tenant misses a rent payment, notify the council of the fact and request that their payments are made directly to you in future. Some councils will do this, however all councils are obliged to do this once the tenant has a minimum of 8 weeks rent unpaid.

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Comments

  • Looks like very sound advise for someone like me who is preparing to enter the PRS with their 1st property (a pair of 2 bedroom flats, subject to planning permission). Thank you.


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  • Don’t forget clawback, where the rent is paid direct by the council (and it still can be even under universal credit).

    The council can decide that the tenant claimed in error and reclaim months of rent from you.

    I have always insisted that the tenant pays me, not the council, that way if they are behind in the rent I know straight away, this is far better than finding out 6 months later.

    Chris


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  • I will like to add to the excellent advice Dave has given.

    1. KNOW the benefit system – If you don’t understand that system you will be at a disadvantage because it is never a good thing that you tenant knows more than you do. If you get to the point that there are 8 weeks contractual rent arrears (day 2 month 2 if your AST states that rent is due monthly in advance) you can apply for direct payment from the HB department. There is a form that you need to complete and you need to have these forms ready just in case. Your local authority will give you a copy if you ask and this will save time if you need to use it.
    2. Find out where the local Credit Union is and go along an speak to them – they are great people who understand this client group and will give you information about a simple “jam jar” account which will help you tenant to manage his money.
    3. If your tenant has no banking facilities encourage him to join the credit union – give him the leaflets that they have given you and tell him where they are. The tenant can then set up a Standing order to pay the rent as soon as the LHA comes into his account.
    4. Many tenants who claim LHA also work but earn modest incomes, these are usually very good tenants because they understand the importance of paying their bills and value the LHA help that they receive. In these cases you can get an employers reference and see bank statements to show you how they have been managing their money. These tenants often become long term tenants.
    5. You local authority may offer LHA tenants a Bond to cover a months rent and sometimes damages – Speak to the person running the Bond Scheme and find out the criteria upon which they offer tenants that Bond. Some authorities will only Bond tenants with good track records – these are a good bet, others are not so fussy and just want to get people off their waiting lists this is less desirable.
    6. Join http://www.landlordrefencing.co.uk (its free) and check to see if this tenant is listed, if he is has he got a good or a bad “lifestyle” reference from a previous landlord. Landlord list those tenants who have left with a good track record and also those who have left with rent arrears, damages and/or have had anti social behavior. This will prevent you from taking other landlords bad tenants and give you the opportunity to warn other landlords about yours, it will also give you the chance to give good tenants a reference to help them in future.
    7. Ask for written evidence of the amount of their entitlement, benefit caps have reduce the entitlement of some tenants and they will not get the full LHA rate.
    8. Check your local authority website for the LHA rates in your area as a guide to a tenants entitlement.
    9. Every tenant is only a P45 away from being a benefit tenant, this makes it difficult for landlords to avoid them -better not to judge a tenant on the source of his income in the first place and don’t let any tenant get behind with his rent without talking to him – those who have recently lost their job are not in a good place and often, with a little support, they can quickly get back on their feet. A delayed claim for LHA will result in the money being lost and many people who have not claimed before do not understand the system.

    Follow me on Twitter@landlordtweets

    My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337


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  • Reply to the comment left by “Mary Latham” at “26/08/2013 – 10:52″:

    http://www.landlordreferencing.co.uk/


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  • If the local authority offers a monetary bond/ loan to the tenant you may be able to get the first months rental amount in advance and therefore the first 4 weeks LHA is timed to arrive at around the start of month 2. Non monetary bonds often have a lot of exclusions and time limits, for instance Milton Keynes’ bond excludes any damage to carpets, and any communal areas, and only lasts 12 months.

    You can request direct payment as a condition of the tenancy agreement, however this will normally only be accepted by the council where the rent due is at or below LHA rates.

    If you do not get direct payment from the outset, then as soon as there is a missed rent payment contact the council to check that the payment was made to the tenant. In most cases where we have dealt with this the tenant swears that they have have not received the payment, however in this situation request that the council suspend making payments to the tenant due to the fact that they are not paying you. As the tenant receives two weekly payments this minimises the overall loss to 2 weeks LHA. However assuming that the tenant does not go to the council with a legitimate reason for not paying their rent, then once the debt is 8 weeks you can get a direct payment including the backlog of 6 weeks suspended LHA. Remember to start counting the 8 weeks from the start of the rent due period of monthly in advance.

    We have heard of some landlords who have benefitted from using a Credit Union, as whilst councils seem willing to make clawbacks of LHA from landlords, they do not do so from CU’s. This is probably going fo be much more important when Universal Credit is rolled out, if you can get the whole benefit paid to the CU first and agree a payment of rent direct to you, then it will be closer to the current direct payment scenario.

    Finally if you end up having to evict a LHA tenant, do not expect help from the council who will may tell the tenant to sit tight until due legal process is completed. Although they will deny it, there have been sufficient instances of this experienced by local landlords to know that it does happen.


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