Can I contract that any new tenant provides their own reference?

by Readers Question

10:10 AM, 14th November 2019
About 4 weeks ago

Can I contract that any new tenant provides their own reference?

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Can I contract that any new tenant provides their own reference?

Looking into the mine field of the consequences of the new tenant fees act. I have several HMO’s with 4 or 5 tenants all on a single joint contract (ie. a shared house scenario).

Generally about once a year, at a point the contract has become periodic, a tenant will want to move out and the others want to stay. At this point I say that’s fine if they want to find another sharer and require the incoming tenant to cover the charge of a reference check. I then draw up a new contract, we all sign, I re-protect the deposit and I make no further charge.

As I understand it, I can no longer charge the incoming tenant for the reference, but could I make it a condition of the contract that when this situation arises, that any new tenant the others want to have join them must provide a current reference from a recognised agent such as the RLA.

Also, is registering the new tenant line up with the deposit protection scheme a reasonable cost as well as drawing up a new contract and liasing with the new tenant.

I’m guessing it’s a big no to all these questions and the only answer is to put the rent up. Thought I’d ask anyway.

Many thanks for all and any replies.

Jamie

Editors Note: Official government guidance for tenant fees ban released

What fees can I ask a tenant to pay?

You cannot require a tenant (or anyone acting on their behalf or guaranteeing their rent) to make certain payments in connection with a tenancy. You cannot require them to enter a contract with a third party or make a loan in connection with a tenancy.

The only payments you can charge in connection with a tenancy are:

  • The rent
  • A refundable tenancy deposit capped at no more than five weeks’ rent where the annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or above
  • A refundable holding deposit (to reserve a property) capped at no more than one week’s rent
  • Payments to change the tenancy when requested by the tenant, capped at £50, or reasonable costs incurred if higher
  • Payments associated with early termination of the tenancy, when requested by the tenant
  • Payments in respect of utilities, communication services, TV licence and council tax; and
  • A default fee for late payment of rent and replacement of a lost key/security device, where required under a tenancy agreement

If the fee you are charging is not on this list, it is a prohibited payment and you should not charge it. A prohibited payment is a payment outlawed under the ban.



Comments

Neil Patterson

10:13 AM, 14th November 2019
About 4 weeks ago

Hi Jamie,

Please see my editors notes above, but I think you are scuppered on the reference idea by "You cannot require them to enter a contract with a third party"

Ian Narbeth

16:44 PM, 14th November 2019
About 4 weeks ago

Hi Jamie you need to be ultra cautious but you may be able to recover up to £50 on a change of sharer - see https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/819634/TFA_Landlord_and_Agent_Guidance_190722.pdf starting at page 54

Alternatively you may be able to say: All the tenants remain liable until the end of the tenancy but if a suitable person comes to me with a satisfactory reference from a previous landlord I will consider allowing them to be substituted. The tenants will probably be OK with that.
Unfortunately, until we have some case law (and some hapless landlord is fined thousands for asking for £30 to cover his increased costs and the court decides it should have been £25) we won't know so I am not guaranteeing this will not get you into trouble later. Also if the tenant turns round later and says "Repay me the cost of the reference and the amount I have paid you or I will report you to the Council" you have a choice: repay the £30 or spend hours dealing with the local council and face months of uncertainty and the risk of a substantial fine.

Steve Masters

11:26 AM, 15th November 2019
About 4 weeks ago

As Neil Says "You cannot require them to enter a contract with a third party." However you could suggest that applicants with suitable references will be given preferential consideration but they are not 'required'.

But then I thought, surely 'applying' to view a property is different from 'granting' a tenancy?

The act does define what is a requirement in consideration of granting a tenancy but at what point do you draw the line between applying for and granting a tenancy?

Steve Masters

11:33 AM, 15th November 2019
About 4 weeks ago

Reply to the comment left by Steve Masters at 15/11/2019 - 11:26
If an agent charged applicants a fee to register on their online property finding portal and they subsequently signed a tenancy, would that be considered a prohibited fee?

Kate Mellor

11:39 AM, 15th November 2019
About 4 weeks ago

I think Jamie’s specific question has been thoroughly answered now, but I have a related question which I’ve been wondering about since the tenant fees ban came in.
After the ban came into place I initially required the applicant to sign up to a free credit referencing service such as Clear Score and to provide me with a copy of the report. I would then carry out my own landlord and employment checks, however I then became concerned that this may fall foul of the Data Protection Act in that it may involve the applicant providing personal information which was in excess of that required by me to make an informed decision. To be honest I haven’t yet sat down and reread the act to evaluate that, but this question has reminded me about it. I was also concerned that I may lose potential applicants who felt this was too invasive.
What do others think about this option?

Graham Bowcock

14:13 PM, 15th November 2019
About 4 weeks ago

Reply to the comment left by Steve Masters at 15/11/2019 - 11:26
I believe that charging a tenant to view a property, or receive details in advance, has been unlawful for many years.

Graham Bowcock

14:16 PM, 15th November 2019
About 4 weeks ago

Reply to the comment left by Kate Mellor at 15/11/2019 - 11:39
Kate
As a landlord you should be doing all you can to reference your tenants. Employers' and former landlords' references are a vital part of that referencing.

Strictly speaking, as a landlord you should be registered with the Information Commissioner's office anyway and be holding data in accordance with those rules. Remember that data will include the tenants' contact details (otherwise how would you contact them?).

This is an area where landlords are fully treated as running a business.

Any tenant not willing to be properly referenced should be avoided.

Ian Narbeth

14:40 PM, 15th November 2019
About 4 weeks ago

Kate
In section 1 of the Tenant Fees Act it says:
1 (2) A landlord must not require a relevant person to make a prohibited payment
to a third party in connection with a tenancy of housing in England.
1 (3) A landlord must not require a relevant person to enter into a contract with a
third party in connection with a tenancy of housing in England if that contract
is—
(a) a contract for the provision of a service, or
(b) a contract of insurance.

Arguably you are requiring the tenant to enter into a contract with Clear Score to provide a service. The fact that the service is free is not decisive. The question is whether there is a contract. The draftsman of the Act probably assumed that entering into a contract would entail payment.

paul robinson

15:17 PM, 15th November 2019
About 4 weeks ago

As others have said regarding fees.

If I understand correctly, you have a joint tenancy for a fixed term and then It naturally goes into a periodic.

During the periodic if 1 tenant wants to stay and 1 wants to leave you ask the leaving tenant to find a replacement and make them responsible to do this?

If a periodic 1 tenant just has to give 30 days notice to leave and naturally being that joint tenancy to a close.

You can only require an existing tenant to find a replacement during a fixed term tenancy (not a periodic) and during the fixed term once a suitable replacement is found you can then use the assignment process to and charge £50 or “reasonable costs” in relation to the assignment process.

The Forever Tenant

16:13 PM, 15th November 2019
About 4 weeks ago

This actually makes me wonder.

Could you ask "Are you signed up to a credit reporting agency" and if they say yes, could you then ask for a copy? You would not be asking them to enter into a contract, as they are already in one.

As for the information you request, I am comfortable with providing references from employers and previous landlords. My credit report is getting a bit more invasive and I would prefer that you see that I have a clean record without defaults without seeing precisely who I have debts with.

Any landlord that would ask to see my bank statements is going way too far into intrusiveness in my mind.

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