Tenant Referencing – What You Need To Know

Tenant Referencing - What You Need To Know
If you are a landlord, or you’re thinking about property investment, then you may be wondering what tenant referencing is.

It’s important that you understand why tenant referencing is important so that you, or your letting agent, can find out information about your prospective tenant.

It is this information that will help you make an informed decision about whether you want that person to rent your property.

Why you should consider tenant referencing?

It’s a crucial part of running a successful letting business and landlords and agents must trust their tenant to pay rent on time.

You also need to:

  • Have a tenant treat your property with respect;
  • Have a tenant who will treat their neighbours with respect and not cause a nuisance.

When you do take up the tenant referencing process, you’ll find out about your potential tenant’s previous behaviour while renting other properties.

You’ll also learn whether they can afford to pay the rent so you have confidence that they will pay you on time.

When you ask for references you can gain knowledge on past renting experiences as well as financial background.

However, you’ll need to ask the prospective tenant for permission for you to carry out any credit check.

This means your tenant can refuse permission but you, or your letting agent, can then decline to rent the property to that tenant.

Without running a credit check, how do you know whether your prospective tenant is a credit risk and is unable to pay rent?

This is important for those landlords who may be recruiting a tenant without using a letting agent.

What do does tenant referencing mean?

The term tenant referencing refers to the process of finding information so you can better understand a prospective tenant and whether they are a suitable candidate for renting your property. This means the process will:

Contact previous landlords

Get in touch with previous landlords to see how well they behaved as a tenant.

The landlord will reveal whether the tenant paid rent in a timely fashion and whether they treated the rental property with respect.

The landlord may also offer other information to help you come to a decision.

Credit checking

Remember to ask permission to conduct a credit checking on your potential tenant.

As mentioned, you need to ask permission to undertake a credit check from your prospective tenant so you can confirm what their credit history is like.

Essentially, you are checking for insolvency, bankruptcy, and any County Court Judgements, also known as CCJ’s, which will highlight whether they have a poor credit history.

You can also look at previous addresses and their electoral roll details.

Affordability

You will need to contact their employer to confirm what their income is, and their contract start date.

This may highlight that the applicant has been less than honest and may not earn enough to rent your property.

You can even ask their current employer for a reference as well.

Right to rent

For those landlords in England, then you are subject to a law known as ’Right to Rent’.

All letting agents and landlords must perform a Right to Rent check on all potential tenants over the age of 18.

This will establish whether the potential tenant has the right to rent a home in England and failing to carry out the simple check could lead to a hefty fine for the landlord.

Tenant referencing and bad references

While the process for tenant reference is straightforward, what you do if there is a bad reference?

Should your prospective tenant fail any of the checks that take place, you can decline to rent the property to them.

Whether they have a poor credit history, or don’t earn enough to pay the rent or they may have been a nuisance in their last property, these are valid reasons to decline.

If the tenant references are bad and you collected a deposit, you should return it to them.

If you’ve taken a holding deposit from them, then this must be returned within seven calendar days to the tenant once you’ve decided not to offer a tenancy agreement.

There are some circumstances when a landlord or their agent may withhold the holding deposit, and this may be down to references that show your tenant has provided misleading or false information.

This is where it will pay for a landlord to have an experienced letting agent really will help you navigate through what can be a confusing process – and you must keep within the law at all times.

But this is not the only issue when you have a bad reference – and there are some solutions.

Finding a guarantor

Should you have a potential tenant who fails one or all of the references, you could have a guarantor put in place.

This may be a sound idea if the tenant may struggle to pay rent because a guarantor is someone, they tend to be a family member or a friend, who will then take responsibility for your tenant’s financial obligations including paying rent.

If you are looking to have student tenants in your property, then having a guarantor is more commonplace.

It’s also worth performing a credit check on the guarantor as well to ensure that if they need to, they can pay rent.

Refusing a tenant with bad references

The bottom line about the tenant referencing process is to enable you as the landlord and your letting agent to make an informed decision about whether to rent your property to a prospective tenant.

This means you are within your rights to refuse to let your property to that tenant if you have a reason to do so under the referencing process.

However, it’s also worth bearing in mind that failing a Right to Rent check has a huge bearing here.

If you have carried out the Right to Rent check and discover the tenant is not legally allowed to rent a property – but you decide to rent to them anyway – then you have committed an offence.

Renting a property to someone you know has failed the Right to Rent checks is a serious breach of the law.

Refusing a tenancy without breaking the law

There are several ways of refusing a tenancy without breaking the law, but gender or marital status are not among them.

Having touched on the fact that it’s entirely down to the landlord about whether they rent a property to a tenant also raises the question of whether a landlord can break the law when they refuse a tenancy.

The short answer is, ‘Yes’ if that decision is based on discrimination which is unlawful.

The reasons for unlawful discrimination include:

  • The tenant’s marital status;
  • Your tenant’s gender or sexuality;
  • Your tenant’s age;
  • The tenant’s religion or beliefs;
  • The tenant’s ethnicity or race.

It’s also important that landlords understand that you can’t refuse a tenancy for a tenant with a health or disability issue.

Also, you cannot refuse a tenancy by giving the reason that the tenant is a woman with children or is pregnant.

Essentially, should your potential tenant fail the referencing check, then you can legitimately refuse the tenancy, but you cannot refuse it if is based on any of the issues raised here.

It’s also worth noting that should the prospective tenant be on Universal Credit or housing benefits, then you can decline to rent the property if they fail the referencing check.

Also, if you’re a landlord with a mortgage on a buy to let property, you will have to check the small print as to whether the lender will allow you to rent out the property to a tenant who is on housing support.

How long does it take to reference a tenant?

Referencing a tenant will take as long as deep the "investigation" is. You can get an 8-hour referencing process, but don't expect great detail.

There are two routes for the referencing process, and both have an impact on how long it takes to obtain a reference for a tenant.

Either the landlord or the agent will check the references, or they will ask a third-party tenant referencing company to complete this process.

The time it takes for carrying out a tenant reference check can vary, and a lot depends on how long it takes, for example, an employer to reply.

Usually, the tenancy reference checking process should take no longer than 48 hours and there are some private firms claiming they can carry out the work in less than eight hours.

This all depends on the type of referencing check undertaken with most firms will be offering either a basic service and some offer a ‘full’ or ‘enhanced’ referencing offering.

Do tenants pay for referencing?

The question of, ‘Do tenants pay for referencing?’ is an important one and it’s important you understand it.

A tenant cannot be charged by you to carry out referencing checks – under any circumstances.

And that has been the case in England since 2019 under the Tenant Fees Act.

Charging for a reference will be considered as a prohibited payment and will be illegal.

Also, for landlords in Wales, the Renting Homes (Fees etc) (Wales) Act 2019 will also prevent a landlord from charging a tenant fees.

In Scotland, these fees are seen as ‘illegal premiums’ and are also illegal.

The bottom line is that the letting agent or the landlord will have to cover referencing costs.

What happens after tenant referencing?

After the referencing process, you will get a report where it will be written if the tenant is fit to rent or not.

Once the tenant referencing process is complete, and if you’ve passed the process to a third party, then they will offer a detailed report.

It is this report that will state clearly whether your prospective tenant has failed or passed the referencing process.

The tenant will also usually be told whether they have failed or passed the referencing process as well.

The next step is to offer a tenancy agreement and have the tenant sign it and then agree a date to move in.

Tenant referencing companies

When letting out your property to a prospective tenant, you not only need to know who you are renting to and whether they will pay the rent, you may also need that reassurance that a tenant referencing company can bring.

That’s because they are carrying out referencing checks every day for a range of clients and will know exactly what to do. You are paying for their expertise and experience in helping landlords successfully find a tenant they can trust and one who pays the rent.

Here’s a list of referencing firms with a range of prices from £9.95 to £34.95. They offer various levels of detail and also have various response times for giving you their verdict.

  • OpenRent
  • LettingaProperty.com
  • Rent 4 Sure
  • Tenant Referencing UK
  • MakeUrMove
  • FLS Tenant Referencing
  • Van Mildert Landlord and Tenant Protection
  • HomeLet
  • Snippie
  • FCC Paragon

There are also other tenant referencing firms that you can access, and if you’re member of a professional landlords’ association, then the service is either free or discounted.

For example, sign up with the National Residential Landlords’ Association (NRLA), and you can choose from a guarantor, a tenant or company reference checking solution.

Essentially, it is imperative that all landlords, as well as letting agents, carryout tenant referencing and at least contact the previous landlord for a reference and undertake a credit check to ensure they will be paid rent on time.

It’s really not worth the hassle of not carrying out these checks and finding that the ‘lovely’ and ‘honest’ tenant you thought you had signed up is nothing like and is someone who doesn’t pay rent, trashes your rental property and annoys the neighbours.

Tenant referencing really is one of those things in life where a landlord would better be safe than sorry because hindsight won’t repair a damaged home or pay lost rent – but it will help reduce the risk of having to endure having a poorly behaved tenant in your property.

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