CHECKING REFERENCES ON TENANTS - TIPS FROM LETTINGFOCUS.COM
LettingFocus.com property investment trainer & expert David Lawrenson explains how landlords should do referencing checks on tenants. Ask us for more advice.
Even if you use an agent, you should be very clear about what references they should be getting you.
Landlord expert David Lawrenson of www.LettingFocus.com says, "The purpose of referencing a tenant is threefold:
1) to check the person is who they say they are
2) that they can afford the rent and
3) that they have honoured past commitments"
Tenancy Application Form
The starting point for any tenant reference check is getting the tenant to complete and sign a tenancy application form which should contain a statement giving you permission to carry out credit checks and seek references from employers and previous landlords.
In addition, you should ask for documentation providing proof of:
1) current and previous address
2) entitlement to work in the United Kingdom (Non EC nationals only)
3) identity
The more information collected on the tenancy application the better, because should the tenant subsequently abscond or leave owing money, this can be used to give vital tracing information. In addition, should the applicant make false statements, this document provides evidence for eviction.
Check Tenants Previous Addresses
To check current and previous addresses, ask the tenant to show you the last three utility bills, mobile phone bills or bank statements.
Recent bank statements for the tenants' current account can be particularly useful as this will give an idea of whether the tenant is in credit and whether money (e.g. salary) is being paid into the account and rent paid out. Used in this way it acts as an additional check on the employers’ reference and whether they are meeting their obligations.
Check all tenants references carefully and call to verify them. Do background checks too. Don’t assume the company they say they work for really exists. Anyone can mock up a convincing letterhead!
Check the company out at company’s house and on the web.
Tenants working on contracts or freelance should be asked for evidence of current contracts and regular income over a period of at least six months.
Don’t be afraid to ask them to get their agent, accountant or clients to prove their past and / or future income too.
Landlord Referencing
It’s possible that the tenant's previous landlord will say anything if it helps to get rid of the problem tenant onto someone else. For these reasons, it’s best to get a reference from the landlord before the last one.
If letting to students, parents should be referenced too as well as being listed on the tenancy agreement as guarantors. Ideally, guarantors should be homeowners - which you can check by looking at the land registry website.
Letting to Companies
What about letting to companies? Check whether it is a limited company and assess its financial worth by obtaining a copy of their report and accounts from Companies House.
If there is any doubt about the company’s stability, put the tenancy in the tenants name rather than the company’s, especially if they have assets like a house elsewhere. Then, check the individual’s references as you would any other person.
Don’t accept a “letter of guarantee” from a company either - insist on a deposit and cleared funds before anyone moves in.
Credit Scores and Tenants
As part of the referencing process, do a credit referencing check. You can do a basic one for less than £15.
The credit reference report will usually include a score which can be used to assess whether the tenant is a good risk. The report should also tell you whether they have something negative in their credit history, like a county court judgement.
Anyone who owns their own home and has accounts they keep in credit will have a good credit score but someone who is highly indebted with lots of accounts can get also get a good score as long as they are meeting their repayments.
You need common sense to interpret credit scores and be prepared to read the score together with other information.
About David Lawrenson and Lettingfocus.com
If you need more advice on tenant referencing and how to avoid getting the tenant from hell please contact me.
I’m David Lawrenson from property investment mentors LettingFocus.com.
I’m also the author of the buy to let book “Successful Property Letting - How to Make Money in Buy to Let” which is the UK’s top selling property title. Click here to buy the book: property book.
We offer independent property mentoring for landlords and other property investors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, estate agent or bridging loan financier and do not receive commissions from any of these sources either.
We also act as expert consultants to a range of organisations in the public and private sectors - helping them with their landlord facing products and services.
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Copyright 2009 David Lawrenson. This article must not be copied or re-used without the author and copyright owner’s prior permission.
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