What should a landlord do if a potential tenant fails a reference check?

Our monthly ‘Advice Clinic’ series shares the answers to questions our landlords have been asking. This month, Marc von Grundherr, Lettings Director, looks at the issue of tenants failing a reference check.

What should a landlord do if a potential tenant fails a reference check?

One of a letting agent’s most important roles is to find a reliable tenant for their landlord – a tenant they are confident will pay the rent on time and look after their rental property. The only way to do this is to carry out watertight tenant referencing.

Many landlords don’t understand just how much work goes into vetting potential tenants.  A tenant’s financial situation is investigated in minute detail to minimise the risk of non-payment of rent and unsurprisingly there are times when a problem may crop up.  But what exactly do we do in these situations?  Is the only course of action to reject the tenant or are there are other solutions?

Tenant referencing – what is it?

We use a specialist referencing agency to carry out strict checks on potential tenants – they request and verify bank statements, employer references and references from previous landlords as well as carrying out a full credit reference.  They also carry out checks to verify passports as forgeries are becoming increasingly convincing and hard for even those with a well-trained eye to spot.  This helps landlords to comply with checks required by the new Immigration Act (often called Right to Rent) which ascertain whether an applicant has the right to live in the UK. Failure to accurately reference a tenant and a landlord may need to seek repossession of the property through the courts, a long and costly process.

The consequences of inadequate tenant referencing

A few months ago we were looking for a new tenant for one of our landlords, who owns a three bed flat in Colindale with an asking rental of £600 per week.  An applicant failed our strict reference checks and we advised the landlord not to accept them. As such we rejected the tenant.  The same tenant went to another local agent and managed to pass their referencing procedures and the Landlord accepted him.  From the outset, the tenant didn’t pay any rent and the landlord was forced to go to court to evict the tenant, an expensive process which went on for several months, during which time the landlord received no income from the property. An expensive error and one which clearly illustrates the risks taken by letting agents who cut corners.

Identifying fraud

Fraud is a serious and growing problem. We see at least one forged passport and one set of forged bank statements each month with fakes  becoming increasingly sophisticated and harder to spot. Without the stringent checking carried out by our referencing company, I am sure some dishonest applicants would slip through the net. However, not all letting agencies carry out such rigorous checks.

Failing a reference check

Of course, any applicant presenting false documents will fail a reference check and we always advise our landlord to reject such an application.  No exceptions.   A tenant who has a County Court Judgement against them or someone who fails the Right to Rent checks would also be rejected. But there are other reasons why a tenant may fail a reference check and these can be less black and white.  Sometimes it is possible to find a workable solution.

‘Legitimate’ reasons for failing a reference check

One of the most common ‘legitimate’ reasons to fail a reference check concerns income. Applicants, particularly young professionals, new graduates and anyone moving to the UK from overseas, may not have a full employment history or a UK credit history. Those working on temporary contracts or on a freelance basis may face a similar problem.  They will still make a perfectly reliable tenant though – so what should the landlord do?

What should a landlord do if a tenant fails reference checks?

• Find a tenant guarantor

We often suggest the applicant finds a tenant guarantor – someone who agrees to take on the tenant’s liabilities if either they cannot pay the rent or they cause damage to the property.  This is often a parent but could also be a friend or employer.  It doesn’t matter who they are but they must pass full reference checks.

• Ask for rent to be paid in advance

Alternatively, we sometimes ask the tenant to pay the rent in advance and to pay a larger deposit of up to 10 weeks’ rent. We also ask for a larger deposit if a tenant has a pet.

• Treat each applicant as an individual

We firmly believe that the key to finding a good tenant is to treat each case individually.  The applicant may pass the reference checks with flying colours or perhaps a little more work may be needed –they may need to find a tenant guarantor.  Or it may mean going back to square one and finding a new tenant.  But carrying out thorough reference checks is the starting point for any successful tenancy and is absolutely critical in order to protect our clients’ valuable assets.

If you are thinking about letting your property, please feel free to call us on 020 7435 9681 for further information.