Tenant referencing: a job half done is as good as none

Letting agents can offer a hugely beneficial service to landlords, particularly with regards to property and tenant management services. Landlords who live far from their rental properties or who are otherwise unable to take care of a property themselves, can rely on the management services of letting agents to find appropriate tenants, collect rent and oversee property maintenance.

Landlords should be able to rest assured that letting agents will strive to always keep their property occupied to maximise rental income and will provide tenant referencing services to ensure that suitable tenants are found for their property. However, this is not always the case.

What do tenant referencing services involve?

First and foremost, prospective tenants will have to demonstrate that they have a right to rent. A letting agency will usually require a copy of the prospective tenant’s passport or immigration documents as evidence of their right to rent.

Prospective tenants should also prove that they can afford the rent. The letting agent should therefore carry out affordability and employment checks, and usually obtain a reference from the prospective tenant’s employer.

Furthermore, character references from current or former landlords are often required to determine whether the prospective tenant is likely to be reliable and untroublesome.

The letting agent will either provide these services themselves or delegate to a third-party referencing company. Either way, the letting agent should ensure that tenant referencing is sufficiently carried out before recommending any tenant for a tenancy.

Sounds great! What could possibly go wrong?

Well, unfortunately some letting agents are not as scrupulous with their tenant referencing as they should be. Lax referencing procedures can lead to individuals slipping through the net and ultimately result in letting agents recommending tenancies be granted to unreliable or even fraudulent individuals.

Where does that leave me as a landlord?

Situations such as these place the landlord in a position of vulnerability whereby they may incur loss or damage as a direct result of the tenancy. For instance, the tenant may have purported to have a highly paid job but in reality does not have the means to pay the rent in full. Alternatively, the tenant may have provided a fraudulent landlord reference, appearing to be the perfect tenant when, in reality, they have a history of falling behind on rent payments and causing property damage.

These situations can end up costing landlords greatly, be it through loss of rental income, repairing property damage or legal costs in evicting problematic tenants who are in breach of the tenancy agreement.

Ultimately, where the landlord suffers loss as a direct result of the tenancy, there are potential arguments for bringing a claim or a complaint against the letting agent for compensation.

Negligence

Estate agents who have failed to conduct adequate tenant referencing, which otherwise would have revealed the unsuitability of the tenant, could be liable to the landlord for negligence.

For liability in negligence to be established, there must be loss or damage caused by a breach of duty of care, and that loss or damage must have been foreseeable. A duty of care will often be owed to the landlord by the letting agent in their capacity as property manager. Where loss is incurred, for example, through non-payment of rent, the letting agent may be liable to the landlord for losses incurred if this was a result of a failure in the tenant referencing process.

Consumer Rights Act 2015

Under section 49(1) of the Consumer Rights Act 2015, services provided under a contract must be carried out with reasonable care and skill. Where the landlord has entered into a management agreement with the letting agent, section 49(1) of the Consumer Rights Act 2015 will apply.

Therefore, if a letting agent has failed to carry out adequate tenant reference checks and the landlord has suffered loss or damage as a direct result of the tenancy, the letting agent may be in breach of section 49(1). Where a breach can be established, the landlord is entitled to recover the loss under section 54(7) of the Consumer Rights Act 2015.

To sum up…

It is important to note that every case needs to be considered on its own individual facts and merits, but it could be that the letting agent is in breach of its obligations if it has not managed the referencing process sufficiently.

While letting agents should provide appropriate tenant referencing services when instructed to do so, as a landlord, it is always important to be proactive and confirm with the letting agent that such checks have been properly carried out and verified before accepting a tenant.

How can Ellis Jones help?

If you are a landlord and feel that a letting agent may be in breach of its obligations to you, and you have suffered loss as a result, our team of expert solicitors have a wealth of experience and will be more than happy to advise you.

To discuss your options, please contact us on 01202 525333 or by email Paul.Kanolik@ellisjones.co.uk.