As a property investor you may be considering investing in Rent2Rent as it is an attractive option to generate passive income from the rental market with low start-up costs. If you are new to this area then this blog will outline the key legal obligations and statutory requirements to help you avoid some of the risks and downfalls that can arise.
So what is Rent2Rent?
Rent2Rent also known as 'Guaranteed Rent' is when an individual or company rents a property for a fixed period of time from the owner and agrees to pay the owner a guaranteed rent. The terms of the agreement will see the owner granting the landlord consent to sublet the property to tenants. The landlord takes on the responsibility for maintaining payments of guaranteed rent to the owner even during void periods and maintaining the property in accordance with the statutory and contractual repair obligations.
The landlord will be taking on the risk of a lease for a fixed period of time and so must also consider the following factors before proceeding:
A company let agreement should not be used and instead parties should use a commercial lease for a term of no more than 3 years, otherwise the lease will have to be executed by deed.
A break clause should be included in the lease so that the landlord has the option to hand back the property in the event that they are unable to fulfil their legal obligations under the terms of the lease.
Maintenance of the property
It is important for the parties to agree who will be responsible for the maintenance of the property and that this is accurately reflected in the lease as the landlord will owe the tenants a repair duty under Section 9A and Section 11, Landlord & Tenant Act 1985 as amended by the Homes (Fitness for Human Habitation) Act 2018. Failure to comply with the repair duty can result in a tenant bringing a claim against the landlord for damages if disrepair is not remedied within a reasonable period of time.
Landlords may experience problems with difficult tenants and my advice to landlords is always to act quickly. Whilst a landlord can be empathetic and understanding of a tenant's personal circumstances, if the tenant is in rent arrears, the landlord should serve appropriate notices (Section 8 Notice of Seeking Possession and Section 21 Notices) on the tenant at the earliest opportunity. Upon expiration of the notice the landlord can proceed to Court to obtain possession of the property.
Terms of the Lease: Forfeiture
The lease should make provision for forfeiture. If the lease does not have proper forfeiture clauses the owner cannot forfeit in the event of breach by the landlord.
Failure by the landlord to properly register tenancy deposits and provide prescribed information to tenants and guarantors can lead to issues regarding the landlord obtaining possession of the property, Section 215, Housing Act 2004. Further the tenant(s) can bring a claim against the landlord under Section 214, Housing Act 2004 claiming the penalty for failure to comply with Section 213, Housing Act 2004.
House in Multiple Occupation (HMO)
If the landlord is managing a property that is classified as a "House in Multiple Occupation" as per the definition in Section 77 and Section 254-259, Housing Act 2004 the property will be subject to a number of statutory and regulatory obligations which the landlord as manager of the property will have to comply with. The obligations and legal requirements are too numerous to include in this post but readers are directed to a copy of my book: The Tenant's Rights Manual: The Essential Guide to Renting (2nd Edition) which includes a comprehensive chapter dedicated to the law
If you are considering entering into a Rent2Rent transaction it is vital that you understand the legal implications and the legal framework that will work best for you.
I am available to assist with the full range of issues arising out of Rent2Rent arrangements including:
· Providing comprehensive Tenancy Agreements
· Drafting or reviewing Leases and Agreements
· Resolving Tenancy Deposit disputes for Landlords, Agents and Tenants
· HMO issues
Getting the procedure right at the beginning will significantly reduce the risk of future litigation arising from Rent2Rent arrangements.
If you are involved in Rent2Rent, call me today for further advice and assistance.