Bad tenants are a landlord’s worst nightmare and, according to a recent report by Propertymark, more fraudulent tenancy applications than ever before are slipping through the cracks and allowing rogue renters into rental homes across the country.
In many cases, a combination of strong competition between tenants and the adverse impact of the pandemic on many people’s income and employment leads to some tenants resorting to fraud to gain access to properties over competitors. While it’s hard not to feel sympathy for those making desperate choices in difficult circumstances, there are also others who are exploiting advances in technology to pull off increasingly sophisticated frauds to acquire property for illegitimate purposes. Many fraudulent tenants who succeed in securing a property use their rental home to run an illegal business, run a subletting scheme without the landlord’s knowledge or consent, or occupy the property without paying rent.
As any experienced landlord knows, it isn’t always the applicant making the highest offer who will be the best tenant, and that there are several warning signs to look out for that are just as important as income or employment. In our guide below, we explore the potential hazards that come with allowing a bad tenant into your property, and how you can identify and avoid them before you sign a tenancy agreement.
What makes a 'bad tenant'
A tenant who sends too many (or too few) emails, keeps the place a little untidy, doesn’t take the best care of the house plants and so on isn’t necessarily a bad tenant. When we say bad tenants, we are talking very specifically about renters who can cause you, your rental property, and the occupants of neighbouring homes lasting harm. Below, we have listed the key hazards to be on the lookout for when vetting prospective tenants for your rental property.
People who aren’t who they claim to be
It seems obvious, but if your property has been unoccupied for some time and a prospective tenant comes up with an attractive offer it can be easy to miss the red flags. It’s very rare that a would-be renter submitting a fraudulent application will have fabricated an entirely fictitious. It’s most likely that an applicant attempting to deceive their way into a tenancy will either be misrepresenting their employment or financial circumstances, their immigration status, or seeking to conceal potentially criminal behaviour while being mostly truthful about their personal details.
In certain circumstances, you could be held criminally liable if you rent your property to a tenant who has misled you in their application. For example, landlords have a legal responsibility to confirm that their tenants have the legal right to rent in the UK before they move into a property.
It should be noted that not all tenants omit or distort aspects of their identity or history with truly ill intentions. Those who fall into financial difficulty can struggle to find rental accommodation if they have a poor credit record and a history of arrears, and some tenants will occasionally resort to fraud out of desperation as their options for acquiring a property legitimately continue to shrink. It’s important to always consider an applicant’s mistakes in full context when deciding upon next steps (such as withholding a deposit or reporting them for fraud).
Tenants who don’t intend to use your property for the stated purpose
For several years, London has been gripped by an illegal subletting epidemic that makes victims of both landlords and subtenants. This isn’t just a case of short-term subletting their bedroom to cover rent while they are out of the property for work or study. It is an illegal and unethical business operation that takes advantage of subtenants (who are often among the more vulnerable), creates overcrowded and unsafe accommodation, and causes major issues for property owners.
A subletting scam is where the scammer presents themselves to the landlord as a respectable tenant who intends to use the property as their long-term primary residence. Once they have entered into a tenancy, they sublet the property for a profit - usually on a room-by-room basis.
Alternatively, scammers might market your property on short-let platforms such as Airbnb with hopes of securing big returns on the holiday rental market. Though this has been less common during the pandemic, as the global tourism industry recovers it is likely that we will witness a resurgence in unsanctioned holiday lets rented out without the owner’s knowledge.
Subletting a property may breach the terms of a landlord’s mortgage or insurance policy, and also risks becoming a licensable HMO. If a property is rented to five or more people and tenants share facilities such as the bathroom and kitchen, the landlord must have an HMO licence to let the property lawfully, with hefty potential fines for non-compliance.
In addition to subletters, there are also those who intend to use rental properties as a base of operations for other forms of illegal business - such as drug trafficking.
Tenants who can’t, or won’t, pay the rent
It is important to have a thorough qualification process in place to ensure that anyone you agree to a tenancy with can afford the rent, particularly if you rely on rental income to cover your buy-to-let mortgage or living costs.
Again, it is important to draw a distinction between those with bad intentions and those in temporary financial difficulty. Many people have seen their income suffer throughout the pandemic, leading them to fall into arrears and struggle to make ends meet. Tenants with a recent history of rent arrears and repayment plans for this reason aren’t as likely to have persistent financial issues in the future as those with a long history of unpaid debt, insolvency, and financial irresponsibility, or those without any intention of ever paying rent in the first place.
Tenants likely to cause property damage
Tenants with a history of property damage are, in most instances, unlikely to treat your home any differently. Some renters may have caused damage at their previous residence through poor education rather than lack of care. For example, students living in their first private rental property may be unfamiliar with proper maintenance practices or their obligations as tenants, given they are adjusting from life at home or in a student residence where they weren’t responsible for things like cleaning, checking that rooms are adequately ventilated etc. However, others will have run up repair costs in their previous residences through lack of care or gross negligence.
Tenants likely to engage in anti-social behaviour
Tenants who engage in persistent, disruptive anti-social behaviour may cause irreparable damage to your relationship with the occupants of neighbouring properties. The most common issues are excessive and unreasonable noise (the law considers noise to be a statutory nuisance when it “unreasonably and substantially interfere with the use or enjoyment of a home or other premises”), aggressive or threatening behaviour, and improper disposal of waste (e.g allowing refuse to accumulate in a front garden or communal space).
While landlords are not legally liable for their tenants’ anti-social behaviour unless they participate or otherwise facilitate it, if your renters behave badly it can strain relationships with neighbours, cause property damage, or otherwise make your property undesirable. You might also find yourself in the unenviable position of cleaning up the mess afterwards while chasing your former tenants for mounting costs.
How to identify bad tenants before they move into your property
Always use a professional referencing company
Whether you’re a ‘hands off’ or DIY landlord, the value of tenant referencing is commonly accepted and satisfactory reports are a prerequisite before any contracts are signed. Nevertheless, though the importance of background checks is well understood, many landlords and agents still take care of this essential process themselves.
In the abstract, reference reports do not appear to be a particularly complicated endeavour. Generally, a comprehensive vetting process will review the following:
- Proof of address.
- Proof of previous addresses.
- Proof of identity.
- Employer reference and confirmation of salary or an accountant’s reference and the most recently filed business accounts if a prospective renter is self-employed.
- Current landlord reference.
- Recent payslips.
- Recent bank statements.
- Credit history, including any outstanding CCJs.
Though the relevant documents can be easily requested and reviewed directly by the landlord, it is unlikely that anyone other than a professional referencing specialist will have the resources, expertise, and experience to validate their authenticity. It is not enough to receive a glowing reference from a prospective renter’s employer or current landlord - you also need to know that their referees are who they claim to be.
For example, a professional referencing company will undertake several additional steps to verify employer and landlord details, such as reviewing land registry records, searching through the Companies House database, confirming the date of web domain registrations, and much more.
Professional referencing companies also have far more experience at identifying counterfeit documents, such as fraudulent bank statements and identification documents. For committed scammers, gaining access to sophisticated forgeries via the internet is increasingly straightforward, so landlords should take advantage of the additional security a professional reference check provides.
Finally, landlords should also be wary of any lettings agent that completes their own tenant referencing in-house. There is a clear conflict of interest, with agents not incentivised to sabotage their potential commission by investigating a prospective tenant with the rigor required to be confident in their credentials. In-house referencing services also lack the sophistication and technical know-how of independent third-party referencing specialists.
Be wary of offers promising large cash sums up front
While a large lump sum of upfront rent may seem like an ideal scenario for a landlord, if the tenant is offering to pay in cash this should raise a few red flags. Although it isn’t unheard of for renters to pay in cash (there are more than 1 million adults in the UK who are currently ‘unbanked’ - meaning they do not have access to a bank account), offering substantial cash payments may also be a diversionary tactic intended to avoid scrutiny during referencing or disguise criminal behaviour.
For example, a tenant who offers a large cash payment might have a terrible rental history and struggle to secure a tenancy otherwise. Alternatively, they might be offering cash up front in an attempt to bypass employer referencing because their income is derived from the proceeds of crime. If a prospective tenant offers you any large cash payment as part of their offer, make it clear that they will still need to go through the standard referencing process in order to confirm the source of their income before agreeing to any tenancy.
Don’t be afraid to ask questions if something looks or feels out of the ordinary
Anyone who has dealt with residential lettings for some time comes to understand that people live rich and varied lives, in all sorts of different household configurations and circumstances, and that colourful characters and seemingly unusual living situations are generally just a harmless feature of life’s rich tapestry.
However, there are times when the details of an offer seem amiss because they are a genuine red flag that the prospective tenant isn’t being entirely forthcoming about who they are or why they want your property. Examples would be where a single tenant applies for a large multi-bedroom property or where a tenant insists on paying several months up front even though they have a stable income that would allow them to pass affordability referencing for monthly payments (both signs that they might be planning to sublet the property).
You should always feel comfortable making a polite enquiry for more information from the prospective tenant or your agent if something doesn’t sit right with you. In most cases there is usually a perfectly reasonable explanation for any perceived anomalies, but sometimes a bit of extra diligence can save you from getting into a lot of hassle later on.
Don’t compromise on your tenant criteria because your property has been on the market for a while
Void periods are expensive and can cause quite a lot of cash flow issues, so it is often tempting to look the other way if an offer has red flags that would normally give you pause. This is a false economy, as the cost of accepting a bad tenant or renting to someone who cannot afford the property is far greater in the long term than holding out for more suitable candidates.
There are plenty of tips and tricks that you can try to get your property off the market that don’t risk letting your property to unsuitable tenants. You can learn more in our guide.
If you’re looking for a secure lettings service that thoroughly qualifies all renters before they view your property and rigorously references all prospective tenants before contracts are signed, we are here to help.
At Home Made, we have a hybrid lettings solution that adds value at every stage of the rental process. With our proprietary technology and data-driven marketing processes, we can help you to achieve higher rental yields and significantly lower operating costs, while taking every possible step to ensure that any renter we put forward for a tenancy is right for your property.
Our median time-to-let from point of listing is just 8 days and our clients save an average of £2,300 per tenancy with us. We charge 3% plus VAT for tenant-find services, 4% plus VAT per month for full management services, and there are no fees for renewals. For more information on our services, visit our landlord page.