When you hear the term rental fraud it’s usually associated with renters, however landlords are increasingly the victims too. In a survey of 500 landlords across the UK we found that 6% (equivalent of 150,000 in total) had been negatively impacted by rental fraud. Over two posts we will go through 4 types of rental fraud that target landlords; how they work and what measures landlords can take to protect themselves.
1 - Rogue Agents
Using an agent should take the hassle out of renting out a property right? You should think so, but there are a proportion of letting agents defrauding tenants and landlords, with some making hundreds of thousands of pounds a time.
It works as follows: the rogue letting agent sets up his business; usually including a trustworthy name like "Belgravia Property Group", a shop front, website, branded stationary etc and on the surface appears very genuine. After setting up multiple rentals (taking deposits, tenant and landlord fees) the agent then begins to withhold cash from the landlord, claiming the tenants are in arrears when they have been paying. In one example which was operating nationwide the agent would deliberately fail tenants checks and then request 6 months rent upfront.
Usually before authorities can catch up with an agent they liquidate the business, only to setup elsewhere (usually under an alias) to defraud others.
It is ultimately the landlord’s responsibility to ensure that tenants deposits are protected and so they can also face a claim of 3x the amount plus the deposit in a compensation claim.
In England it is now a legal requirement for letting agents or property managers to be a member of at least one Property Redress Scheme, the registers of which can be searched below:
Letting Agents that have Client Money Protection Schemes in place such as CMP or SafeAgent provide assurance that any money is protected from fraud. Whilst the schemes are voluntary all letting agents must make clear on their website or office whether they have client money protection or not. The UK government has recently consulted on making Client Money Protection mandatory.
Whilst being on a register reduces the risk there are examples of where rogue agents have been able to sign up to these schemes. For this reason there should be greater due diligence by the registration services themselves, for example a CCJ check on the company directors or reviewing a director’s history of insolvent companies.
2 - Rent to Rent
Touted as a way to get rich quick rent to rent is in some circumstances legal, however in many cases it does lead to bad rental experiences for tenants and landlords due to malpractice.
It works as follows: somebody rents a whole property, who then sublets each room individually (usually converting rooms, eg lounge into a bedroom), making a profit for themselves.
Problems arise when things like deposits are not protected, the sublets lead to poor conditions such as overcrowding, lack of tenancy checks (including right to rent), lack of HMO license, meaning the landlord is unknowingly in breach of the law.
One self proclaimed guru of this rental model claimed to be making £35k each month, however later disappeared and was later tracked down by Channel 4 after owing £60k to tenants and landlords (he had since managed to setup as a letting agent).
Rent to rent is especially common within social housing due to the money that can be made in renting out rooms at the market rate. The UK government estimates that £1.8b of rent via illegal sublets is going through social housing each year.
The typical advice would be to add a clause to a tenancy agreement preventing subletting, however this won’t stop some who will attempt it anyway. An option is to instruct a letting agent to manage the property, but again this will not necessarily prevent a sublet from happening in the first place.
In setting up a RentProfile a landlord receives alerts when somebody attempts to sublet a property, making it the the first preventative system of its kind. A landlord profile also helps prospective tenants shows you are genuine, preventing fake landlord fraud.