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Landlords can never predict how renting a home will go, making tenant referencing an important task. Adequate referencing won’t stop problems from arising, but hopefully minimises the risk of moving in a tenant who has had issues paying the rent or looking after a rented home.
The Tenant Fees Act bans charging tenants for references, so the cost of checks has switched to landlords, with many questioning the time and value of carrying out the inquiries. But failing to take tenant references can be a false economy.
Tenant referencing may include a Right to Rent check where the property is in England. Landlords with rent guarantee cover will also need to show that they completed the references required by their insurer before the tenant moved in if they want to make a successful claim under the policy.
Taking tenant references is an effective way to screen tenants who may have a chequered rental history or who cannot afford to pay the rent on a buy to let home. Millions of tenants live in private rented homes without a problem, but a small number of rogue tenants set a terrible example. Tenant references aim to confirm several points:
Checking references takes some time and comes with a cost. A property professional will probably complete the task in two to three days, but a private landlord with a day job can expect to take longer. Professionals are likely to charge between £15 and £40 for referencing each tenant plus small fees of around £12 for credit checks and £3 access to the Land Registry to confirm a guarantor or former landlord’s identity if needed. Under the Tenant Fees Act, charging the tenant these costs is illegal. Similar laws ban charging tenants upfront fees in Wales and Scotland. Landlords can choose to dispense with referencing, ask a professional to do the job or take the job on themselves.
Pre-screening is an excellent way to whittle down a list of potential tenants to a short list of possibilities.
A suitable application for accommodation should be used. We often say in training courses that in our view, a good application form is just as important (if not more) than a tenancy agreement!
Questions should include asking about income and work, if the tenant has pets and any adverse credit. Simple pre-screening should weed out unlikely candidates from the start and save landlords time and money on referencing.
Tenant referencing is a process that landlords should follow for every tenant. Here’s a list of the points to keep in mind:
Most rent guarantee insurers want to see that every tenant is credit checked and passes the affordability check before the tenancy starts to support a successful claim under rent guarantee cover. They will often require you to use their own referencing, so you must check their terms carefully.
What to look for:
A clean credit history means no court judgments for debt or regular late payments that show the tenant has trouble paying regular bills on time. In addition, it's essential to have found them on the report (for example, connected addresses are shown). A person who has not been found could be even worse as it could indicate they've given false information.
What to look for:
Bank statements will show when and how much the tenant is paid, how they spend their cash and if they live within their means.
What to look for:
A steady employment record and consistent income
What to look for: Affordability is assessed with income multipliers – for example, some services suggest 2.5 times the salary for tenants and 3x for guarantors. So, a tenant paying £750 a month of rent needs an annual salary of at least £22,500 to afford the payment, while a guarantor needs £27,000.
If the tenants do not have a photo ID, you need a good explanation and decide if your other checks are adequate to confirm identity (also, this could cause Right to Rent issues).
What to look for:
Confirmation, the tenant is who they say they are.
What to look for:
The same name and address on each document, including the driving licence.
What to look for:
Confirmation that the tenant pays the rent on time and in full while looking after the rented property
What to look for:
The government publishes official guidance on Right to Rent checks. We also have information about the Right to Rent here.
A score, pass, or recommendation is not automatically a legal or similarly significant decision. The special safeguards for automated decisions apply only where the outcome is made solely by automated processing and has a legal or similarly significant effect on the applicant. This may include a system automatically rejecting an application, requiring a guarantor, or imposing less favourable terms without meaningful human review.
A recommendation is not solely automated if a person with authority genuinely reviews the relevant information and can change the outcome. Simply approving the system’s result without properly considering it is not meaningful human review.
Where the special safeguards apply, tell the applicant how the automated decision is being used and give them a way to provide information or representations, ask for human intervention, and contest the decision. You must also identify an appropriate lawful basis for the processing. See our guides to GDPR lawful bases for lettings and how AI can help landlords manage property.
We always recommend a guarantor be taken for every tenancy, regardless of the tenant's work and affordability. It's a valuable backup if something goes wrong during the tenancy. If everything goes well, the guarantor never needs to be spoken to. We always advise that a guarantor should be home-owner although this is a preference, not a requirement.
You can check home ownership quickly and easily on the Land Registry.
Keep records to show which tenant references were completed before the tenant moved into the property. Before carrying out the checks, identify and record the appropriate lawful basis for each use of personal information. UK GDPR does not automatically require written permission or consent for every reference check. Give each applicant and guarantor privacy information explaining what information you collect, why you use it, who you share it with, how long you keep it, their rights and how they can complain to you and to the Information Commissioner.
If a referencing service asks the applicant to sign a form authorising it to provide the service or contact an employer, landlord or other third party, describe that separately as service authorisation rather than GDPR consent. You may also ask the applicant to sign and date a receipt confirming which documents they supplied, but that signature is evidence of handover, not consent to the processing. See our guide to GDPR lawful bases for lettings.
Keep the bundle for the duration of the tenancy – especially the credit and affordability checks if you have rent guarantee insurance.