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Granting Leases

The legal technicalities of letting properties out are covered in Ownership and Tenure. Here we will be discussing the practicalities of granting leases on your properties to prospective tenants.


Why Let Property Out

There are 2 main reasons why you would want to let property out:

  • Letting out property as a property investment business
  • Letting out spare accommodation that you only use occasionally or do not want to sell.

For the first reason, this may seem a very attractive business proposition on the face of it. You may have seen many property programs on TV or read in the press about people making fortunes in this way. With a simple paper calculation weighing the rental income receivable against the mortgage you have to pay, it may even seem like you are getting something for nothing, with the tenants' rental payments paying for your mortgage. The reality is somewhat more complicated. There are considerations like, legal fees, maintenance costs, non-paying tenants, tenants damaging the property, professional fees and problems with dealing with tenants to contend with. When you have mortgages on your property, you will need permission from the lender to let or sub-let your property and the mortgage lender may want to charge a higher interest rate. With these factors in mind, we are not saying it is a bad business to venture into. You must carefully weigh up the pros and cons to be sure it can be a profitable business and consider if it is the right business for you to venture into. The main factor in having a good letting business is getting good tenants.

For the second reason, this may be a holiday home that you only use for part of the year, or part of a large house you live in that you don't need to use. Most of the considerations for letting out property as a business apply. Indeed, in this situation it may seem more desirable to let the property out. The advantages are that when a property is occupied, it is less likely to suffer from squatters taking over your property and damaging it and helps to prevent damage like damp from leaving the property empty and cold during winter months. Again these benefits depend on having good tenants.

Since there are such a wide variety of letting options, you are strongly advised to consult a solicitor before entering into any letting agreement.

Finding and Vetting Tenants

As the most important factor in having a good rental business is having good tenants, we will discuss in more detail about finding and vetting prospective tenants.

First of all, we have a slight conundrum. The ideal tenants would be people who have a good job with a steady income to pay the rent and they would care for and look after the property. Unfortunately, such people would find it better to buy a house with a mortgage and generally would choose to do so.

Good tenants would only choose to rent a property under very special circumstances and you should ask why they have decided to rent rather than buy with a mortgage.

From our experience, the following is a list of potentially good tenants

  • Students - student letting's are one of the largest areas of private letting. Their term of stay is usually short and they are very likely to move on, once their studies are complete. They are usually studious hard-working people and they usually pay their rent - it is recommended that you obtain a rent guarantee from their parents. The main worry is for younger students who have left home for the first time and indulge in house parties which can cause some damage to your property. Often, universities have an accommodation department, where you can register as a potential landlord for students. This is a good way for students to find you, however, universities nowadays have their own extensive student accommodation and prefer to fill up their own accommodation first before referring students to private landlords.
  • Post-graduate students - they are most likely to be hard working people looking to forge a professional career. The best types of post-graduate students are the ones that are sponsored by government or the companies they are working for, in which case, the company or government may be paying their rent and you can try and obtain a rent guarantee of the sponsoring organisation.
  • Professionals on assignment - such people will inevitable in a professional career and be hard-working people, often their companies will be responsible for paying their rent from which you can try and obtain a guarantee.
  • Armed Forces Staff - again like professionals on assignment, you can try and obtain a rent guarantee from their employers and the employers will be responsible for ensuring your property is vacated.

When vetting tenants, check up on their financial references thoroughly. Perform credit checks from credit checking agencies where possible. Check their bank references and with their solicitor. If the tenant is employed, check with their employer and if they are in business, check with their accountants. Where possible seek references in person where the prospective tenant may have an account like a local garage, people are more likely to tell you the truth by word of mouth than in writing (where there are libel concerns).

Letting Agencies and Property Management

Letting agencies provide a useful service in finding tenants, vetting tenants and managing your property.

For finding and vetting tenants, the fee is usually about 1 months rent. For, more expensive properties that charge higher rent, the agents may charge just half of one months rent. The service often includes the drafting of the rental agreement

A property management firm can take a lot of the hassle of day to day management of your property and is useful if you live far away from your let property or have a number of properties to manage. The service does however come at a price - typically about 15% commission of the rent received. For the fee, the management firm will collect the rent for your and inspect the property regularly while the property is let out. In our experience, this service is not really worth it unless you have too many properties to manage yourself. When it comes to collecting the rent, all is fine if you have a good tenant. If the tenant is a bad payer, you may find your property managers reluctant to do more to ensure rent is collected from the tenant, in practice.

Letting out to riskier tenants

While it is not recommended to let out properties directly to riskier tenants (i.e. DSS) yourself, there are options to let out to riskier tenants satisfactorily. This involves enquiring at your local council or a housing association to manage the property for you. Usually this means entering into a written agreement with the local authority or housing association to rent out and manage the property. They will pay you a rental fee and according to the agreement, they will return the property back to you in the same condition that you offered it to them.

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