Last updated on March 24th, 2020 at 04:42 pm
Tenant reference checks are one of the most important aspects of letting out a property. When you have a keen tenant, it’s natural to want to get them moved in as fast as you can – however, skipping the appropriate checks could create a lot of unnecessary hassle for you in the long run.
So, why exactly are tenant reference checks so important?
Well, as a landlord, you want a tenant that has a history of being reliable, dependable and honest. Although carrying out tenant checks will not be able to guarantee the future actions of a tenant, it will certainly help identify any past issues and put your mind at ease before entering into a tenancy agreement.
A tenant reference check will save you:
- Time – By knowing your tenant’s history, the energy you put into pursuing them will be worth it
- Money – Confirming that your tenant’s income is consistent means you can be confident in your own
- Worry – The more you know about your tenant, the surer you’ll be that they’re the right fit for your property
What do tenant reference checks involve?
Typically, a tenant reference check consists of:
- An employment reference
- A previous landlord reference
- A 6-year credit check
The employment reference
Checking a potential tenant’s employment status is a vital part of their tenant reference check. As a landlord, you want to ensure that your tenant has a source of stable income to pay their rent on time, every time. Put it this way, you wouldn’t trust a stranger to pay your mortgage, so why would you let a tenant move into your property without a reference?
Find out how the Fifth Money Laundering Directive is protecting landlords and tenants.
An employment reference usually includes:
- The tenant’s salary
- Their position in the company
- The length of their employment
- The nature of their contract, e.g. full-time or part-time
As a rule of thumb, if the tenant’s annual income is less than 30 times the monthly rental (£500 x 30 = £15,000), you should considering having a guarantor agreement in case the tenant is unable to pay their rent.
The previous landlord reference
When referencing a tenant, the previous landlord should be contacted directly to check that the tenant is a reliable and trustworthy person. This is easily done by asking the following questions:
- Has the tenant consistently paid their rent on time?
- Has the tenant caused any damage to the property?
- Have there been any disputes with regards to deposit?
- Would the landlord re-let to the tenant?
If the landlord provides positive feedback on the tenant, then you should have a satisfactory previous landlord reference.
The 6-year credit check
A credit check will contain financial information held against the tenant’s name and addresses over the past six years. This will highlight any CCJ’s (County Court Judgements) or outstanding/missed payments and help you as a landlord identify any major red flags.
Whilst a credit check is very important, it’s vital to note that to perform a credit check on a tenant without their permission breaches the rules of GDPR – they must sign an authorisation form which explains how their data will be used, who it will be shared with and how they can request for the data to be destroyed or forgotten beforehand.
Remember, background checks are just as important for landlords. We never let a property without confirming a landlord’s identity.
Who pays for tenant reference checks?
In England, as of 1 June 2019, the Tenant Fees Act 2019 makes it the landlord’s responsibility to pay the fees of tenant referencing. Scotland banned tenant fees back in 2011 and Wales have recently followed suit under the Renting Homes (Fees etc.) Act 2019.
We believe the Act was brought into play as a result of some of the high fees that agents have charged tenants, particularly in areas like London.
Whilst pro-tenant activists have hailed the Tenant Fee Ban as a success, many landlord organisations across the UK (such as the NLA and RLA) felt this was a drastic and unfair measure and have voiced their concerns publicly.
Ultimately, regardless of the additional fees, landlords should want to know who’ll be living in their property. Paying a small fee upfront to find out about your tenant could prevent delayed rent payments or hefty damage costs in the future.