Thorough tenant referencing is one of the most critical steps you can take as a landlord to protect your property and maximise the chances of having a successful tenancy. Taking the time to choose the best tenant for your property from the outset can save you stress further down the line in missed rent payments or damage to your property. Evidence of a robust reference check is also a requirement of most landlord insurance policies.

In this guide, NRLA insurance partner, Total Landlord, explores: 

• What is tenant referencing? 
• The benefits of tenant referencing
• How to make sure that you don't invalidate your insurance policy if you need to make a claim
• The standard four-point check and additional tenant reference checks you need to make
• Why a good tenant may fail a referencing check
• How to spot tenant referencing red flags

What is tenant referencing?

Tenant referencing is simply the process of gathering information so that you can build up a profile of a tenant to identify any risks. It involves conducting thorough background checks to assess the potential tenant’s suitability and reliability. Paul Shamplina, founder of NRLA legal services partner, Landlord Action, and Chief Commercial Officer at Total Landlord, explains.

When it comes to referencing a tenant, you’re putting a jigsaw together, building up a picture of the tenant’s renting history – whether they've defaulted on rent in the past or caused malicious damage to a property, whether they've had County Court Judgements against them and, most importantly, whether they can afford to pay the rent. Ideally, the tenant shouldn’t be spending more than 30% of their income on rent. Affordability is key.

What are the benefits of tenant referencing?

Tenant referencing helps landlords reduce risks such as rental arrears, property damage, and legal issues.

Steve Barnes, Head of Broking at Total Landlord, emphasises the significance of tenant checks:

A comprehensive tenant referencing process is not merely a formality but an essential component of risk management for landlords, with a number of benefits when it comes to protecting your property and maximising the chances of having a smooth tenancy.

The benefits include: 

• Reduced risk of non-payment of rent: The referencing process should check both whether the tenant can afford the rent and whether they are likely to pay on time
• Property protection: Referencing helps to select tenants who are more likely to look after the property and treat it with respect
• Legal security: Tenant referencing minimises the chances of stressful and costly legal disputes during the tenancy by identifying whether a tenant has a history of illegal behaviour
• Protection from fraud: Robust referencing confirms the tenant’s identity, which is required for right to rent checks while also protecting you from fraud
• Peace of mind: Knowing that the tenant has passed rigorous checks provides peace of mind, allowing you to focus on other aspects of rental property management
• Enhanced landlord-tenant relationship: A transparent referencing process fosters trust and sets clear expectations from the outset, contributing to a positive landlord-tenant relationship

Essential components of tenant referencing for landlord insurance

If you need to make a claim on your landlord insurance, for example because a tenant has caused malicious damage to your rental property, you will need to provide evidence that you carried out a robust tenant referencing check.

Steve Barnes explains: 

Our Premier policy offers protection against malicious damage by tenants and their guests, but you’ll need to provide evidence that you did all you could to reduce the risks of damage. As a minimum, you will need to show that your tenant passed a four-point reference check. This includes proof of identity, proof of address, a credit check and confirmation of employment. If you’re using an agent or a tenant referencing service, ask them to explain, in detail, what their referencing covers as some will offer a more robust check than others. You will also need to show that you carried out regular inspections.

The standard, four-point tenant referencing check includes: 

1. Proof of identity from the tenant. The tenant should provide two forms of photographic identification, one of which must be a driving licence or passport. This is to make sure that the tenant is who they claim to be.
2. Utility bill or bank statement. As proof of residency at their current address, the tenant should provide a utility bill, council tax bill or bank statement issued within the last two months.
3. Credit check. To check that the tenant is not in debt and doesn’t have a poor credit history, with the tenant’s written permission, you need to carry out a credit check through an organisation like Experian or Equifax. This will also confirm whether they have any outstanding or unsettled County Court Judgements (CCJs) against them, and that no bankruptcy orders have been lodged against them.
4. Confirmation of employment. Contact the tenant’s employer to obtain a written reference, confirming the tenant’s current and permanent employment, and salary. The rent should ideally not be more than 30% of their salary.

Additional tenant reference checks

Whether you are carrying out the tenant referencing check yourself, using an agent or a specialist tenant referencing service, the more detailed the referencing check, the better.

For example, the ‘Full Tenant Check’ service offered by NRLA Tenant Referencing, includes the standard tenant credit check, references obtained from employers and previous landlords and confirmation of previous property ownership and bank account details. In addition, the ‘Full Tenant Check’ will perform the following checks:

• Failure to pay rent to previous landlords
• Reputation of damaging properties
• Income related enquiries
• Each credit check includes: 
  • County Court Judgement (CCJ search)
  • Bankruptcy andn insolvency data
  • Residency and address confirmation
  • Alias name search
  • Linked addresses located and searched
  • ID verification checks
• Written verification of employment/income
• Reference from current landlord or letting agent
• Affordability calculation
• Application tracking with 24-hour online access

Right to rent checks

Landlords and letting agents in England are required to carry out a right to rent check before starting a new tenancy or renewing an existing one, to check that the tenant has legal status to work and reside in the UK.

You must carry out the check on every person over the age of 18 who occupies the property – including family members, a carer or lodger, even if they’re not named on the tenancy agreement.

Fines for landlords who breach right to rent rules were increased from 13 February 2024, from £80 per lodger and £1,000 per occupier up to £5,000 per lodger and £10,000 per occupier, for a first breach.  

Fines for repeated breaches increased from £500 per lodger and £3,000 per occupier, to £10,000 per lodger and £20,000 per occupier.

Landlords face a potential criminal record and ultimately imprisonment for failure to properly check a lodger or renting occupier's right to rent status, so this check is an essential part of the referencing process.

Guarantor checks

‍If you have any reservations about renting to a tenant – for example, if you’re worried that they won’t be able to pay the rent, or if the tenant has a poor credit history or insufficient income to cover the rent - you can ask the tenant to provide a guarantor. You will need to reference check the guarantor exactly as you would the tenant, to make sure they can cover the rent if the tenant defaults.

What happens if a tenant fails the referencing check?

For some tenants it is harder to meet the criteria needed to pass a tenant referencing check than for others. For example, self-employed tenants, first time or retired renters, tenants who have been living overseas, students or tenants in receipt of benefits. Yet many of these will make good, reliable tenants. There are times when a potentially good tenant might fail aspects of a robust referencing check, so it is important to consider the bigger picture and interpret the results correctly. For example:

• The tenant has received a low credit check score: This could be because they weren’t on the electoral register at a previous address or have never had a credit card in their name so have not built up a credit history. This is often the case with younger people or students, who may be able to pay the rent and make good tenants
• The tenant is a student: Student tenants are likely to fail a number of the standard checks because they move frequently, may not have a credit history and the rent is likely to be more than 30% of their income. The reality is that there are lots of benefits to renting to students and their parents often act as guarantors
• The tenant has failed the affordability check: While the employer’s reference will provide the tenant’s income, it doesn’t take into account whether they will be receiving a contribution from any other source, such as savings, benefits, or a parental contribution
• The tenant has no proof of address: This is an important check for avoiding fraud, but there are valid reasons why a tenant may not be able to provide this information. They may not be responsible for paying bills, have been living overeas, or cohabiting with a partner, for example

Referencing provides a risk assessment, but if a tenant fails it’s up to you to investigate why, take into account the bigger picture and decide whether to let your property to them or not. Regardless of the outcomes of standard reference checks, listen to your gut instinct. If you are in any doubt about whether the applicant is the right person for your property, do not go ahead.

Tenant referencing red flags

While some potentially good tenants may fail a reference check, there are fraudsters and serial bad tenants who fake their way through the referencing process to target rental properties with criminal intent. For example, insurance companies are seeing an increase in cannabis farms in private rental properties. At Total Landlord, we had one claim for £30,850 for extensive damage to the property and loss of rent, and others involving major fires within properties due to the rewiring of electrics and overloading of sockets from heat lamps. 

While cannabis-related crime is often thought to be low level, the police frequently find that offenders may be complicit in other illegal activity involving criminal gangs, human trafficking, money laundering, exploitation and violence.

To avoid becoming the victim of tenant fraud, or risking your property being a crime scene, there are some red flags to look out for, including:

• Offering to pay several months' rent in advance
• Wanting to keep utility bills in the landlord's name
• Asking for no inspections or not allowing access
• Refusing to provide information requested during the referencing process
• Haggling over the rent or deposit
• Putting you under pressure andn wanting to move in straight away

If you have any doubts at all, do not go ahead with the tenancy. Remember, demand for rental properties is high, so don’t let yourself be pressured into letting someone move in quickly or be tempted by a lump sum of rent in advance, without carrying out a robust tenant referencing check. And always trust your gut feeling.

No matter how careful you are, you can never eliminate all risks entirely. But by following the advice in this guide and making sure you have comprehensive landlord insurance, you will be doing all you can to reduce your risks.

Voted by our customers, Total Landlord has won six insurance choice awards. Our commitment to excellence is reflected in the trust and satisfaction of our customers, making Total Landlord the top choice for reliable and acclaimed landlord insurance.

With over 25 years’ experience, recommended NRLA insurance partner, Total Landlord, is powered by Total Property – dedicated home to specialist property products and services, bringing together all the support and advice that you need to become a better landlord.