What happens if a tenant fails reference checks?
Carrying out thorough tenant referencing and credit checks is vital to minimise the risk of rent defaults and problematic tenancies but what should you do if a tenant does not pass? When faced with a failed tenant referencing report, landlords have to decide what to do next. For many, this would be the end of the line and they will move on to the next candidates. Others may decide to look at other options that will allow them to proceed.
Tenant referencing is a great tool to highlight the risks and landlords should read all of the available information carefully before making a decision, paying attention to what the tenant has told you and comparing that with the information in the report. The more information you have the easier making a decision will be.
Why has the tenant failed referencing?
There are many reasons why a tenant may fail referencing and in some cases, you may wish to proceed subject to some additional checks or obtaining further security.
Employment type – tenants employed on a temporary basis or on ‘zero hour’ contracts may not be able to pass referencing but in reality, they may have no problem meeting the rent payments subject to their employment continuing.
New self-employment – starting a new business or working on a self-employed basis comes with additional risk. Many businesses fail in the first year of trading and tenants who are self-employed may not receive sick pay or a notice period if their income stops.
Adverse credit history and CCJ’s – tenants may have had a difficult time in the past and adverse credit history will stay on their credit report for up to 6 years, even if their financial situation has now improved. Adverse credit history may mean that the applicant is not suitable for cover under rent guarantee schemes but they could still be more than capable of meeting the rent payments.
Insufficient credit history – some people do not have any credit history when the checks are completed. This could be due to their age, living outside of the UK, or moving address frequently. However, it could also indicate that they have given a false address history in order to hide adverse credit history.
References from previous tenancies – a negative reference from a previous landlord or agent can be a good indicator of an unsuitable tenant however their financial situation may have improved recently. You may wish to discuss this further with the tenant before making a decision.
Can I still let to the tenant if they fail referencing?
Regardless of the content of the referencing report, you are free to let your property to whomever you wish. There is no legal requirement to carry out any checks on your tenants, apart from checking their Right to Rent a residential property in the UK.
Beware of false information
If any false information is detected during the referencing process, we recommend rejecting the tenant entirely. Landlords can face huge costs and lengthy legal proceedings when tenants obtain property by providing forged references or documents, so any indication of this should be a major warning sign If it can be proven that the tenant has provided false or misleading information, you may be entitled to keep all or some of their holding deposit.
Consider proceeding if the tenant can provide a guarantor
Asking the tenant to provide a guarantor is the most common way to proceed with a tenant if they do not pass the reference checks. A guarantor will sign an agreement to share the tenant’s responsibilities under the tenancy including rent payments.
This would usually be a parent or guardian but can be anyone over the age of 18, subject to status and their willingness to enter into the agreement. A suitable guarantor must have a clear credit history and be in a suitable financial position to participate.
It is important that a guarantor has a regular and stable source of income and that they earn enough to be able to pay the rent should it be necessary. If the potential guarantor is employed, you should ensure that they are on a permanent contract.
What if my prospective tenant can’t find a guarantor?
You may feel comfortable proceeding subject to 6 months’ rent being paid in advance where there are no guarantor options available.
Alternatively, there are some private companies who will act as guarantors in exchange for an upfront fee, so it’s the private company that enters into a guarantor agreement with the landlord. Such schemes often require a co-signer to share the liability – as a result, the co-signer will also be responsible for any unpaid rent.
Can I still take out rent guarantee insurance if the tenant fails referencing?
Rent guarantee insurance is only available when all tenants on the agreement pass referencing – either on their own or with the support of a guarantor. In most cases, if the tenant fails referencing due to credit history problems or insufficient income, then it will be possible to obtain cover subject to obtaining a suitable guarantor.
How do I order referencing on tenants and their guarantors with NRLA?
For further information or to place an order please visit www.nrla.org.uk/services/tenant-checks.
You will need the name and email address of each tenant and guarantor, along with the rental property details.
