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  • Rent to rent can invalidate your insurance (amongst other things)


    Rent to Rent schemes have taken over the letting market over the years by offering landlord’s a guaranteed rent for a given period whilst they sublet your property at an increased rate and profit from the difference.

    Rent to rent (R2R) or ‘guaranteed rent’ is where an agreement is made between an individual or company and the landlord which guarantees rent whether the property is occupied or not. Your tenant then effectively becomes a non-residential tenant who sublets your property on your behalf.

    In a rent to rent arrangement the landlord has no direct relationship with the occupiers of the property. For a busy investor this sounds like a great idea where you don’t need to worry about managing tenants or ongoing maintenance whilst getting a fixed term guaranteed income.

    Rent to rent pitfalls

    However, many landlords with little or no experience are entering the market keen to take advantage of a guaranteed rent, but unaware of the pitfalls of rent to rent.

    With legislation changing all the time and landlords found struggling this is no surprise, but it is important to be aware of the many issues that can arise from such an agreement and how to avoid them.

    As a property owner you can risk ending up with no rent, sitting sub-tenants, an altered property and possibly even facing prosecution for an unlicensed HMO.

    We talk about each of these issues and how they can affect you.

    Invalidating your landlord insurance

    Landlord insurance is needed for the additional risk that you take on when you appoint tenants. It will include your buildings and contents, liability and legal cover should anything happen to your tenants due to problems with your property, and potentially loss of income cover.

    You will more than likely already have you landlord insurance in place if you are considering a rent to rent arrangement, but just because you have this it doesn’t mean that you will be covered in a rent to rent arrangement.

    You will need to check your policy wording very carefully prior to entering into such an agreement as invalidated insurance will leave you wide open to all manner of financial risk.

    Most forms of landlord insurance will only cover you in situations where you have a direct relationship with the tenant. You will need to check that the insurance covers you for a property that you will not be controlling yourself, and not to mention that many middle tenant agencies will often work with ‘difficult’ tenant groups.

    Using an AST agreement

    Often R2R agreements are incorrectly written up using an AST agreement.

    You can only have an assured shorthold tenancy (AST) where the tenant (or one of the joint tenants) lives in the property. If you incorrectly use an AST agreement between a landlord and a middle tenant, then it will be invalid with many irrelevant clauses included.

    Not holding an HMO licence

    Many individuals or rent to rent agencies will look to take on a large property and then sub-let rooms on an individual basis.

    The issue with renting out individual rooms within a property is that this could be classed as a house in multiple occupation (HMO). HMO’s require a licence and there will be strict penalties for not having one.

    Both the landlord and the middle tenant may assume the other is responsible for arranging an HMO licence and as a result, without one, the council can prosecute both of you. Ultimately as the owner and landlord you will be responsible for the let and any violations of regulations.

    Breaching mortgage terms

    If you are considering a rent to rent agreement, then you must check with your mortgage lender if the terms of your loan agreement permit sub-letting. In addition to this, if you have a standard buy-to-let mortgage, houses in multiple occupation (HMOs) are unlikely covered in the agreement and therefore a property operated as an HMO will not be permitted.

    Even if you do have permission to grant tenancies it may only be for assured shorthold tenancies for no more than a year. Check your mortgage terms as if you are found in breach the lender will be legally able to take possession of the property.

    Ignoring planning permission

    Before considering a rent to rent agreement it is also important to check the rules in your area on usage of property. By using the property for short let of as a bedsit you may be in breach of the original planning permission.

    Are there any local authority restrictions on the type of tenancy that is allowed? In many areas you will find that HMOs are not permitted.


    Rent to rent can work well in some situations and if you are working with a reputable and regulated agency you are less likely to face issues, however often there can be huge problems.

    If you choose to enter an agreement with an R2R agency, then it is important to check that the provider has the liquidity to both guarantee the rent and to pay any legal fees that would be required should a tenant need to be evicted.

    It is important to do your due diligence and check the company’s track record in running such a scheme as well as their financial health. You should also make sure they have insurance in place to support the guarantee of rent.

    Even when you have a well-prepared agreement there is little that you could do if the rent-to-rent agency collapsed and disappeared and it’s an unfortunate fact that often you will find R2R offered by companies with limited liability or one-man bands.

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