Why is referencing all tenants important?

When a tenancy is shared between a couple or a group of tenants, it can sometimes be tempting to save time and money by only referencing one of them. It’s particularly tempting, for example, when it is a married couple where there is only one income earner. This is, though, a false economy. Depending on the type of reference, it can confirm whether or not that all of those who are paying towards a rent can meet their contribution and it can bring a degree of assurance regarding the tenant’s character and potential risk to the property and tenancy.

In relative terms, a tenant reference represents a small proportion of the total rent. It is typically included in a management charge to the tenant when setting up the tenancy and the cost should therefore not affect the rental income. For a small outlay it can provide a quantified view to the risk of having a bad tenancy. It also gives scope for you to attain additional security against the rent with products designed to protect the rent and minimise the legal liability.


Why use a referencing company?

Agents are sometimes tempted to rely on credit reports or to apply a DIY approach to referencing to reduce costs.

Besides the frequently underestimated cost of doing it yourself, by relying on a credit report you will miss the extra depth of data that a referencing company can provide. Paper forms that used to be faxed have developed into full online solutions providing instant results on any adverse judgements, undisclosed addresses and aliases. Some online systems also generate automatic requests for confirmation of employment details and previous landlord’s references. Once responses are received final reports are issued to confirm the applicant’s suitability based on advanced decision modelling. This automation speeds up the process, enabling reference companies to provide high level service agreements to agents – in our case 70 per cent of comprehensive references are returned within 2 days.

A good reference is only valid for a short period of time, because who can really predict the future? Unemployment now affects all walks of life. The referencing market has changed dramatically in the last two years with companies investing heavily in technology to give even better service. For example, factor in the time and cost for the following (assuming your staff can allocate time to this task immediately a reference is required):

• Collect information from the tenant to adequately make a judgement.
• Cross reference employment history, previous landlords, accountants, addresses of residence.
• Calculate what they can afford based on reliable income.
• Chase non-respondents.
• Write up a report.

You can now get this job done for less than £22 per tenant, depending on your referencing volumes. Just as important however, the assessment given by a provider may be considered acceptable for insurance against loss of rent and legal expenses.


A reference won’t help me if, for example, a tenant is sent to prison; what effect would that have on a Rent and Legal Protection Policy?

You are right about the reference but if a tenant is sent to prison, this does not automatically end his tenancy and therefore should not end any protection under a given policy. Only if the tenant formally surrenders his tenancy during a fixed term could a landlord safely take possession.

If the incarceration were to occur during a roll-over or periodic tenancy, then the question the landlord (and his agent) would have to ask himself is whether he believes the tenancy has been abandoned. If, for example, the tenant has left items in the property, the abandonment argument is somewhat hard to justify. In this situation, if the tenant is not paying the rent, court proceedings should be contemplated to gain possession. Imprisonment of a tenant should not normally void any policy that might cover possession proceedings.

There are countless unusual situations that arise that could have been avoided by referencing. Next month, we’ll look at some examples.