The extra risks associated with letting following the passing of the Renters' Rights Bill later this year will mean extra vigilance if landlords are to avoid trouble. New financial sanctions checks (AML) for letting agencies and landlords are also to be introduced from 14th May 2025
To some extent, as landlords have often argued, the new rules will work against tenants. Letting is about to become even more bureaucratic than it is already. New more stringent hurdles will be put in front of tenants when applying for tenancies.
With the abolition of fixed term tenancies and section 21, landlords will need to be more circumspect about whom they sign up for a tenancy. Whereas before this new regime landlords would often be prepared to “take a risk” on tenants who didn’t quite make the grade on background checks, it’s a different ball game going forward..
For landlords and letting agents it’s becoming almost mandatory to use the services of a reportable tenant reference agency to weed out those potentially bad tenants, those who will cost landlords a small fortune under the new rules. No more “accelerated” possession using Section 21, it will very likely be a long drawn out and costly court process to evict a tenant in the future.
Tenant reference agencies are becoming more sophisticated with the background checks they now carry out. As standard are the usual credit checks, coupled with employer and previous landlord references. Also now included in most comprehensive checks are social media background checks, Right-to-Rent checks, Anti-Money Laundering (AML) checks - more on that below* - and biometric identity checks.
LandlordZONE is providing a timely new webinar: “How Is the Tenant Selection Process Changing with New Rules Against Discrimination?” on Tuesday 4 March at 11:00. Join industry experts, Sean Hooker, Head of Redress, and Tim Frome, Head of Government Schemes, for an insightful webinar on how the tenant selection process is changing, with the new rules against discrimination. Highlights include:
The prevention of discrimination against families with children and those who receive benefits is a key goal of the Renters’ Rights Bill. Tenants will also be given the right to request keeping a pet. This law will be enforced by heavy penalties.
The government guidance states that the Bill will: “...address both overt discriminatory practices, such as ‘No DSS’ adverts, and situations where landlords or letting agents use other indirect practices in order to prevent someone entering into a tenancy.”
Although landlords and agents “will continue to have the final say on who they let their property to and can carry out referencing checks to make sure tenancies are sustainable for all parties, they will be able to do this based on affordability, but not on the basis the prospective tenant has children or is in receipt of benefits.”
The government says it is introducing these protections in England and has worked closely with the Welsh and Scottish Governments to extend rental discrimination provisions to Wales and Scotland through the Renters’ Rights Bill.
Landlords and agents should be aware that they may be called upon to justify turning down a tenant applicant, if they claim discrimination. That means having documentary evidence to show that every applicant was taken through exactly the same verification process: (1) a comprehensive tenancy application form was completed, (2) the same background checks were used for each applicant, along with an interview checklist asking the exact same questions of every applicant. The final decision must not be discriminatory - watch the webinar.
It is likely that rent in advance payments will be restricted to one month’s rent maximum, and Guarantor agreements will be considerably restricted pending the enactment of the new Bill. This leaves rent guarantee and legal protection insurance as the only sensible alternative way to go. Rent guarantee insurance is about to become a vital component of the new letting package for landlords and agents.
This insurance in turn hinges on tenants receiving a good verification report. Tenants exhibiting a bad credit history / affordability score, or those with a bad letting history, are likely to be rejected by insurance companies and landlords alike.
This, it has been argued, is a key example of where the new rules will likely work against some tenants.
Managing a tenancy effectively and fairly is one thing. Having the evidence to prove it is another, and it will become far more important if you can be called upon to produce the necessary evidence to the 1st Tier Property Tribunal (remember tenants can appeal there for free in future) or a county court judge.
You need to make sure you are meeting all the regulatory requirements regarding the property including things like Gas & Electric safety checks, smoke and CO alarms, EPCs, issuing the correct Right to Rent guide, licensing the property where necessary etc and having all the documents to prove it.
Regular inspections will become ever more important, not to mention they are a requirement of most landlord insurance policies. Six monthly or three monthly checks will become very important, but doing them too often could be deemed harassment.
These are an opportunity to check on all the safety aspects with a risk assessment checklist, as well as noting how the tenants are treating the property. Photos are a useful source of evidence to compare with those on the ingoing inventory.
Inventories will become ever more important both at check-in and at check-out. It is preferable to use a professional inventory company unless the letting agent does this as an independent assessment.
It is important to carefully document these inspections and checks and ideally get the tenant to sign that they are in agreement.
New financial sanctions checks (AML) for letting agencies and landlords are to be introduced from 14th May 2025
Agents will be obliged to check-out landlords as well as tenants and all self-managing landlords in the UK also come under these same regulations to some degree. You need to be fully prepared for these coming changes that mandate all letting agents and landlords to carry out financial sanctions checks. Severe penalties will be imposed for non-compliance, including substantial fines and imprisonment for up to seven years.
A good tenant referencing agency should include these checks for tenants, but landlords can also screen themselves and tenants against the Sanctions List. Landlords can access the UK’s Consolidated List designated for those persons subject to financial sanctions and maintained by the Office of Financial Sanctions Implementation (OFSI).
Landlords and agents will be required to conduct thorough checks before entering into a tenancy agreement. They must verify that prospective tenants are not on the sanctions list. Similarly, they must ensure, when using a letting agent, that their own name is not on the List.
Many of these checks overlap with standard tenant verification. Checks should include thorough due diligence procedures where copies of all documentation are kept on file, in line with standard UK GDPR data protection rules. That is:
Collecting, verifying and keeping copies of identification documents. These might be for example passports and driving licenses.
Obtain proof of address/s, for example recent utility bills or bank statements.
Assess tenants' financial standing / affordability through proof of income, such as payslips or bank statements.
Any suspected financial issues identified must be reported to OFSI without delay. Any letting proceedings in progress and/or financial assets involved must be frozen pending further instructions from OFSI.
Landlords and agents must be prepared to maintain comprehensive records, checks conducted such as dates, findings, and copies of documents reviewed. They must be kept for at least five years.
All tenants’ financial sanctions status should be regularly reviewed.
Landlords and agents will need to rigorously implement these measures to ensure full compliance with the new financial sanctions regulations and thereby safeguard their own interests.
Main image credit: Sora Shimazaki
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