The Covid-19 pandemic has triggered inflation, recession, layoffs, and financial insecurities, so landlords in major UK cities are concerned about rental arrears and lengthy voids of their rental properties. The situation has given rise to guaranteed rent schemes and landlords are getting interested in their purported benefits.
What’s a guaranteed rent scheme?
It is also called a rent-to-rent scheme, where the landlord signs their rental property to a reliable letting agent, company, institution, or an individual for a scheduled period in exchange for guaranteed monthly income.
The reliable lending agency or company that rented the property is called the middle tenant. They will sublet to tenants and handle the tenancy and property.
Tenants occupying the property will have no direct connection with the landlord. The middle tenant [lending agency or individual] will handle everything.
How does the rent-to-rent model work?
For collecting rent in Kentapproach City Borough Housing professionals. In the guaranteed rent Kent model, the middle tenant will sign an agreement involving a guarantee to pay a specific amount of monthly revenue to the landlord in exchange for getting full control of their property management.
It means the middle tenant will be responsible to –
Promote the property
Find and vet tenants
Perform tenancy administration
Ensure property compliance with relevant legal requirements
Handle property maintenance
Deal with tenant’s eviction lawsuit proceedings
The guaranteed monthly rent will be below the property’s market value. The success of rental property revenue will depend on the middle tenant’s ability to generate profits that cover all the expenses.
Guaranteed rent scheme vs. rent guaranteed insurance
Rent guarantee insurance assures the landlord that if tenants fail to pay, the insurance will certainly pay out. The policy is purchased right from the start of the tenancy to cover the landlords.
The tenant and landlord have a direct relationship with rent guaranteed insurance policy, even if the landlord hires a property manager. Many policies include legal fee coverage in case of eviction process to recover vacant possession.
The landlord does not have a direct relationship with tenants in the guaranteed rent scheme. The middle tenant is responsible to make rental payments despite the sub-renter being in arrears or the property being vacant or there is an eviction process ongoing to recover vacant possession. He recovers the arrears and vacant possession from subtenants in the landlord’s property.
Why are landlords interested in a guaranteed rent scheme?
Fixed on-time guaranteed payment
The landlords in the UK get their rent on time because the middle tenant is liable to pay. The landlord does not need to get stressed in collecting rent. For tenants, there is rent guarantee insurance, which ensures guaranteed payment.
No property management stress
A guaranteed rent scheme eliminates the stress associated with property management and maintenance for UK landlords. Handling the tenant’s inconvenience is time-consuming and loaded with stress, which the third party will handle after the signing of a guaranteed rent scheme contract with the landlord.
No worries about compliance
The landlord is responsible for safety & health regulation compliance. However, when the landlord enters into a guaranteed rent agreement the job of regulation compliance is passed on to the middle tenant.
Other accompanied benefits
Landlord receives monthly revenue even if the property is vacant, which means there is no void period for the landholder.
It ensures predictable and regular cash flow. There is hardly any risk of handling the arrears.
No stress of handling repairs, damage, and legal eviction proceedings.
The pitch for a guaranteed rent scheme is enticing to landlords, who have experienced the nightmare tenancy stress. The scheme seems like no risk on paper but it has its share of drawbacks.
The drawback of guaranteed rent-to-rent arrangement
No decision-making power
Get involved in 3rd party scams
The chances that property ends up ruined are high
Poor property management
If your focus is to stay away from daily tenancy operations and minimize void and arrear risk then choose to sign a guaranteed rent contract. Ensure to choose a smart middle tenant!