Rent-to-Rent Model Faces Ban by New Bill

Levelling Up and Housing Secretary Michael Gove is set to outlaw the controversial rent-to-rent business model adopted by thousands of landlords.

Rent-to-rent is likely to suffer as an unintentional consequence of reforming tenancy agreements by the Renters (Reform) Bill, which is currently passing through Parliament before becoming law later this year.

The rent-to-rent investigation is headed by the National Trading Standards Estate and Letting Agency Team.

The probe will examine rent-to-rent deals that thousands of landlords favour to remove the financial uncertainty of renting out a home.

Instead of dealing directly with tenants, the property owner leases the home to a subordinate landlord on a fixed-term agreement. The subordinate landlord guarantees a discounted rent while managing the property.

Fixed-term tenancies to be abolished

But under new tenancy rules in the Renters (Reform) Bill, fixed-term tenancies will be scrapped in favour of rolling agreements. The change in status is likely to make rent-to-rent untenable for landlords as they rely heavily on fixed-term contracts.

Many reputable companies and councils run successful rent-to-rent schemes, but some tenants suffer from unscrupulous operators who let poorly maintained homes.

Some landlords do not realise their properties are sub-let until something goes wrong and the tenant calls on them to fix the problem.

The Renters (Reform) Bill includes a clause that holds a superior landlord responsible for an inferior landlord.

The superior landlord is the property owner, while the inferior landlord takes on the sub-letting.

Tenant compensation to double

If a landlord is penalised for a housing offence, like running a shared house in multiple occupation without a licence, the tenant can reclaim up to a year’s rent as compensation. The Renters (Reform) Bill will double the punishment to up to two years of rent.

Superior landlords must pay the RRO compensation regardless of receiving any rent collected from the inferior landlord.

One of the largest rent-to-rent operators is Northwood Estates. According to the firm’s website, the agency works with over 10,000 landlords.

The scheme works by Northwood becoming the landlord’s tenant. The firm pays ‘slightly’ less than the market rent for a home, but the payment is guaranteed for the length of the tenancy. The rent is paid if the property is empty or if the tenant sub-letting to the agency is in arrears.

Northwood pays maintenance and any other costs arising from the tenancy.

“Our model is honest and genuine, and we are members of a redress scheme,” said the firm’s managing director, Phil Gee.

“We believe the sector should be regulated and for standards to be higher for everyone – we certainly hope the government wouldn’t outlaw it.”

Rent to rent FAQ

Are rent-to-rent deals illegal?

Rent to rent is not illegal, but some rogue landlords who sub-let homes for rent-to-rent fail to look after properties and exploit tenants. When the tenants report the landlords to local councils or trading standards, they disappear and leave the superior landlord to pay any fines.

What was the Rakusen case?

Rakusen v Jepsen and others was a rent-to-rent dispute. Michael Rakusen was a superior landlord ordered to compensate tenants by a rent repayment order. Rakusen argued he was not responsible as another landlord who sub-let the property was below him in the chain and was paid the rent.

What are the rent-to-rent risks?

The main risk is a landlord losing control of their rental property to a rent-to-rent landlord. Many cases go to court where a buy-to-let home has been turned into an unlicensed shared house without the knowledge of the superior landlords, who could be fined for housing offences they were unaware of. Rent to rent without permission can also invalidate mortgage contracts and property insurance.

When will rent-to-rent be abolished?

The timeline is unclear, but the government hopes to pass legislation before the next General Election, which is expected in the second half of 2024.