Landlords beware – fraud is growing in the rental sector
There definitely seems to be a direct correlation between the lack of properties available for people to rent and the increase in fraud. Some you can put down to naivety but we are finding growing sophisticated means of trying to obtain a property as well as staying in a property once notice has been served.
However, it must be remembered that the vast majority of people that want to rent a property are very honest and straightforward. What I am going to be talking about is how you can easily fall into the trap of the ‘professional tenant’ – the type that knows exactly what they are doing and how they could bend the law to suit themselves – which could be very expensive if you don’t take the right protection.
Since we opened our doors in 2005 we have set up nearly 6,500 tenancies – so you could say that we have seen it all. This does make it easier for us to sort out a straightforward application for a property from the ‘professional tenant’. Even so, fraudsters are clever, so we remain vigilant! A ‘professional tenant’ could cost quite a bit in both time and money to deal with. Recent research by several PropTech firms concluded that the average cost to remove a rogue tenant is around £30,000 when lost rent and legal fees are considered. We haven’t seen that sort of cost locally but the time and effort to remove someone from a property has reached about £8,500, which is not to be sniffed at.
The most obvious spot is a fake bank account and payslips. When we reference a prospective tenant, we look to view both to prove income. If the dates and amounts do not match, questions are asked and the referencing goes deeper. We scrutinise bank statements to check the applicant’s income and expenditure. The statements should reflect a real person living their life. Any irregular ‘special’ arrangements should set alarm bells ringing.
Case study
We found who we thought was a perfect tenant for a property. On paper he was lawyer and totally charming. However his first payslip came from a cleaning company which, when we looked at Companies House, had not traded for some months and certainly did not have the turnover to justify the ‘salary’ he purported to be earning. This was explained away in a very believable way that he had just started the cleaning company as a sideline and didn’t realise that we needed proof of income. We were then offered 12 months rental up front which would have amounted to £24,000. At this point some landlords see the money and will accept the up front payment. As far as we were concerned there were two issues:
- Potentially money laundering
- There was no guarantee that rental will be paid on the 13th month.
Why didn’t we take the offer? Our ‘lawyer’ was very active on social media and his LinkedIn profile mentioned a few companies that he worked at. They confirmed he was a temp.
We obviously did not proceed!
Why is tenant fraud on the increase?
Initially we saw this happen on higher-end properties (above £2,000 per month), but now we are starting to see applications that don’t add up on properties of £1000 per month – the average rental for a 3-bed semi in our area. We think this is happening for several reasons:
- Many people are simply not making the money they need now, and so are not honest in their tenancy applications.
- Scammers are aware that landlords currently have less power to evict fraudulent tenants. Accordingly, many are renting properties with the intention of illegally subletting them to make easy money, or not paying rent.
- In a worst-case scenario, scammers will lose their holding deposit, but there’s little to de-incentivise them from making further fraudulent application.
- The Tenant Fee Act means that a prospective tenant has no costs when applying for a property – therefore they have nothing to lose.
- There are fewer properties on the market and therefore people think that they can falsify documentation to be chosen. And believe me, the falsifying of documents is becoming more sophisticated.
How to avoid rent fraud?
The obvious answer is finding the right tenant. And let’s be honest, most tenants are honest and truthful – but there are some bad apples out there and if you are taken in, it could cost you dearly.
Initial screening
This is so important. If you miss this part because your prospective tenant is a friend of the family say – you will put yourself at risk. We have a two-part assessment. The first on the telephone, the second when we meet the applicant (prospective tenant) for the first time. We have a list of questions that we ask at both meetings. They are the same questions, and we usually get the same answers.
Those that are trying to fool the system usually get caught out at this point. We had a classic example last year, where we were told in the initial telephone conversation that the person applying for the property had lived in the same home for the last five years. When it came to meeting in person, we found out that they had had several addresses. This obviously did not feel right, so we did not proceed with their application.
Heart rendering stories
Sorry to sound cynical but sometimes you may be faced with people in awful circumstances. The professional tenant will play on this. So, you need to have your business head on if you are faced with this sort of situation.
Referencing
We have mentioned above that fake documents are out there. We have a seven-point process when we look an individual’s references. You need to make sure that your due diligence covers every aspect to make sure that the information you receive is legitimate. Vigilance is the word here.
Dealing with directors of companies / self-employed
Companies House gives you a wealth of information for free, such as when the company was incorporated and what accounts have been filed. We recently had an application from a director of a cleaning company, but the payslips provided didn’t match the company.
Use of social media
I am always surprised that even the cleverest of criminals (let’s be honest, that’s what they are) forget that they leave a trail on social media. You can find out a lot about your prospective tenant by spending ten minutes on general searches. Whatever technology you use make sure that you are looking out for the scammer. They are the minority, but if you end up with one in your property, it can be very expensive.
Payment of rent in advance
This is something we no longer accept as there are too many pitfalls. Admittedly this makes things very difficult for people coming from overseas, and I am sure that we have missed out on some very honest people. But we put you at risk if it goes wrong.
Make sure you have suitable legal expenses and rent protection insurance
Apart from dealing with ‘professional tenants’ the Renters Reform Bill will be changing the way that you can gain vacant possession of your property. What we do not know yet is how the new system will work. It is proposed that it will be via a digital platform rather than going through the court system. Sounds great for the future but it is one of the big unknows. My suggestion rather than wait to find out what will happen, make sure that your landlord legal protection gives you the cover you think it does. To find out more about the policy we offer under One broker, click here.
If you want to know more about how we make sure that we help you find the right tenant, just give us a call on 01480 494939.
