Can Letting Agents Charge A Fee For A Tenant Reference?


Agreement

Tenant referencing is an essential part of the rental process and can give a letting agent and a landlord an indication as to whether a potential applicant will be a good, reliable tenant and take care of the property. The main question, however, is can a letting agent charge for tenant referencing?

Letting agents can charge landlords a fee for tenant referencing. Under the Tenant Fees Act 2019, a letting agent cannot charge a tenant a fee for a reference. The cost of referencing and other fees associated with setting up, renewing or ending a tenancy, is the responsibility of the landlord.

Tenant referencing takes both time and money, so a letting agent or landlord should not start the referencing process until the prospective tenant has been selected.

During the property viewings, it’s a good idea to confirm any details with the prospective tenant, that they may have provided when booking the property viewing. Refer to any notes and confirm the date that they would like to move in, the number of tenants in total if they are part of a family, their employment details and any other important information that they may have provided.

This is also a great time to remind the prospective tenant, or make them aware, of your rental policies and and any limitations you may have regarding pets or other important issues.

As a landlord, you will be keen to sign the Assured Shorthold Tenancy (AST) agreement with the tenant, as soon as possible, so that the rent payments can start rolling in. But DO NOT skip the process of tenant referencing as it could cost you dearly in the long term. No tenant is better than a bad tenant!

Pacific Heights Movie Poster

Have you ever seen the film ‘Pacific Heights’ starring Melanie Griffith, Matthew Modine and Michael Keaton?

If not, I can highly recommend it as part of your landlord education. It’s a great psychological thriller about a tenant who terrorises their landlord, which all comes about because he wasn’t referenced properly before moving in. You can watch it on Amazon and you will be duly warned!

What Is Tenant Referencing?

Tenant referencing is a tool that landlords and letting agents use to make an informed decision about a prospective tenant. It will give an indication of the tenants past behaviour in previous rented properties, whether the rent will be affordable and whether they will be a good neighbour to others.

Letting agents and landlords also want to do all they can to make sure that the property will be treated with respect, and that the tenant is likely to leave the property in the same condition as when they moved in, when they eventually move out at the end of their tenancy agreement.

There are several forms of referencing:

Landlord Referencing

This involves contacting the tenant’s previous landlord to discover how they behaved as a tenant. By doing this, they can tell you if the tenant paid their rent on time, if they took care of the property and any other information that might influence the decision.

There are a couple of things to note though. A tenant who is reluctant to give details of a previous landlord should raise a red flag. And a landlord who is currently accommodating a tenant may sing their praises to simply get them out of their rental property. Ideally, you want to contact the landlord prior to their current landlord to get an honest reference, if at all possible.

Credit Check

This will identify if the prospective tenant has a history of not paying their bills on time. In this instance, any County Court Judgements, bankruptcies and insolvencies will be identified. Essentially, you will know whether the prospective tenant is responsible with their finances.

Tenant Affordability

In most cases, the tenant’s income should be more than two and a half times the rental amount.

Recent wage slips or bank statements can prove the tenants current income and confirm their affordability. And a written statement from their employer, backed up with a phone call to ensure they are in permanent employment, and that they are unlikely to leave or be made redundant in the near future.

Right To Rent Check

Right to rent referencing is conducted to confirm whether the potential tenant is legally allowed to rent a residential property in the UK. The Right To Rent Scheme was introduced on 1st February 2016 and instructs letting agents and landlords to undertake passport and immigration checks prior to letting property within the private rented sector.

Referencing does not guarantee that you will not have any issues with your new tenant in the future, but it does reduce the risk that they will cause you and others problems.

What Options Do Landlords Have For Tenant Referencing?

Landlords have 3 options for referencing tenants; reference the tenant yourself, use a letting or property management agent, or a third party.

How To Reference The Tenant Yourself

  • Request a photo ID – Either a full driving licence or a passport.
  • Proof of address – 2 forms to prove the current address including utility bills, council tax bill and/or current tenancy agreement.
  • Proof of income – Either 3 most recent wage slips or bank statements in which the salary is paid into.
  • Employers reference – Including length of service and followed up with a phone call to check they will likely remain in permanent employment.
  • Landlord’s Reference – Ideally from a previous landlord and not the current landlord.
  • Credit Check – There are a number of online services that can provide a credit check from as little as £6 (at time of writing). The services will walk you through the process of completing forms and gaining the tenants permission.

The whole process of tenant referencing takes time, so it is understandable if landlords do not want to do the work themselves. I certainly don’t. I always seek the services of a professional to carryout the referencing for me as I know it will be done thoroughly. This brings me to the other 2 options.

Letting Or Property Management Agent

Most likely to be the more expensive of the 3 options, but if you are using a letting agent to market your rental property, they will most likely include a tenant referencing service as part of their set-up fees.

If you opt for a full management service, the initial tenancy set-up fees will likely reduce or be absorbed into the monthly management fees.

Always confirm the letting agents fees before agreeing to work with them. I have written a helpful guide packed with many other tips if you are considering searching for a letting agent.

Third Party For Tenant Referencing

There are many independent tenant referencing companies which you can access online through a simple search. In fact, these are most likely the services that high street letting agents use and charge you a handsome fee for. 

If you are comfortable with marketing your buy-to-let property and conducting viewings yourself, using an online service is a fast, thorough and a cost effective way of referencing your prospective tenant.

On the subject of marketing your rental property yourself, take a quick look at my recommended online letting agent, OpenRent, if you haven’t done so already. You will see how much money I saved in a year compared to my previous high street letting agent.

If you decide it’s not for you, at least you will have taken the time to consider whether managing the property yourself is right for you

Letting Agents And Landlord Fees For Tenants

The Tenant Fees Act which came into force on 1st June 2019, prohibits letting agents and landlords from charging prospective tenants fees for setting up an Assured Shorthold Tenancy agreement within the private rented sector. A breach of this Act could incur civil penalties and criminal sanctions.

The Tenant Fees Act 2019 bans:

  • Referencing Fees.
  • Administration Fees.
  • Credit and Immigration Checks.
  • Renewing a Tenancy when the fixed term contract ends.

Fees in which a letting agent or landlord can still charge a tenant include:

  • The rent.
  • A refundable tenancy deposit of no more than 5 weeks rent where the annual rent is less than £50,000 or 6 weeks rent where the annual rent is £50,000 or more.
  • A refundable holding deposit for reserving a property that is no more than a week’s rent.
  • A fee for late payment of rent that is 14 days or more overdue (if mentioned in the tenancy agreement).
  • Payments for early termination of a tenancy, when requested by the tenant.
  • Payments for utilities such as communication services, TV license, council tax, and other utilities like gas, electricity, and water if they are provided.
  • A fee for the replacement of a lost key/security device, where required under the tenancy agreement.

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Andy Walker

A Property Investor and Landlord with over 16 years of experience, providing free education and helping others to start or improve their Buy To Let business. More info on my About Me page.

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