The weakness inherent in the rent-to-rent model have been exposed by the rent arrears caused by the economic downturn created by the Covid lockdowns, the annual report from redress scheme the PRS has revealed.
Rent-to-rent is where a landlord permits a third party – usually a letting agency – to take over the management of their property in return for a ‘guaranteed income’.
The letting agent then makes a profit on the difference between the income paid to the landlord and the rent charged to the tenants. The properties are often operated as HMOs.
But the profits can be thin and the PRS says that last year rent-to-rent was the only sector where it saw a large increase in complaints.
Landlords have been left high and dry during Covid by failed third-party firms and agents engaged by them to operate a rent-to-rent agreement – largely because losses from rent arrears rendered these types of agreements uneconomic.
“Many of these [rent-to-rent] businesses struggled during lockdown and the increase in rent arrears that resulted during the pandemic led to a lot of problems,” says Sean Hooker, Head of Redress at the PRS (main picture).
Read a recent case we reported on about a landlord trapped in a dodgy rent-to-rent agreement.
The PRS annual report also warns landlords and letting agents that the private rented sector is ‘on the cusp of dramatic reform’ when the Government’s Renting Reform Bill proposals are unveiled in the Queen’s Speech next month.
Membership
During 2021, the PRS had a membership of 16,272 estate agents, an increase of 9% on 2020 and of whom 81% are letting agents.
Landlords may soon have to join a redress scheme too – assuming proposals to include landlord redress in the Bill come to fruition.
Complaints about agents increased by 2.4% last year to 1,872. In lettings, the top complaints by landlords and tenants about agents were a lack of ‘duty of care’, disputed terms of business and disputes over tenancy agreements, completing inventories and deposits.
The report also includes a case study involving a disputed £9,600 ‘sourcing fee’ charged by an agent to a rent-to-rent property, a case that highlights the world of such sourcing fees but also, in this case, how the description of the property failed to reflect the true condition of the property.
Read the PRS annual report in full.
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