Page last updated at 11:34 GMT, Thursday, 26 February 2009

Perils of the defaulting landlord

By Oliver Brett
BBC News

Landlords renting out properties through agencies are not subject to financial checks. But when they cannot pay the mortgage their tenants are often evicted. Is that fair?

With repossessions on the increase, it is a problem more and more tenants are facing.

Property to let
The rental might look inviting, but bona fide tenants could face eviction
During the good times, estate agents make excellent money from the commission they charge on property sales.

But as Britain gets used to recession, the lower profit margins gained from lettings - traditionally the less sexy side of the business - form the lifeblood that helps keep many of these companies afloat.

This raises the question of how letting agents themselves view prospective landlords, and how much time they spend checking out their credentials and whether or not they are up-to-date with their mortgage payments.

Because it appears that not every homeowner looking for new tenants is quite as solvent as he should be.

The Council of Mortgage Lenders predicts repossessions across the UK this year will reach about 75,000. It could be many more - by the end of 2008, 182,600 mortgages had arrears worth 2.5% or more of the outstanding balance owed to the lender.

And often the last to know about a homeowner's financial problems is the person paying them a regular monthly income - their tenant.

Forced out

Mark Sullivan, a 34-year-old jeweller, began renting a property in Woking, Surrey, with his partner, a hotel manager, in February 2008 before being forced out - through no fault of his own - the following Christmas.

"I went through Townends, a reputable lettings agency, having rented through them before," he explains.

Mark Sullivan
We were credit-checked, had to pay fees and provide proof of income... but they don't do the same thing for the owner
Aggrieved tenant Mark Sullivan

"Almost immediately we started getting letters for the landlady which looked more and more severe. She wasn't contactable at the time - she was in the States."

Attempting to get to the bottom of what was going on became a daily occupation for Mr Sullivan. He contacted a debt-collecting agency who were writing to the owner, and eventually discovered that she was four months behind with her mortgage payments.

When the bank finally gave up the battle with his landlady, Mr Sullivan was given only two weeks to leave the property and find somewhere new to live.

He reckons the experience cost him about 3,500 at the time - and he was forced to borrow from his mother to tide him over - although he was able to pay her back when his deposit was returned by Townends.

But what really rankles with Mr Sullivan is the way agencies treat tenants compared to owners.


"We were subjected to credit-checks, had to pay fees, and provide proof of income, but the most annoying part of it is that they don't do the same thing for the owner."

So what is the position of Townends? Its lettings director Caroline Kavanagh declined to comment on Mr Sullivan's case, arguing it would be "unreasonable" to do so. She points the fingers at the banks.

"We completely feel for any tenants in this situation but would look towards lenders to take some responsibility to stop that happening.

A landlord might think one of the best ways to sort themselves out is to get a new tenant in
Simon Gordon
National Landlords Association

"Credit checks are not something any agent would do on a client. Landlords sign a contract, and have to make sure everything runs smoothly, and we conform to a code of conduct.

"Agents, who are caught in the middle, will always do whatever they possibly can. But ultimately the ball is in the lender's court - they make the conscious decision to evict the tenant."

The government says legislation coming into force in April "could entitle" tenants to up to seven weeks' notice in this situation - and it is also considering reforms to give more protection to tenants.

The homeless charity Shelter, observing a "steep rise" in the number of tenants affected in this way, says it is high time too.

"Entirely blameless individuals are becoming homeless," said Shelter's chief executive Adam Sampson.

Short supply

"The government must act quickly to give tenants in those circumstances far, far longer to find themselves somewhere else to live, in a market where housing is in desperately short supply."

While there is every suggestion agencies are complying with their code of conduct, until something significant changes, however, tenants will continue to be at risk.

Take the case of Steve Donnelly, a 39-year-old electronics engineer renting a three-bedroom townhouse in Bradford with his partner and two children.

"It came as a complete shock when the debt-collecting agents started knocking on the door," he said. "It turned out that the landlord had purchased two properties on the street but never paid a penny on the loan, and then went to Africa, while myself and our neighbours paid the rent for six months."

He took the decision to move out himself, rather than wait for the inevitable eviction.

"One letter from the mortgage company addressed to us said the landlord had been taken to court and we might have to move out straight away. We were quite surprised because we went through Whitegates, which is quite a big company."

The stress for Mr Donnelly and his family took a fresh turn when bailiffs began appearing on his doorstep, and on one occasion a tow-truck attempted to remove his own car.

Whitegates was unavailable for comment, although Mr Donnelly does say everything was resolved "amicably".

Simon Gordon, head of communications at the National Landlords Association, said there would always be some landlords who "might act unscrupulously".

But he added: "You would expect landlords to want the tenants to pay the rent because that might help them pay the mortgage.


"If the property is about to be repossessed it would be injudicious to take on a tenant but if the lender is prepared to back off and say 'we will go on for a few more months' the landlord might think one of the best ways to sort themselves out is to get a new tenant in.

"Lenders who end up with a repossessed property can appoint somebody to continue to take the rent so the tenant would be paying the rent to a third party appointed by the lender - you can avoid the ultimate situation."

Of course, as Mr Gordon is naturally keen to point out, there will always be tenants who fail to pay their rent, consequently putting pressure on landlords already feeling the economic squeeze.

Although is hard to establish which side of the partnership is suffering the most at the moment, renting - even through a reputable agent - does not guarantee a roof over your head, it seems, whether or not you pay on time.

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