Monday, 17 September 2012

PROPERTY ARTICLE: How to negotiate a tenancy agreement. Copyright SvD.

Tenant’s references:

As a landlord, you want to be sure that the tenant will fulfil the terms of the tenancy agreement and be able to pay the rent. Apartment blocks in London are governed by a head lease so if, for example, a tenant throws loud parties until dawn, this is in contravention of the terms of the head lease and can result in the owner of the property, i.e the landlord, facing dire consequences and which could even jeopardise his ownership of the property. So it is useful to check out tenants thoroughly prior to signing a tenancy agreement. Be sure to get an employment reference, bank reference and a previous landlord reference. A former landlord is the best guaranty on how the tenant will behave and treat your property. Be sure to get the landlord reference from the agent (who the tenant rented from)- that way you can be sure the landlord is genuine and not fabricated. Insist that the reference is in writing and follow up by phoning the landlord yourself.

Insist on seeing as many as the last six payslips for the tenant and be sure to get an employment letter. Lettings agents use credit referencing sometimes as their only method of checking tenants – this is wrong. A tenant could have an unblemished credit history but still be a lousy tenant. Satisfy yourself that the tenant has been in employment continuously and it helps to know how long they have worked for their present employer.

A bank reference letter is also a useful gauge – ask the lettings agent to write to the tenant’s bank asking how long the tenant has been a customer and whether he/she will be able to pay the monthly rent by standing order. The bank will usually indicate that given the monthly average in the tenant’s account, it would seem that yes they will be able to pay or not. In my many years as a lettings manager I relied on my intuition and the three reference letters as above. Never did I bother with credit referencing as it means absolutely nothing.

Negotiating the lease:

I have seen a sorry trend of agents who present a standard pre-printed lease that cannot be amended or even challenged by the tenant. This has more to do with the fact that letting agents do not have sufficient knowledge and experience in the law to redraft clauses or terms within the lease that would be binding. I find this a terrible opt out but sadly, this is the world we now live in.

Landlords need to be sure that their interests are protected. The law in England and Wales favours tenants over landlords (which means it is very difficult for a landlord to evict a tenant). However a well drafted tenancy agreement can also protect the landlord’s interests.

Ask for a break clause:

Break clauses are essentially a term at which the landlord or tenant can terminate the lease. The clause usually specifies that either landlord or tenant can give notice at four months –and the notice period is two months. This means that the agreement will come to an end at six months. Therefore a 12 month lease can end at 6 months. Usually the tenant will insist on a break clause, particularly in corporate lets where the tenant (the company) may have to end the lease if the employee (the occupier) is fired or is sent back home. This protects the tenant from having to pay the rent for the unused term of the lease. The landlord can insist on a break clause as well for the same period so that he can end the lease. Tenants usually want to have a break clause but landlords should insist that the clause is mutual.

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