Why benefit tenants are the buy-to-lets one-armed bandit
If you want to evict your tenant as a buy-to-let landlord, be prepared for a total bill of almost £7,000 if your tenant goes to the local authority for advice. That’s the conclusion of a new study by the National Landlords Association, which collated more than 1,700 responses from landlords and tenancies during the second quarter of 2016. It appears that local authorities are telling tenants to stay put after being issued with a section 8 or section 21 notice.
In this article, I’ll look at the experience of one buy-to-let landlord who found herself in this position. I’ll also look at the proposed Homelessness Reduction Bill, and whether it will achieve what it hopes to. Finally, I’ll look at a few golden rules that could work to eliminate the chance of you finding yourself in the same situation as Cheryl – with tenancies that won’t move on.
Cheryl’s ideal tenant turns into a buy-to-let landlord’s nightmare
When we first met Cheryl, she’d just come through a very messy − and costly − eviction process. She’d had what she thought was an ideal tenant, who had come with a guarantee of paying his rent – he received housing benefit. ‘What could be more secure?’ she thought.
Satisfied that she had found the ideal tenant, Cheryl let her property to him. For a few months, all went well. Then the tenant was late with a rent payment. Then he missed one. And another. When Cheryl confronted her tenant, he only told her that he didn’t have the money to pay. “I’m on housing benefits,” he told her.
“I don’t understand,” Cheryl had pleaded. “Why aren’t you paying me?”
It turns out the tenant had been pocketing the housing benefit that he should have been paying to Cheryl.
Don’t expect any help from the local authority
Cheryl first approached her local authority to try to have the housing benefit paid directly. But the council wouldn’t discuss the situation with her. They said that doing so would ‘contravene data protection laws’. They also stated that it wasn’t their business how Cheryl’s tenant chose to spend his housing benefit.
Next, Cheryl began the process of removing her tenant, complying with the rules for the buy-to-let landlord to evict nightmare tenants. She instigated a section 21 notice, giving the tenant two months to leave. He refused, even after the two months. He told Cheryl that she would have to go through the process of evicting him, as the council had advised him to stay put. If he followed the instructions of the section 21 notice and left, the council wouldn’t rehouse him. It would consider that he had made himself homeless!
Cheryl had even waved a letter in front of council representatives. It had been written to all local authorities by the then Minister responsible for the homeless, Brandon Lewis, and reiterated the Homelessness Code of Guidance. It says that local authorities should not (in every case) insist upon a court order for possession. The council merely shrugged its shoulders and stated that they didn’t consider Cheryl’s tenant to be homeless until he was evicted.
The tenant has now left, but Cheryl’s buy-to-let nightmare continues
Cheryl is now pursuing her tenant for costs and rent arrears. She’s also claiming the costs of putting right the damage her housing benefits tenant had left behind. She thinks it will be around two months before she gets a new tenant. This time, instead of doing it alone, she’s using our services to find a tenant and then manage the property and any tenancies for her. She’s vowed never to have a tenant on benefits again.
Will the Homelessness Reduction Bill help landlords?
New legislation is proposed which should help both the homeless and buy-to-let landlord like Cheryl. The Homelessness Reduction Bill proposes a number of new duties for local authorities, including:
- Taking action to prevent the homelessness of anyone threatened with homelessness within 56 days
- Providing emergency accommodation for anyone who may not be in priority but have nowhere to stay
On the face of it, these two provisions should ensure that once section 21 has been issued, the local authority has a duty to rehouse. But, as the Local Government Association (LGA) points out, putting more duties on local authorities isn’t going to solve the underlying issues of housing in the UK:
- Numbers of houses being built are way below the needs of the population
- Social council housing stock has reduced from 3.6 million homes in 1994 to 1.6 million today
- There are 69,000 people currently living in temporary accommodation
- There are more than one million people on council waiting lists
Where does this leave the buy-to-let landlord?
In reality, it’s probable that councils will continue to advise your tenants who are receiving housing benefits to stay put until they are evicted. Without a legal obligation to pass on the housing benefit to you, the tenant has the upper hand:
- He can keep the housing benefit legally
- The council doesn’t have the homes to house him
- You’re left with no other course of action other than eviction
As Cheryl found out to her cost, thinking that housing benefit guaranteed your rental income could be a costly mistake to make. She missed out on several months of rent, had legal costs to pay, and then a clean-up and repair bill that she hadn’t expected at the start of the tenancy.
What can you do to avoid expensive tenancies?
It brings me to what you can do to avoid a situation like the one in which Cheryl found herself. My advice would be to avoid tenants on benefits. I know that’s a pretty sweeping statement, but our experience is that there are more problem cases among this segment of the rental population than any other. Let the council chase their housing benefit in circles.
(In my next article, “Why successful buy-to-let landlord never let to tenants on benefits”, you’ll discover the reasons to avoid tenants who rely on housing benefits.)
On top of this, it is essential that you vet the prospective tenant to the nth degree. Check their credit history, their job history, and contact previous landlords. Speak to their current employer.
Once you’ve vetted the tenant and are happy with their credentials, make sure that your tenancy agreement does what it should: protect you. Use these six tenancy agreement tips to benefit your property management and make sure that you include the ten essential tenancy agreement terms and conditions in the signed contract.
Keep a comprehensive inventory, and conduct regular inspections against the inventory. This will give up-front clues of any problems with how the tenant is treating your property.
Finally, follow these six strategies to avoid buy-to-let disputes:
- Charge the right rent from the outset
- Put a rental review clause in the tenancy agreement
- Have the rent paid by standing order
- Keep comprehensive rent and property management records
- Always get the tenant to sign everything
- Never let the tenant fall behind on their rent
Please feel free to contact us by phone +44 1522 503 717, or use our online contact form for information about our services and how we can help you avoid problem tenancies.
Yours in effortless property management,