12 Jul 2022
It’s no secret that rogue tenants lead to significant financial losses, and is felt in bulk by the landlord, yet research from Credas Technologies, the leading identity verification checks provider, reveals much more.
Allowing a rogue tenant to slip through the AML net can come at a significant cost to letting agents, ranging from loss of income to legal action and a tattered reputation.
Kicked to the curb
The study carried out estimated that the average rogue tenant occupies a property for up to a laborious 9 months. If, during this time they refuse to pay rent, the financial loss to both the tenant and letting agent can be substantial.
In fact, it would total £9,927 in lost rental income, based on the current average UK rent.
However, if you think that’s where the costs stop, you’d be wrong, because a rogue tenant might also cause intentional damage to a property.
The expense of rectifying such damages can burn a hole into your pocket, adding up to thousands of pounds when coupled with the price of legal fees required to go through the eviction process (£1,765). The entirety of costs that a rogue tenant can rack up could climb to a gut-wrenching £34,797.
This will, of course, rise and fall depending on the price of rent; in London, for example, the overall cost of a rogue tenant comes in at an average of £41,358.
Agents just as affected
The financial loss caused by a rogue tenant will often hit a landlord’s pocket the hardest, however, the agent responsible for letting and managing the property can also face some serious consequences.
Foremost, their relationship with the landlord may deteriorate, which could cause them to lose out on future business as well. It was, after all, the letting agent who allowed the rogue agent to move into the property.
With property AML due diligence, which is a legal requirement, the agent should have been able to prevent such an ordeal from occurring.
Tim Barnett, chief executive officer of Credas Technologies weighed in on the subject, and commented: “There is not a letting agent in the country who wants to let a rogue tenant occupy their client’s property and it remains one of the most time-consuming, stress-inducing and costly mishaps one can make.”
“Unfortunately, we’re not talking about the occasional rotten apple who refuses to pay their rent, we’re talking about professional criminal organisations. Organisations who utilise the property as a base for their own financial gain and criminal activity, while often leaving a wake of destruction in their path.”
“Such organisations have constantly evolved to ensure they appear as legitimate as possible, with forged identities, references and financial histories and these fraudulent personas can be extremely hard to detect for those not professionally trained to flag them.”
Agents also run the wider risk of reputational damage, but even if a rogue tenant results in the loss of simply one client, the financial repercussions are still significant.
Barnette concluded: “While customer due diligence may be treated as a legally required box-ticking exercise for some agents, it plays a vital role in the war against this illegal rental underworld and can prevent agents from incurring serious financial and reputational damage.”
If finding tenants and collecting rent rested on the agents’ shoulders – for which the average monthly fee is 8% – then the annual loss amounts to an average of £1,059. Another responsibility of an agent could be to manage the full property – for which the average fee is 15% – then this annual loss increases to £1,985.
The odds are also that the landlord could file a negligence claim against the letting agent. This might be aimed at a breach of service contract, or on breaking the Sale of Goods & Services Act 1982.
If a landlord chooses to claim that, by allowing rogue tenants to occupy their property, the agent will be held responsible for failing to act with due skill and care.
The problems don’t stop there either since this could further lead to a complaint being made to the Property Redress Scheme or the Property Ombudsman – the result of which can be in a form of a fine as well as exclusion from the organisations.
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