Rent to rent - HMO, council tax and poor service

Key topic:

The complainant (landlord) said:

this was a guaranteed rent agreement, so the agent has been collecting the rent and transferring it to her each month
for the last nine months, she has received no rent, which she is entitled to as the owner landlord. The current amount outstanding is over £16,000
she did not break the terms of the management agreement, and the management was never terminated
she did not believe her property was an HMO and it is the tenant who should be paying the council tax
the agent has not provided the gas safety certificate, or the inventory report as requested
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the landlord breached the management agreement on several occasions, so they terminated the contract seven months ago
as the agreement had ended, there was noon-going responsibility to continue providing management services
the landlord was provided with a breakdown of the outstanding rent and payments made at the time
as the landlord has no contractual agreement with the tenants, she is not entitled to the rent
the landlord is responsible for paying council tax as the property is an HMO. As this was not paid, they have been financially affected
they provided the best possible service and even offered the landlord a new contract as well as a financial remedy but received no reply to any emails

Management agreement, tenancy agreement, email communication, rent tables, bank statements

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Outstanding rent and management fees

The property was let to the tenant on a ‘guaranteed rent’ and ‘sole management’ basis which was confirmed in the agent’s management agreement with the landlord owner
By asking the tenants to pay her the rent directly or asking to inspect the property, the landlord was simply attempting to minimise the on-going non-payment of rent and management fees which the agent was not passing on, to avoid financial loss
There was no evidence to support any breach of contract by the landlord, and the management agreement is still in place
The evidence showed that the agent was willing to continue their agreement
The decision was that the agent must settle all outstanding amounts, which included an amount of £500 penalty fee deducted by the agent for the landlord’s alleged breach of contract, together with all future payments in a reasonable time, until the agreement is legally ended

Missing documents

The landlord was entitled to have the gas safety certificate and inventory reports
The decision was for these to be provided to the landlord owner

Council tax

The landlord was advised that while the property is an HMO, by definition, it is not a large HMO or in an area which requires a licence
The management agreement included a clause which made the agent responsible for passing on the tenant's details to the council, for council tax purposes, and the landlord was entitled to believe this was done
At no time did the agent make the landlord or tenant aware that the council tax was outstanding and increasing with time
With no evidence that the council tax has been paid or that the agent has suffered any financial loss, the landlord was not found to have breached their management agreement in relation to this issue
In terms of paying council tax, the agent was to:
1. contact the council immediately and provide them with the resident tenant's details for future payments
2. compensate the landlord with the outstanding council tax so he can settle the account up to date
The agent can then decide whether to take legal advice and recover this amount from the tenant themselves

Poor service

The agent provided late or no replies to emails from the landlord
The agent's attempt to transfer the tenancy into the landlord owner's name, in effect, broke their own agreement and was bad practice
Compensation was an appropriate remedy for these

There are numerous key points to setting up a ‘guaranteed rent’ agreement where an owner landlord effectively rents out the property to an individual or company who then acts as an agent landlord by renting it out to a sub-tenant. While this provides a hands-off way of renting your property, all landlords, agents and tenants thinking about this business model should make sure they are fully informed of all the legal implications before doing so, as tenants found by the agent can only be managed by the agent and the landlord cannot take over the rent collection or the management of the property.
The definition of an HMO is a property consisting of at least three people from at least two different households; a large HMO is defined by the government here https://www.gov.uk/private-renting/houses-in-multiple-occupation. Depending on the type of HMO, you may require a licence. There are severe penalties for not having a licence including unlimited fines and this will ultimately be the owner landlord’s responsibility.
Any owner landlord considering letting out their property on a 'guaranteed rent' or 'rent to rent' basis should be aware of the HMO rules and licensing requirements in their area.
All aspects of the agreement, including the service provided to the owner landlord and the payment of rent and fees, should be made in a timely manner.