Landlord should always reference tenants, even if they know they from before the tenancy, such as family and friends.

Landlords: Don’t Skip Referencing Just Because You Know the Tenant

As a landlord, your primary concern is to see your property occupied and generating a consistent income. While short-term vacancy is more of an inconvenience than ruinous, a bad tenant can cause long-term financial damage.

You might think an approach from a family member or friend to rent your property is, therefore, a win-win situation; you trust them, and they will surely look after the place for you because of your relationship.

However, while this is all well and good in most cases, things are not always as they seem. How much do you really know about your family member or friend’s circumstances and their ability to pay? Do they have the income they say they do? And have they looked after rentals before?  

Referencing will give you key insights into all these questions. Even better – if the tenant passes referencing, you’ll be able to take out rent guarantee insurance. This means that if they stop paying, you’ll still receive your income. This insurance will take a lot of pressure off your relationship if your friend or family fall on harder times halfway through the tenancy. 

Use OpenRent’s industry-leading referencing service. All you need is the tenant’s name, email and permission.

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Why Landlords Need References, Even From Friends

When things go wrong, the integrity of your rental can disintegrate fast. A late monthly rent payment can soon become regular, and the property itself might fall into disrepair. Your friend might not report important structural issues (like leaks that need fixing quickly) because they don’t want you to think they have damaged your property (and so damaged your relationship). 

Many landlords have buy-to-let mortgages to pay and rely on their rent as a form of income. Problematic tenants can have a severe effect on your livelihood and mental health – and the problem is multiplied when personal relationships are in play. 

This worst-case scenario as a landlord is losing thousands on lost rent and eviction costs. Getting references before handing over the keys of your investment helps prevent this but gives you more information that you can then use to judge how sensible it is to rent a house to your family members or friends. 

Employer reference

It’s not unheard of for people to claim they work for a particular company full time when, in fact, they may only be a part-time freelancer or have even left the business. An employer reference will determine that your prospective tenant is employed and that there is no immediate prospect of that situation changing.

A guarantor reference

If your friend or relative is not fully employed or you have concerns that they may not meet rental payments, then you can insist on a guarantor, who will pledge to step in and pay if there is a problem. Be sure to reference the guarantor, as well, as they won’t offer much security unless they can pass referencing.

Financial checks

A professional reference check will include an affordability assessment using the tenant’s income. If you don’t want to go through a professional reference check, then you could ask your friend or relative to show you a bank statement to prove income. They can redact any sensitive info – as long as the monthly payment from their employer of business is visible, you can be confident of income.

Using a Professional Referencing Company Saves Any Awkwardness

Although you might feel uncomfortable seeking personal and financial references from a friend, you will find most people accept the request for what it is: part and parcel of the rental process. When you think about it, they might only object if they have something to hide, in which case, it’s better to find out at this early stage. 

If you use a professional company, then it will be them who asks your friend the personal questions; even though you see their answers on the report, this will save you getting into any awkward situations in person, which can be invaluable!

By going through the formalities of reference checks, you put things on an official footing from the off. Better still, you will feel less awkward about asking them to sign a tenancy agreement which will protect both parties formally during the period of the rental.

You might have heard of horror stories of a friendship souring and that friend refusing to budge from a property. With no formal tenancy agreement in place, this makes everything messier for you as the landlord.

Suppose by chance your request for references offends your friend. In that case, you can have the ideal excuse up your sleeve for pressing ahead regardless – you need references for insurance purposes.

Rent Guarantee Insurance: the Perfect Excuse to Reference Friends

Rent Guarantee Insurance (RGI) is a back up to ensure that if your tenant does run into difficulty, or simply stops paying rent, you are not out of pocket. Rent Guarantee Insurance is a small price to pay for peace of mind.

At OpenRent, we offer Rent Guarantee Insurance covering tenancies with rental amounts of up to £3,000 pcm. Our policy not only safeguards your rent but also covers your legal expenses in the event of an issue.

Other benefits include:

  • 14-day free cancellation
  • Monthly rent guaranteed up to £3,000
  • Up to £50,000 total cover
  • No excess requirement
  • Free legal helpline
  • The policy remains in place if tenants change (subject to referencing and admin fee)

In order for tenants to qualify for RGI they must pass comprehensive referencing, or have a guarantor do so in their place, so RGI is another good reason to reference any friends or family that you may like to rent your property to.

You can read all about our Rent Guarantee Insurance here.

What About Asking for a Deposit?

It’s a no-brainer to seek a deposit from any tenant to pay for any damages or repairs when they move on. Having sought references and produced a tenancy agreement for a friend or relative, it’s a natural next step to ask for a full deposit. Five weeks’ rent is the maximum that landlords can take as a deposit due to the Tenant Fees Act.

Even if it seems awkward to ask for a deposit from someone you know well, it is much less awkward to make a deduction at the end of a tenancy than to be chasing them for money which they refuse to pay. This is another area where being professional in the beginning saves many problems down the line. 

Don’t Cut Corners — Even for Friends and Family

You will have worked hard to get a rental property, so it’s only fair you get paid by tenants who look after your investment for you. Just because your potential tenant is a friend or relative, you still need to earn money from your investment. This isn’t a favour – it may be your entire income. So don’t leave it to chance!

Tactfully obtaining the references we recommend in this article will give you peace of mind. Don’t forget you can use insurance as the excuse for getting those checks carried out.

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This article is not intended to form legal or investment advice. Investments in property are not guaranteed and can decrease in value as well as increase.

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