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Responsible referencing

Letting agents’ failure to meet their obligations under the Property Ombudsman’s Code of Practice has resulted in a surge in complaints relating to tenant references. Appropriate referencing procedures are crucial for any professional lettings firm, regardless of their experience, warns Christopher Hamer.

I am dealing with a significant number of cases brought by landlords who are concerned about the reference details provided to them by letting agents. This reinforces the importance for any letting agent to firmly understand what their obligations are under my Code of Practice, and what they should see as best practice if they are not members.

The landlord’s property is of course a significant asset, hence it is only reasonable that they should want to ensure that it will be let to a responsible tenant who will pay the rent and ensure that the property is kept in good condition. The purpose of referencing is to satisfy the landlord that the prospective tenant appears to be of good character and has the financial ability to pay the rent. Undertaking appropriate referencing procedures is one of the most crucial responsibilities of any letting agent.

Prudency

When considering any complaint concerning referencing, I expect to see evidence that an agent has obtained prudent references, either themselves or through a recognised referencing provider. As a minimum standard, I expect an agent to obtain a reference from a previous landlord; a bank reference showing the prospective tenant’s financial ability to meet the rental commitment; a character reference; and a credit reference detailing whether the tenant has any outstanding financial obligations, for example County Court Judgments. If any of this information appears dubious, I expect an agent to alert the relevant parties to this while investigating the issue further, which may involve obtaining more details to clarify the situation.

Representation

Letting agents are acting on behalf of their landlord clients, so it is sensible for them to explain this to prospective tenants, advising that all information provided will be discussed with the landlord. Prospective tenants asked to pay for referencing must be told in writing that no refund will be made if the references fail to meet the required criteria.

It is the landlord’s decision, and not that of the agent, whether or not to accept a prospective tenant. However, the agent must ensure that the landlord is in a position to make an informed decision. I expect agents to inform their landlord clients of all information they receive. Specifically, if a prospective tenant has failed to meet reasonable referencing standards, I expect an agent to ensure that this is drawn to the landlord’s attention, preferably in writing. It is unacceptable for an agent to merely forward referencing documentation to a landlord without clarifying whether or not they consider that the prospective tenant has passed reasonable criteria.

I accept that references are obtained in good faith, but this may not be sufficient to ensure that the tenant subsequently complies with their obligations under the tenancy agreement.

Risk

A number of complaints concern tenants who have not paid the rent, damaged the property or, in more than one case, set up a cannabis farm at the property or ran a house of ill repute. Landlords often assume that detailed referencing should have highlighted that such a situation could have arisen. While I have sympathy for landlords in such a situation, I am normally unable to uphold such a complaint. If prudent referencing reveals no concerns, the agent cannot be held accountable for the tenant’s actions. There is always an inherent risk in letting a property, and the landlord should be aware of such.

Due diligence

I am aware an agent may, in some circumstances, be under considerable pressure, either from the landlord or the prospective tenant, or because their own management fees are taken up front, to conclude the let as quickly as possible. However, this is no reason not to thoroughly reference a prospective tenant. I always expect to see copies of all referencing within the agent’s file, together with evidence that the same was discussed with the landlord.

I have always maintained that an agent has a responsibility to seek to protect the landlord’s interests by ensuring that accurate and adequate referencing is undertaken. All such information should be disclosed to the landlord, who will then be in a position to decide whether or not to let the property to the prospective tenant.

By ensuring that they have complied with their referencing obligations, a letting agent can proceed on the basis that the landlord will decide, in possession of all the facts, whether or not to let their property to a prospective tenant.

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