The criminal business model of ‘Rent to Rent’

The business models of criminal landlords explained – Part 5

This short series is a guide to those landlords and professionals working in the PRS who might find it difficult to get their head around the vastly different way that the criminals view the market.

This is certainly the case in the four London boroughs that my outfit ‘Safer Renting’ operate in which is echoed by my experiences talking to officers in councils across Britain as a trainer.

Lesson #5: Rent to Rent

What us enforcement types are seeing more and more each month is this business model:-

• An agent takes on a property from a landlord and procures a tenant
• Said tenant is given a written agreement but said tenant advertises the property and installs 10 or 15 tenants, occupying individual rooms, often shared with others
• The rental income doubles

So far, so simple but this is where it breaks down.

The setup

In most cases, the agent knows about the arrangement and covers the back of their “Tenant”, who now legally is known as the Mesne Tenant, for those of a legal bent. Presumably, they are sharing out the increased income. [In the picture we have the terms ‘head lessor’ and ‘landlord’ but it is the same arrangement – Ed]

The landlord may or may not know about this but I’ll come back to this point.

This can require an HMO license depending on which borough the house is situated but from 1st October 2018, it would be a mandatory licensable HMO across England.  The HMO rules change then requiring licensing in all boroughs where there are five or more tenants in two or more households.

These ones we are discussing will often be officially overcrowded and ripe for prosecution, so the last thing the perpetrators and the occupants need is council enforcement teams descending on the property waving pieces of paper.

This results in mass illegal evictions and relocations of the occupants to:-

• Drive the numbers down below the current five and
• Get rid of anyone who might provide witness statements for the local authority.

So here’s a classic example

An example of how successful enforcement can actually drive more problems. Earlier in 2018, I was involved in a case where a London authority fell across a 4 bed, three storey house containing 9 unrelated occupants. A licensable HMO. The council took the landlady to court for failing to obtain a licence. She didn’t turn up, nor did she respond to any council notices.

The council then sought to apply for an Interim Management Order under section 102 of the Housing Act 2004, which they have a duty to do where a property doesn’t have a licence and there is no reasonable prospect of it having one in the near future.

This would allow it to take over management for a twelve month period, wresting control from the owner.

But she, in turn, passed management over to a letting agent, who before the IMO could be obtained chucked out five of the residents, thus meaning there was a three storey property occupied by only four people and therefore, no longer a licensable HMO, so we couldn’t do an IMO.

That’s the kind of cat and mouse game that gets played out.

And we all know that…

Of course a few months later there will be at least nine people back in there but you need the staff and resources to keep revisiting old properties when every day new ones are coming onto the radar, as well as knowing that if you try and apply for an IMO again it will result in more illegal evictions or forced relocations of the already exploited tenants.

More than one party can be involved

I mentioned earlier that it is not always the case that the landlords don’t know about this.

When you spend all day talking to the occupants of these properties and carrying out intelligence gathering what you often find is that the landlord also knew about this sub-letting arrangement as well. The same names keep coming up.

Often the ‘Mesne Tenant’ is a well-known accomplice of the agent, renting out numerous properties through them or other named agencies also connected to the original. All concerned parties divvying up the rental profits that wouldn’t be available if it were to be let as a family home.

The mesne tenant is often the hardest person to track down. When the overcrowded sub-let is discovered the agents feigns surprise and blames their (Mesne) tenant. The landlord also feigns surprise and blames the agent.

This is how it works and all the time the poor occupants I mentioned in the first part of this series are further exploited and pushed around.

Some agencies specialise in exactly this model

Every enforcement officer I know of in numerous boroughs has their own local firms doing this. Two minutes in a property and a quick chat to the occupants tells exactly the same story and you can fill in the blanks at your leisure.

It is important to understand that while individual rogue tenants can be guilty of this without the knowledge of the agent or landlord, all too often they are all connected.

The sub-tenants have often rented from this individual in other properties run by the same agent and both agent and landlords are common visitors to the house.

Not to mention the fact that with some judicious intelligence gathering and coordinated, unannounced visits to properties run by the same agents you find an identical set-up, evidenced straight away by individual locks on all the internal doors of this allegedly “Family home” and a cleaning rota stuck to the fridge.

Tenants can use this scam as well

Perhaps the worst example of rent to rent scams is where an individual gets the keys to a property, perhaps by being a tenant themselves and advertises the property online, taking rent in advance and deposits from a number of people who all turn up to move in, only to find that the tenant/landlord has long since done a bunk.

Getting caught out by either version of these scams costs only £3 to avoid. All the prospective tenant has to do is go onto Land Registry e-services and get the name of the owner and yet people don’t.

Of course, the scammer can do exactly the same thing and pretend they are that person but they don’t bother either, so its still something worth doing.

The Deregulation Act 2015

This introduced a whole raft of documents that a landlord has to give a tenant at the commencement of the letting, maybe instead of prescribing an EPC that nobody I know ever reads, the landlord should be required instead to provide a copy of the land registry as proof of ownership.

Mind you, then that will create a new sub-industry in counterfeit land registry forms. I see enough forged bailiff’s warrants and possession orders these days to understand how this all works.

Next time, I shall explain unauthorised conversions and outbuildings