Tenant referencing for landlords: what it is and why it’s important

Tenant referencing helps you get trustworthy renters. If you don’t reference properly, it can impact your letting experience and your Landlord Legal Protection (LLP).

Tenant-landlord relationships always carry a level of risk: are they the right fit? Can you rely on them? Do you both have similar expectations?

Tenant referencing is there to reduce this level of risk; it can’t eliminate it, but it’s a place to start. For some insurance claims and mortgages, it’s essential.

Below, our tenant referencing guide explains everything you need to know.

What is a tenant reference check?

A tenant reference check, also known as tenant referencing, refers to when you or an agent reviews the suitability of a potential tenant.

The scale of this review is up to you. Its primary aim is to gain information about the prospective tenant’s finances, reliability and behaviour.

Some are happy with a simple check, which usually involves a credit check, while others prefer a comprehensive, thorough background check.

A credit check is essential, especially if you ever need to deal with rent arrears down the line.

You can arrange this reference yourself or use an expert to manage it.

The reference check allows you to understand your tenants, and not having one can impact claims.

What documents should tenant referencing check?

In total, a tenant reference check can review:

• Proof of address – utility bills and bank statements that prove a tenant’s address information
• Proof of ID – a copy of a valid form of ID which confirms the tenant’s identity
• Credit checks – reviews the tenant’s credit to ensure they don’t have debt or recent County Court Judgements (CCJs). This check requires permission
• Previous landlord references – reviews the tenant’s rental history for arrears, disputes and damages
• Bank statements – usually three months of bank statements to review the tenant’s spending habits, savings and pay
• Affordability checks – reviews a tenant’s income to see if they can cover costs for the duration of the tenancy
• Right to rent checks – confirms if a tenant has the right to rent in the UK
• Employment reference – checks if the tenant’s place of work is correct and if they are paid regularly

Why tenant referencing is important

Tenant referencing is essential for two main reasons: establishing accountability and acting as a prerequisite for insurance like LLP.

Unsure what LLP is? Read our guide: Landlord Legal Protection: What is it and how does it work?

You must establish accountability. It’s up to you to properly assess your tenants before they begin renting.

Easy, drama-free tenancies are what all landlords want, and referencing is an important step to get there.

What can a lack of tenant referencing impact?

Certain claims are repudiated (rejected) and derailed due to a lack of or incorrect tenant referencing.

For example, let’s say you have a tenant who hasn’t paid rent in six months. You may want to submit a claim to LLP to see if the legal experts can help cover the costs when pursuing the arrears.

However, an LLP claim depends on tenant referencing; if you don’t have a tenant reference, then the process may hit a few stumbling blocks as you haven’t vetted the tenant beforehand.

To qualify for LLP, you’d need at least a credit check before accepting the tenant.

It can also impact evicting a tenant and informing a tenant that you wish to sell the property.

We recommend that you always receive a deposit, a signed tenancy agreement and a dilapidations inventory checklist from the tenants before accepting them.

Commonly, rejected LLP claims miss one or more of these documents.

How to complete tenant referencing

Figuring out how to complete tenant referencing depends on what you want to check.

You can ask the tenant for some of the information above, while you’ll need to organise aspects like credit checks or contacting previous landlords yourself.

If you handle referencing, you’ll usually want to keep things simple with a credit check and looking for outstanding CCJs.

The most popular method is hiring an expert. Estate agents or referencing services offer the most hands-off and stress-free process, though it does come with a cost.

They do, however, take all the responsibility off you and offer comprehensive checks.

What happens if I don’t fill out tenant referencing correctly?

You must fill out tenant referencing details correctly when seeking landlord insurance.

We’ll typically ask for these rental details:

• Number of rental properties you own
• Tenant reference checks
• Rental income

Adding as much detail as possible in the tenant reference check section is essential. If you don’t fill it out correctly, you risk having future problems with claims.

What are the most common tenant referencing failure points?

So, why would you fail tenant referencing? What are the most common reasons for reference issues?

Tenants most commonly fail due to:

• Low credit check scores – credit score is the major reason for tenant reference failure. Whether you take on this tenant or not depends on the context and whether you risk invalidating insurance.
• No proof of address – there are numerous reasons why someone may not have proof of address. It’s ultimately up to you or the referencing provider to get more information from the tenant in this case.
• Student status – student status is a common reason for failure. Students typically don’t have good credit or long address history. It's why guarantors are common when renting to students.
• Affordability check failure – failing an affordability check can cast doubt on the long-term feasibility of the tenant paying rent. Asking for a guarantor is usually a good solution.

What happens if your tenant fails the reference?

A failing reference is a cause for concern. However, if you trust the tenant, you can ask for rent in advance or request a guarantor.

However, a failing tenant reference can invalidate things like your LLP, so check your insurance and mortgage before accepting.

How long does tenant referencing take?

If you’re carrying out checks yourself, then the time it takes is up to you and your availability.

Tenant referencing usually takes 48 hours if you choose an expert.

Getting information isn’t always easy – some landlords may not respond, or you may face delays in getting tenant details.

How much does tenant referencing cost?

For basic checks, a referencing expert won’t charge much. The average fee is between £15 and £40 per tenant. Comprehensive checks will fall on the more expensive end.

There are other miscellaneous costs you may have to face. For example, accessing the Land Registry costs £3 each time, and credit checks sometimes have a small charge. Tenants can provide a free credit score with certain companies.

Can you charge tenants for referencing?

You’re not allowed to charge tenants for referencing in most parts of the UK.

The Tenant Fees Bill 2019 outlawed the charging of tenants for referencing in England, Scotland and Wales.

You or the estate agent is responsible for all charges. Even if a tenant fails the check, you can’t charge them.

If you live in Northern Ireland, then you can charge for the price of the reference check only. Profiting from charges in any way is illegal.

Safeguard your property

We always recommend that you carry out tenant referencing to prevent repudiation.

Skipping tenant referencing or incorrectly filling it out can impact your insurance, LLP, property safety and relationship with your tenants.

If anything in this article sounded too confusing, check out our landlord jargon buster. Being a newer landlord is a lot to take on, especially if you’re a recent buy-to-let owner.

If you want to speak to our legal experts about a query or make a claim, call 0333 234 3316.