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). For some insurance claims and mortgages, it’s essential.
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.
How into-detail you go with this reference is up to you- the main goal is to gather useful information about the prospective tenant’s finances, reliability and behaviour.
Some are happy with a simple reference, which usually involves a credit check, while others prefer a comprehensive, thorough background check. This can include things like employment references and bank statements.
A credit check is essential, especially if you ever need to deal with rent arrears down the line.
You can sort out this reference yourself or use an expert to manage it. It 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: taking accountability for who you rent to and for any possible claims on insurance like Landlord Legal Protection.
You always have to establish accountability. It’s up to you to properly assess your tenants before they begin renting.
Unsure what Landlord Legal Protection is? Read our guide: Landlord Legal Protection: What is it and how does it work?
Easy, drama-free tenancies are what all landlords would prefer, and referencing can help to achieve a smooth relationship between landlord and tenant.
Tenant referencing and Landlord Legal Protection
Some Landlord Legal Protection claims can be rejected because of 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 Landlord Legal Protection to see if the legal experts can help cover the costs when pursuing the arrears.
However, a Landlord Legal Protection 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 Landlord Legal Protection, you’ll need to at least run 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 Landlord Legal Protection 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 country court judgements (CCJs).
The most popular method is hiring an expert. Estate agents or referencing services offer the most stress-free process, though it does come with a cost.
However, they 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:
- the number of rental properties you own
- your tenant reference checks
- your 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 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 failed tenant reference can affect things like your Landlord Legal Protection, 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 around 48 hours if you choose an expert to do it for you.
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 costs you may have to face on top of the referencing cost. For example, accessing the Land Registry each time. Credit checks also 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 2019 Tenant Fees Act outlawed the charging of tenants for referencing in England, Scotland and Wales.
You or the estate agent are 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.
Keep your property safe
It's wise to carry out tenant referencing to prevent legal issues with your tenants, or having issues when claiming on your insurance.
Skipping tenant referencing or incorrectly filling it out can impact your insurance, Landlord Legal Protection, 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.
