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You may have heard of guaranteed rent schemes. They are the ones that promise landlords rent for between five and ten years. So instead of finding tenants for your property, you can hand it over to a company or letting agent and enjoy a guaranteed monthly income without having to worry about maintenance costs or voids. Sounds great, doesn’t it? Unfortunately, in many cases the reality is not quite so rosy.
How does a Guaranteed Rent Arrangement Work?
Guaranteed rent schemes have been around for a long time, mostly through local authorities. Although in recent times property investors and letting agents have jumped on the bandwagon as a way of making an extra buck. How they work is fairly simple. The landlord signs over his property to a middleman, who sublets it and takes over the day to day running of the tenancy. The middleman makes a profit from charging the sub-tenant more than he is paying the landlord; often rooms in a larger property are sublet to multiple tenants.
Why it can All Go Wrong…
In the case of a large, well-established company, you are probably safe, but if you sign an agreement with a smaller company, a guaranteed rent agreement can easily go wrong. If the company goes bust or simply refuses to pay you, it can be extremely difficult to reclaim your property. Should the company go into liquidation, you can issue eviction proceedings against the sub-tenant, but if the company goes into administration and is still trading, it is harder to evict the tenant. And if the company refuses to pass on any rent money, you will be forced to take legal action against them, which will cost you and take ages.
So the advice from those in the know is—choose your Guaranteed Rent Scheme wisely!
