Is Rent-to-Rent Illegal?
One of the most common questions I get asked - Is Rent-to-Rent Illegal?
Discover why Rent-to-Rent is legal, the subletting myth and how if done correctly the Rent-to-Rent model can benefit everyone involved…
In this episode, I want to breakdown one of the most common questions I get asked - is Rent-to-Rent illegal? It's uncommon that I come across this question in person; however, online and social media, I get asked this question frequently.
I'm going break down and tackle this question once and for all, but before we get started I want to break down one of the specific questions I get asked around this topic - is Rent-to-Rent just subletting?
The answer is yes, it is subletting, but for me to explain further I want to define subletting first.
"Subletting happens when an existing tenant lets all or part of their home to someone else. That person is known as a subtenant, and they have a tenancy for all or part of the property which is let to them. They also have exclusive use of the accommodation that is let to them." - https://www.citizensadvice.org.uk/
Subletting is not intrinsically illegal, it is illegal; however, when a property is sublet without the landlord's permission. And that's the key!
With Rent-to-Rent, the landlord knows exactly what's happening with the property. This is defined in the tailored agreement in place with the landlord and you or your company.
Interested in finding out more? Listen to this weeks episode where I am going to go into a lot more detail.
In this episode, you will learn
Is the Rent-to-Rent model illegal?
Is Rent-to-Rent Subletting?
The right and wrong ways of doing Rent-to-Rent
How if done correctly Rent-to-Rent can benefit everyone
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Podcast Transcript↓
[00:00:56] Simon here and welcome to another episode of the podcast where we talk all things property, Creative Cashflow and how to be financially independent today, not in 25 years. And on this show, I'm going to be breaking down one of the most frequently asked questions I always hear. And look, I'll be honest with you, I don't hear it much in person.
[00:01:22] It's mainly through keyboard warriors, people on social media, you know, veiled assassins that they don't know what they don't know. There's a lot of ignorance out there. And there's kind of the purists of property investors that believe the only way to go is to own. And today, I'm going to dispel a lot of the things you may have heard and I'm going to tackle the question once and for all. Is rent-to-rent illegal? That's what we're going to be covering today. So if you're curious, if you've wanted to know, if you want to know the truth, stay tuned. I'm going to I'm going to absolutely go through it in fine detail. And, you know, by the end of this podcast, you will know is rent-to-rent legal? Is rent-to-rent illegal? And more importantly, like anything, there are good and bad ways of doing things. There were right and wrong ways of doing things. And I believe that if you do rent to rent correctly, not only is it not illegal, but it's a benefit to everybody involved. So before we get started, if you're brand new to the show, please subscribe, we release new content every single Monday. Drop me a review if you like it. I'd really, really appreciate it. I can only grow this with your help, and I'm doing this for you. So please share the podcast, spread the word and help me grow it. Let's grow it together. So a great place to start in terms of is rent-to-rent illegal is the whole subletting myth.
[00:03:00] Now one of the most common questions I get asked in reference to this topic is, isn't rent to rent subletting? And the answer to that is yes, but in order for me to actually break it down correctly, I need to define subletting to you guys. OK, so basically subletting is when an existing tenant lets all or part of their home to someone else who is known as the subtenant. The subtenant has a tenancy for all or part of the property which is let to them, and they have exclusive use of that accommodation. That's from Citizens Advice dot org dot UK, by the way. Now, the key thing is subletting is not intrinsically illegal. What's illegal is when you do it without the landlord's permission, OK? That's the key. So what tends to happen? You know, there's this sort of nightmare scenario where you let your property out to said person and then they let it out. They sublet it to loads of people. You don't know who's in the property. There's people living in there that, you know, you've not approved. You don't know if they've got the right to rent in the UK. You don't know their credentials. You don't know if they're looking after the property and abiding by the rules of the tenancy. OK, so that's the issue. Now with rent-to-rent, the landlord knows exactly what's going on, right? They know that we're a company and we will be subletting it to our tenants or our clients, they know this.
[00:04:46] So therefore, as long as the tenancy agreement stipulates this, it is not illegal. It is subletting, but it's not illegal subletting. Hope that makes sense. So first things first, is rent-to-rent subletting? Yes. But it's legal subletting. Now, I guess a good place to go next is just a little bit deeper into the concept of rent-to-rent. It is not a new thing. Rent-to-rent sort of has its roots in commercial property, where basically what would happen is a business or a company would lease a building from the land owner and then they would operate their business within that. They wouldn't own it. They rent the property and then they do their business within that property. OK? Many hotels, for example, the hotel, do not own the building. They rent the building, they lease the building, and then they rent it out on a nightly basis to, you know, us holidaymakers or people that need to stay away from home. You know, another a great example of this sort of this rent to rent or leasing strategy is a lot of shops and stuff. Retail, not many of them own the building. The majority of them, they lease the building and then they operate their business within it. And rent-to-rent is just a slight development of this concept. OK, we are leasing or renting the property, and then we're renting it on. OK, so it's nothing new, it's nothing new, and I think it's really important to understand that businesses and companies and hotels have been doing this for years.OK, so that's the first thing. So then it brings me onto the whole, you know, so what agreements should you be using then? Because this is key, because if you use the wrong agreements, then, yeah, it could be illegal and it could be illegal subletting. So generally speaking, if you go out there and you want to rent a property...I actually rent where I live, and more about that on I think it's episode three or four in the podcast, Why I Rent Where I Live and invest in cashflow in assets instead. Right. So I've signed on me and Lucy, my wife, we've signed a tenancy agreement, an AST, OK. And basically within that, if you ever study an AST, it will say that we are not allowed to sublet the property to assign the property. It's normally down as assignment, as a clause. We are not allowed to reassign the let of this property. So in other words, you can't use an AST for your agreement with the landlord. Once you've got the property under contract, the right contract, you will or may use ASTs for your tenants, but not with your landlords. And I think an interesting little point here is you need to make sure the landlord's name is on your ASTs with your subtenants. Really important. So you basically need to be using one of three agreements. If you're direct to vendor, I highly recommend a management agreement. Which is just like an agreement that a landlord would sign with a normal agent, but it's glorified because it offers the guaranteed rent. You can sign a commercial lease agreement, which is a little bit similar to what I just discussed in terms of businesses leasing a property to then conduct their business within it. Or you could do what's called a company let agreement. So if you're working with an agent, a lot of the time they'll want to use their agreement and they will use a company let agreement. But by the way, this assumes that you are a company that's going to be housing their employees. So even the company let agreement, there are certain clauses that need to be changed to make sure everybody knows where they stand. You're a relocation agency and it's going to be your clients within the property, not your employees. So the agreement would be changed to to reflect that. And at this point, I just want to do a little disclaimer. I'm not a lawyer. I'm not a solicitor. So none of this should be considered advice. It's just my opinion and my experience and my knowledge. And I would strongly advise you to do your own due diligence. But one thing that is widely regarded, you cannot use an AST for rent-to-rent. And if you do that, it will be illegal. You need to make sure you've got the right agreements in place. And, you know, normally they're going to be a management agreement, a commercial lease agreement or a company let agreement with clauses changed.
[00:09:46] OK? So once you've done that, the landlord knows what you're doing, the agent knows what you're doing, then you can actually focus on making sure that the way you're conducting yourself is correct, OK, and is legal like any other landlord.
[00:10:05] You know, there are landlords that are operating their properties in illegal ways in terms of the legislation of the local council and the Housing Act. So once you're controlling of the property, it's important that you then abide by those bits and bobs. OK, but you've got the same responsibility to do that than the landlord.
[00:10:27] You know, it's no different. There's good landlords, there's bad landlords, there's good rent-to-renters, there's bad rent-to-renters. And I guess there's one final point that I just want to stress here. It's got to be a win-win, so one thing I always swear by is I want to protect my landlords and I want to protect my tenants. And this means that when I take hold of a property, I'm doing everything I can within my power to make sure that, you know, I'm working with that trust in the right way.
[00:11:02] I want to make sure my landlords and tenants are protected. But once again, in the same way I would as if I was a landlord. No more. No less. So, you know, is rent to rent illegal? No, it's not illegal. You just need to get educated, make sure you use the right agreements and make sure that you're protecting your landlords and the tenants to create win-win scenarios. Now, I realize that, you know, there's going to be some people that still want to challenge the concept of rent-to-rent. But, you know, those opinions do not make it illegal, and I think whilst I'm here, I'm going to answer another question, just spur of the moment. Is rent-to-rent ethical then? Because I know that sometimes people, you know, when I have conversations and they accept that OK, maybe it is legal. Well, OK, it's not ethical. You're just, you know, taken the cream off the top and you're charging tenants too much money and you're robbing landlords blind. OK, well, let's let's just tackle that one once and for all as well, whilst I'm here.
[00:12:14] I've got landlords. That are the other side of the world.
[00:12:20] Their properties have been trashed by poor family tenants, by the way, family and they're thousands of miles away with an agent that maybe doesn't care or doesn't care enough, doesn't communicate enough, and they're lost. They can't sell the property because it's trashed. They've got no relatives local and they're stuck. And I've reached out to them. And then I've refurbed that property, I've got certain things off the agent that we've needed. And liaised with them to ensure that they get the right compensation from their old tenants. And then I've let the property and then I've paid them guaranteed rent every single month, month in, month out. Is that not ethical? And then on the tenant side, I've seen certain people living in terrible conditions in these properties where landlords neglect the maintenance, they neglect the properties. Maybe because they've not got the money, maybe because they've not got the time. In some unfortunate situations, they just don't care. And you know, what we do is we are able to come in, do some work to these properties and offer a much better property back onto the market, which is great for tenants always at competitive prices with amazing management services.
[00:13:47] Is that not ethical?
[00:13:51] So, yeah, that's what I would say to those people. I'm on the ground. I do this day in, day out. A lot of these people, they haven't, you know, they're having a pop or they're making their sort of guesstimation with no real insight. A little bit of a rant there, but just because I'm passionate about it, because I know that rent-to-rent is a great thing if you do it right. So make sure if you want to get into this, you're doing it right and people that aren't doing it right, step up and start getting your stuff together because you're giving, you know, the industry a bad name. Anyway, guys, that's it for me, is rent-to-rent illegal? No. Is it ethical? Absolutely, if you're doing it correctly and you can help a lot of people without making yourself some great cash flow to provide for your families. What a win-win. So, yeah, guys, I'll see you next Monday. And remember, don't wait 25 years. Get creative. Let's listen in for more information, check out Simon Smith online dotcom. See you next time.