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The mine sweeper
From the Swindon Advertiser, first published Thursday 5th Aug 2004.
A weekly column focusing on the legal labyrinth of company law, employment law and property law. This week, Peter Foskett of Withy King solicitors, looks at the minefield of installing a tenant in a buy-to-let property
With low interest rates, a poorly performing stock market and concerns over pension funds, the booming housing market means buy to let property is an increasingly popular investment.
The profit equation is simple. The rent covers mortgage repayments, occasional repairs and upkeep. The balance is profit, as is any increase in capital value. But this simplicity depends upon the choice of tenant: a bad tenant can turn the equation on its head.
The trick for the successful investor is getting the choice of tenant right. Often investors assume any tenant is better than no tenant at all. This is a dangerous and often expensive mistake. A bad tenant, once in a property, can take months to remove even if he is not paying rent.
Above all, avoid tenants who know how to play the system. Many landlords have been fooled by tenants who move into a property, don't pay the rent and then disappear having had several months' free accommodation. They also leave the landlord with a large legal bill. However, there are a number of things you can do to protect your investment.
Before allowing a tenant to move in:
1. Ask for references for the tenant from previous landlords, employers and their bank and follow them up.
2. Get a credit check done by a reputable agency.
3. Invest in a good tenancy agreement that will protect you should things go wrong.
Once these precautions have been taken, you need to actively manage the property.
1. Check bank statements regularly to ensure any non-payment of rent comes to light immediately.
2. Carry out regular inspections of the property to check on its state of repair.
3. If something goes wrong, take decisive action quickly a bad tenant will rarely reform.
If you do decide to evict your tenant, you will need a possession order. The cost of obtaining a possession order will not be recoverable in full from the tenant so keep a close eye on costs. As legal fees for obtaining a possession order can quickly escalate try to agree a fixed fee with your solicitor.
Above all, in the event of a problem, remember a buy to let property is an investment. There is no room for sentiment and decisions should be made on a clear commercial basis.
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