Risks of accepting 12 months Rental Payment Upfront?

Hi Anne

Just because your tenant is offering 12 months payment up front does not mean that you should let your guard down. I recommend the same level of due diligence as you would apply to tenants paying monthly.

A common theme running across landlords who have been the victims of cannabis farmers is that a very high percentage of them have accepted rent up front and abandoned all other due diligence. As a result, their insurers have not paid out of damages caused to their property.

This is not to say that everybody who offers to pay rent up front is a suspected cannabis farmer, far from it. You do need to have your wits about you though.

Why is this arrangement being proposed as opposed to the typical model of obtaining referencing and guarantees? If you are entirely satisfied with the answer to this question then you will be in a far better position to make a commercial decision.

I hope that helps.
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Mark
I agree with everything you have said, it always rings alarm bell when I have been asked this question

Barry

12 months rent upfront is less uncommon with students especially foreign ones, but you would be crazy to let anyone have possession of such a valuable asset without knowing anything about them.

As Mark said above nearly all cannabis farm stories start with 12 months rent upfront, but that does not mean they are automatically a drugs cartel.

I have a tenant who pays his rent up front every 6 months. He's been with me now for 18 months and there are no problems. We do periodic inspections every 3 months.

I know everything there is to know about this tenant, place of work (I spoke to his boss at Aviva - via their main switchboard), passport and Visa details (he is Chinese), copy of his contract etc. etc. etc. I couldn't get a guarantor because everybody he knows is in China so it wouldn't have been worth the paper it is written on. I took a commercial view and so far it has paid off 🙂
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The agents initially decided not to carry out any reference checks based on the full rent being provided upfront but I have asked for a previous landlord reference and wondered if I should ask for guarantors as they are students.

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Wrong! Wrong! Wrong!

If you are going to accept 3-6- 12 months rent up front then you need to know everything about the person(s) who are going to be occupying your property in order that you can make an informed business decison on whether to proceed or not.

Insist on an intitial property courtesy visit after the first month. Good reason to give is to ensure everything is to their satisfaction and at the same time a check on the property.
Cannibis farms are springing up like mushrooms all over the UK and landlord's and LA's need to be on their guard because the consequences of not keeping an eye on things will cost the landlord dear.
Plenty of cases/examples of landlord's facing ruin due to Scumbag drug dealers.

I'm in two minds about this. As a landlord, I would want to know WHY the tenants wanted to pay that way, but as a recent tenant myself I did actually pay a year's rent upfront.

This was because at the time, I only had a very small income, but plenty of savings - I just wanted the reassurance that my rent was paid, as I knew I would be dipping into my savings to supplement my income.

I was letting from a large agent (they specialise in student lets). They were happy to accept the lump sum payment, but still ran very thorough checks.

A good tip I learned from them is to issue the section 21, pre dated to expire the day after the tenancy ends.

A word of a caution with referencing. As students, I'm assuming they don't have a rental history, so you (or your referencing company) have no previous landlord to check with.

I recently did some research into tenant referencing, as I was updating my website. I found that most referencing companies are happy to accept a character reference (in the absence of rental history) from ANYONE who knows the person, in whatever capacity, provided they're not related. Personally, I would not be happy with this - I would want a reference from a professional, such as the student's former teacher, family doctor, parish priest etc.

Hi Mark, Barry, Neil, Percy and Mandy

Fantastic, thank you all so much for your thoughts and recommendations, I am going to get back to the letting agent now. The Cannabis angle was something I had thought about and would have been something to be aware of on regular inspections. Incidentally, the students are from the UK so there should be more reference material available.

Many thanks again Property 118 for this hugely valuable resource.

Anne

Reply to the comment left by "Anne Jackson" at "08/08/2014 - 09:46":

Have you considered asking to see the tenants bank statements and/or the offer of a University course? The latter is also an easy one to check up on. Obviously make sure you get a copy passport too.
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"The agents initially decided not to carry out any reference checks" sounds like (yet) another case of an agent taking short cuts and not thinking things through. You need to verify the students' identites and ensure that they are enrolled at a recognised university/college. If they have rented previously, obtain and check-out previous landlord references. If from the UK, ask for guarantors even if paying up-front (though this becomes a complicated issue with multiple tenants on an AST due to the guarantors also being joint and severally liable, as far as I am aware). Finally, find out who will be the lead tenant so you have one point of contact. Hopefully, someone will put their name forward. Certainly, I would be unhappy to rely on an agent to find students but not manage the let. There is no substitute for meeting prospective tenants, talking to them, and using your gut instinct to decide whether or not you want to let to them.

Reply to the comment left by "Ian Cognito" at "08/08/2014 - 09:54":

Hi Ian

Many thanks for your comments, I really appreciate your feedback particularly with regard to guarantors and completely agree about meeting prospective tenants and the all important gut instinct. 🙂

Anne