Should I proceed with offering a tenancy agreement?

"the referencing company has suggested that I proceed with a guarantor, which the candidates are unable to provide."

If people who know them don't trust them enough, why should you?

As a secondary point, where did they get a year's rent in advance from and what happens when it runs out?

I don't see the problem. They are offering to pay 1 years rent in advance - so doesn't matter if they pass the reference check - and they don't need a guarantor if the rent is paid in full. Just sign a 1 year contract to start with. Given also the shortage of people in the hospitality sector, the chef is likely to find a job quickly. I would rent to them

The referencing process exists for a reason, if all you are doing is overlooking their recommendations, what's the point? I have read that offering rent in advance for a long period of time can be a red flag as well - where did that money come from if they are only just able to afford the rent (what about affording all the utilities?), previous LL's good references is very limited (I've had yes or no questions to paying rent on time on referencing requests but that is just one indicator of many of a good tenant) and what happens at the end of that year? Also not all CCJ's show up on checks so overall I would not choose them as my first choice and continue the search. This is the only chance you have to be as careful as possible.

I would definitely take them to be my tenants with them paying one year's rent in advance.
For additional security all you have to do is change your tenancy where it states rent is payable 3 months in advance on a monthly basis so that on the 10th month of the tenancy they start paying rent monthly so that they are always 3 months rent in advance, which should give you security should a periodic tenancy arise. If your lucky, they may be prepared to pay you another year's rent in advance around that time.
I have been renting for 26 years now and it was only once that I had a tenant that paid me 1 year in advance.
All I can say is, I would jump at the opportunity of taking them on as my tenants. I cannot understand why anyone is hesitant with such a good opportunity.
I am a very experienced landlord where, I have had tenants who have passed all the references and yet have failed at some point
to pay their rent.

I agree to proceed with caution. I know that even if people start the tenancy with a job they could lose their job but to start without guaranteed income is worrying. Also, if you have a mortgage, check the terms and conditions. Many lenders don't allow tenancies with 'Housing Benefit' which is part of UC. Whatever the new laws are on not discriminating, committing mortgage fraud is also obviously illegal.

I have taken on tenants in the past who haven’t passed the referencing. Sometimes you need to use your gut feeling and your heart with people! As the previous comment said, even if they pass the referencing it doesn’t make them ‘bomb proof’ tenants. I’ve been renting houses for nearly 10 years and by using initiative, common sense and referencing I’ve encountered few problems with people. Good luck with your decision!

Ive had this issue recently. It turned out that although I paid for a full credit reference for both tenants and the guarantor, it came back negative for all of them. I spoke to the guarantor and it turns out the credit company only asked one question to all of them and didn't ask about investments or savings held.
Having spoken to the credit company about me paying for a full credit check and them only asking one question they refunded my fee and apologised . I did another credit check with another company and it came out very well. Please check what your credit check agency asked you tenants

The fact you're asking means you have some uncertainty maybe a gut feeling.
Have they got references form previous 2 or 3 Landlords? have you spoken to them. NB previous LL may be giving them a good reference to help get rid of them.
In this day & age you cannot take any risk as that could prove very expensive. Getting RGI if you can get it for these tenants, will mitigate your risk. Increase the rent to cover the RGI premium cost

Reply to the comment left by Monty Bodkin at 23/07/2021 - 10:27
They may not be in a position where they know anyone wealthy enough to be a guarantor - there's no point in having a poor guarantor! It needn't necessarily be a case of "not being trusted by people they know".

The OP needs to check with their property insurance that they will pay out claims where the tenants have failed a referencing check. Loss adjusters will try and find any loophole to get out of paying a claim.

I personally wouldn't set up an AST with them if you cannot gain RGI - After the 12 months' rent, what redress do you have if they don't pay? Especially as The Government will be removing s21 at some stage. Plus, if you don't have RGI and they stay on UC, how do you gain 'An Attachment to Earnings Order'. I would say no if it was me, think about after the 12 months' has passed and what risk you will take going forward.