Guide to Tenant Referencing for Landlords and Letting Agents

Landlords and letting agents need to have trust in any tenant to pay rent on time, treat the property with respect and not be a nuisance to the neighbours. That’s where tenant referencing comes in. In this guide we will cover everything you need to know, but if you have any questions about tenant referencing, feel free to contact your local haart branch.

What is tenant referencing?

Tenant referencing is the process a landlord or letting agent uses to assess a prospective tenant's suitability for a property. It involves background, ID and credit checks to verify information provided by the tenant, such as their income and rental history. Landlords use this information to gauge whether the tenant can afford the rent and has a history of responsible tenancy, ultimately giving them confidence they're choosing a reliable tenant.

Why should landlords carry out tenant referencing checks?

Minimise the risk of rent arrears

A tenant who passes the referencing checks, showing that they have a good record from previous tenancies, should be able to pay the agreed rent on time. Reducing the risk of a tenant falling behind on their rental payments is one of a landlord’s main objectives of the tenant referencing process. 

Protect the condition of your property, increase security and safety

Landlords want peace of mind that the tenant will look after the property, so will look for good references to this effect from previous landlords. If a tenant cares for the property, this will reduce the costs of maintenance and repairing any damage that might arise. Similarly, there will be less likelihood of anti-social behaviour, crime or issues that could cause disputes with neighbours.

Legal compliance

Landlords have to make sure that they are fulfilling all their legal obligations, such as Right to Rent checks, and ensuring that the tenant referencing process is being conducted in a non-discriminatory way. A tenant’s personal data should also be handled in a way that is compliant with GDPR and data protection laws. By following the correct tenant referencing procedures landlords can receive better legal protection in the event of a dispute with a tenant.

What does the tenant referencing process involve and what do letting agents check when referencing?

There are several aspects to the referencing process, with a range of tasks for a landlord to complete.

ID verification

Landlords need to check that tenants are who they say they are. As part of the Right to Rent process, prospective tenants will have to provide identification documents, usually a passport and driving license, plus any other documentation depending on their personal circumstances or nationality.

Right to rent check

Landlord referencing goes beyond financial checks. In England, it's mandatory to perform Right to Rent checks before any tenancy begins or renews. This ensures all occupants over 18 (including family members, lodgers, or carers) have the legal right to live and work in the UK. This verification requires sight of original documentation from the tenant.

Failing to conduct Right to Rent checks can result in hefty fines (starting at £1,000) or even imprisonment. The government offers a comprehensive list of acceptable documents and a step-by-step guide for conducting these checks. For further details, explore our in-depth haart guide on the right to rent.

Non-UK applicant right to rent checks:

• These individuals must provide documents proving their legal right to be in the UK according to immigration laws
• Landlords need to see the original documents during the check with the tenant present
• If the Home Office holds the documents or an application is pending, use the online Landlord's Checking Service

British and Irish applicant right to check checks:

• For tenants with valid passports, certified identification document validation technology (IDVT) services can perform digital identity checks

Credit check

This confirms the tenant’s credit history. County Court Judgements (CCJs), bankruptcy, or insolvency will show up. These checks may also include tenant’s past addresses and details on the electoral roll.

It is important to remember that landlords and letting agents must ask the prospective tenant’s permission to carry out a credit check. If the tenant refuses, the landlord or letting agent can decline the request to rent the property.

Tenant affordability and proof of employment or income

Landlords typically verify a tenant's ability to afford the rent by checking their income with their employer. This ensures the tenant has sufficient financial resources to comfortably cover the monthly rent.

Often, landlords look for an income that's at least 30 times the monthly rent. For instance, if the rent is £700 per month, the tenant's income should be at least £21,000 annually. This benchmark helps assess the likelihood of the tenant consistently meeting their rent obligations. Verifying income through employers is a straightforward process that requires minimal effort from the employer. In some cases, employers may also be asked to provide a reference regarding the tenant's work ethic and reliability.

For applicants with non-traditional employment arrangements, proof of income can be verified through alternative methods. This might include recent pay stubs for salaried positions, tax returns for self-employed individuals, or documentation of benefits received.

(information correct as of May 2024. Source: ONS.)

Guarantors

Depending on the outcome of the affordability check, a landlord may ask the tenant to provide details of a guarantor. This may be when the landlord feels that the tenant could have problems paying their rent or meeting all of their financial commitments. It could just be in situations where the landlord wants a little bit of extra security to protect their investment. A guarantor will cover the full amount of rent in the event of the tenant not being able to for any reason.

Previous landlord reference

This involves asking the tenant to provide a reference from a previous landlord, or the landlord themselves getting in touch and asking questions about the tenant. The new landlord will want to know things like how the tenant behaved during their tenancy, how they looked after the property and whether there were any problems with paying rent on time.

Things to look out for when referencing tenants

There are some ‘red flags’ you will want to keep an eye out for during the tenant referencing process. These could be tell-tale signs of fraudulent or criminal activity.

• The tenant going out of their way to appear as perfect as possible, such as offering to pay rent several months in advance
• Asking the landlord to keep the utility bills in their name
• Making a request for complete privacy (no inspections)
• Haggling over the rent or deposit
• Refusing to provide referencing information

What happens when a reference is bad?

A landlord can refuse to let a property if a prospective tenant fails any of the reference checks made. If the landlord has taken a holding deposit, it should be returned, unless the tenant has deliberately provided false information, in which case a landlord can choose to keep the holding deposit.

Holding deposits

It’s important to know the legal side of holding deposits.

A tenant has 15 days from paying a holding deposit to enter into a tenancy agreement. This is called the deadline for agreement. A different deadline with the landlord or agent can be agreed in writing if necessary.

If a tenancy agreement is then drawn up, the landlord can either:

• Return the holding deposit within 7 days of agreeing the contract
• Put it towards a tenancy deposit or the first rent payment with a tenant’s permission

A landlord or agent can only keep a holding deposit if:

• The prospective tenant decides not to rent the property
• The tenant has deliberately misled the landlord or agent
• The tenant has failed a right to rent immigration check

For example, even if a tenant fails a credit check, if they told the truth about their situation, the holding deposit must be returned. A landlord must provide written confirmation of why they are keeping the holding deposit within 7 days, or they must return it in full.

Why do people fail tenant referencing?

A landlord can refuse to let a property if a prospective tenant fails any of the reference checks. Typical reasons for failing include:

• Poor credit history – past issues with debt, rent arrears or bankruptcy will make the tenant too much of a financial risk for the landlord
• Lack of income – if someone does not earn enough to cover their rent and living expenses, they will usually be refused a tenancy
• Unsatisfactory reference from previous landlord – any reports of bad behaviour, property damage or unpaid rent will be taken very seriously
• History of unstable employment – if a prospective tenant changes jobs frequently, or seems to have periods when they have not worked, a landlord will question the tenant’s financial reliability

When is it illegal to refuse a tenancy?

A tenant may pass all the referencing checks that a landlord puts before them, yet they might still be refused a tenancy. If a landlord refuses an application for a tenancy on the grounds of race, sexuality, gender, nationality or religion, or because the prospective tenant is married, pregnant, has children or disabled, they are breaking the law. There are more changes coming in this area, as a result of the Renters Reform Bill, which is currently going through Parliament. 

This new legislation will make it illegal to advertise a tenancy (such as ‘No DHSS’) in a way that excludes people who are receiving benefits for a large proportion of their income. Landlords will also be unable to justifiably refuse a tenancy to someone who has a pet, if the tenant is a responsible pet owner and the pet is suitable for the property in question.

What happens if a tenant fails reference checks?

In the event of a tenant failing reference checking, landlords have a few options available to them. They might want to review the reasons for the failure, and perhaps consider any mitigating circumstances. Discussing the issue with the applicant may lead to a better understanding of their particular situation, and ways forward. The possibility of a guarantor, for example, or renegotiating the terms of the tenancy. If there is a risk around finance, then the landlord could ask for a higher security deposit, or perhaps several months rent in advance.

These discussions will enable the landlord to decide if it is possible to continue with the prospective tenant’s application, or to readvertise the tenancy. Whatever the landlord decides, they should inform the tenant promptly, in a professional manner.

Who pays for tenant referencing?

Landlords have to meet the costs of tenant references. The Tenant Fees Act 2019 made it illegal for landlords to charge referencing fees to prospective tenants. This act was brought in to help bring down the initial costs for tenants looking to rent a property. If a landlord or agent breaches the terms of the act, the first instance will be considered a civil offence, and this comes with a financial penalty of up to £5,000.

Should I use a tenant referencing service or do my own?

Some landlords choose to reference tenants themselves. It is a cheaper way to perform tenant referencing but landlords need to make sure that they are fully compliant with all their legal obligations, particularly with regard to Right to Rent checks. If any details are missed, the landlord will be the one to pay in terms of an unreliable or poorly behaved tenant. Using a specialist referencing agency, or asking a letting agent to do the reference checks, will be more expensive but you can be assured that they will provide a full and thorough service.

Let haart help with your tenant referencing

If you are looking to let your property, or have any questions about tenancies or letting, please pop into one of our branches. We can help with a range of property management services, advice and information about the lettings process, including tenant referencing.