Renting to tenants receiving housing benefit

Many private sector landlords won’t consider renting their property to tenants receiving housing benefit. But a recent report, Tracking Welfare Reform in London, published by London Councils, which represents London’s 32 boroughs as well as the City of London, has revealed that under 50% of households receiving benefit in private rented housing in the capital have at least one person in work. And this figure is predicted to increase.

Although a landlord may choose to avoid renting to anyone receiving housing benefit, especially in London where tenant demand is very high, in these uncertain economic times, there is a real risk that a tenant may lose their job and be forced to start claiming benefits.

What happens if a tenant has to start claiming housing benefit?

This happened to a fellow director recently who was renting a property to a young lady with a good job. However, she was made redundant and went onto housing benefit but didn’t inform us and simply carried on paying the rent. A problem arose when he wanted the property back so that he could sell it – he gave her appropriate notice according to the Tenancy Agreement but she said she couldn’t leave until he evicted her.

She had been advised by the Benefit Office and the Citizen’s Advice Bureau not to leave voluntarily as she would be making herself voluntarily homeless and they would not then rehouse her. She was very apologetic but said that she had been told not to leave until my colleague evicted her.

Evicting a tenant through the courts

My colleague had not known the tenant was receiving housing benefit as she had continued to pay the rent directly to him (housing benefit is paid directly to tenants who then pay the landlord). So he was forced to go through the eviction process which cost him £2500 – he didn’t get this back as the Courts don’t award all his costs. The process took four long months, meaning that he lost the sale of the flat.

A key point here is that this was a very nice tenant and she did eventually leave as promised. She cleaned the flat from head to toe when she left and rang to apologise but she was left with no choice as to her course of action because of the way the benefits system works.

A problem with the housing benefit system

Currently, we don’t have any tenants receiving housing benefits but it can happen to anyone who loses their job, an all too real problem in the current economic climate. We haven’t had a problem with how a tenant has treated the property but there is an issue when the landlord wants the property back – for whatever reason. And that’s down to the current housing benefit system.

How can landlords protect themselves?

There are several tips we would suggest. First, make sure you fully reference your tenant to minimise the likelihood of this happening. Second, you could put a clause in the Tenancy Agreement stating that the tenant must inform the landlord if their circumstances change. Also, make sure you have a ‘sinking fund’ to cover at least six months’ rent and if possible, legal costs if you need to go to court to evict the tenant. Lastly, consider rent guarantee insurance which will cover you for unpaid rent and will often cover the legal costs of evicting the tenant too. In fact, we consider this type of insurance to be so important that we offer it completely free of charge to our landlords for the first year they let a property through us. For more information about renting out a property in London, our Landlords guide to lettings is a good resource.