The ultimate guide to tenant referencing for landlords - Total Landlord Insurance

June 26, 2023
Total Landlord Insurance
The ultimate guide to tenant referencing for landlords  - Total Landlord Insurance

Read an interactive and user-friendly version of this guide below.

Thorough tenant referencing is one of the most important steps landlords and agents can take to protect themselves against troublesome tenants and maximise the chances of having a successful tenancy. 

The process enables you to build up a detailed profile of prospective tenants so you can assess whether they’re likely to be suitable occupants for your property. It should flag up the most common potential issues, allowing you to weed out those tenants that are likely to become a problem further down the line.

But if you don’t know what you’re looking for, it can be easy to miss the warning signs. So, to help you get it right, in this guide we take an in-depth look at what’s involved in putting together a comprehensive reference for renting.

What is tenant referencing?

Tenant referencing is the process of making checks on a prospective tenant to find out if they will be able to pay the rent and whether they are likely to look after the property. It involves methodically gathering relevant information to build up a financial and personal profile of the prospective tenant and identify any risks.

“When it comes to references for landlords, you’re putting a jigsaw together, building up a picture of the tenant’s renting history – whether they've defaulted on rent in the past or caused malicious damage to a property; whether they've had County Court Judgements against them and, most importantly, whether they can afford to pay the rent. No tenant should really be spending more than 30% of their income on rent. Affordability is key.” 

Paul Shamplina, Founder of Landlord Action and Director of partnerships at Total Landlord.

Why are rental references important?

Before handing over the keys to your rental property, it’s important to be confident that your tenant is who they say they are, and that they can be trusted to look after what is likely to be your most valuable asset. You want to do all you can to protect your property and maximise the potential of your investment by making sure you have the right tenant who will be able to pay the full rent on time each month.

A robust landlord reference will also reassure a reliable, honest tenant that they are in good hands and dealing with a professional landlord or agent. 

And referencing can even help you decide how much rent to charge. For instance, you may decide to offer a lower rent to secure your 'perfect' tenant – perhaps someone with excellent references who wants to rent for the long term.

“It’s important for landlords to set their own parameters when it comes to how much rent to charge – going for the lower end of the market rate will give you a wider choice of tenants, which could save you money in the long run. A higher rent might sound like a better option in the short term, especially when rents and demand are both high due to the current stock shortage, but it might cost you in void periods further down the line. It’s important to bear this in mind and make sure that you pick the tenant, rather than letting the tenant pick you. Referencing is key to this.” 

Paul Shamplina, Founder of Landlord Action and Director of Partnerships at Total Landlord

Tenant reference for landlord insurance

If a bad tenant slips through the net and causes malicious damage to your rental property, you’ll need to provide evidence that you carried out a robust tenant referencing check.

Steve Barnes, Head of Broking at Total Landlord, explains:

“Our Premier policy offers protection against malicious damage by tenants and their guests, as well as loss of rent if you need to carry out repairs. But for a claim to be successful, you’ll need to provide evidence that you did all you could to prevent the damage from happening in the first place. You’ll need to show that your tenant passed a full and robust reference check and that you carried out regular inspections.” 

Steve Barnes, Head of Broking at Total Landlord

Tenant referencing and GDPR compliance

Before getting started on a reference for renting, it’s important to bear in mind that tenant referencing is a data gathering exercise and must be carried out in compliance with GDPR (General Data Protection Regulation).

You can find more general information about GDPR compliance on GOV.UK and information specific to landlords on the NRLA websiteRent Smart Wales and GOV.SCOT.

What does a tenant reference for renting include?

It’s important not to rush the referencing process, otherwise you may miss out on vital information. Sadly, serial bad tenants and fraudsters pray on vulnerable and naïve landlords and are experts at coming up with false papers. So, it’s important to be thorough, cross-check, and make sure you come across as a professional landlord.

There is no way to guarantee that a tenancy will be problem free, but if you follow our tenant referencing checklist on what to look for, you will greatly reduce the risk of something going wrong. It’s also important to check with your insurer what their referencing requirements are, to make sure you’ve covered.

A tenant referencing checklist

We recommend a four-point check. If you plan to use an agent, ask them to explain, in detail, what their tenant referencing covers - some will have a much more robust check than others

  1. Proof of identity from the tenant. The tenant should provide two forms of ID, one of which must be a driving licence or passport, including a clear photograph. This is to make sure that the tenant is who they claim to be.
  2. Utility bill or bank statement. A recent (within the last two months) utility bill, council tax bill or bank statement is needed as proof of residency at their current address.
  3. Credit check. Carry out a credit check through an organisation like Experian or Equifax, to check that the tenant is not in debt and doesn't have a poor credit history. This check will confirm residency, whether they have any outstanding or unsettled County Court Judgements (CCJs) against them, and that no bankruptcy orders have been lodged against them. Importantly, you need to get the tenant’s written permission to carry out a credit check.
  4. Confirmation of employment. Contact the tenant’s employer to obtain a written reference on company letter headed paper, confirming the tenant’s current and permanent employment, and salary. They should be earning a minimum of 2.5 times the rent, which should ideally be no more than 30% of their salary. Make sure the employer exists by looking up the company number to check that they're active, trading and have filed company accounts.

As well as the standard four-point reference check, it’s a good idea to carry out the following checks:

  • Previous landlord’s reference – ask for a reference from the tenant’s current landlord (if they have one), or from a former landlord using details from a previous tenancy agreement, to make sure the tenant doesn’t have any outstanding rent arrears and hasn't caused damage to a previous rental. You can check that the landlord is the same person who owns the property by carrying out a Land Registry search for the title register – it costs just £3.00 for this information.
  • Regular income and expenditure check. In addition to the credit check, you should ask the tenant to provide their last three months’ bank statements so you can see their regular income and expenditure. If an agent is carrying out the referencing on your behalf, they may be signed up to Open Banking, a government-backed scheme that allows tenants to securely share information digitally from their online bank account with third parties, which can help speed up the referencing process.
  • Lifestyle profiling. Although it's not a standard part of the referencing process, it’s worth looking up prospective tenants on social media to get an idea of their lifestyle. And when there is particularly high demand and you have multiple tenants who want to rent your property, asking them to provide their LinkedIn profiles and even their CV, may help you make an informed choice about which of them is most likely to pay the rent.

Finally, regardless of the outcomes of the standard reference checks, trust your gut instinct. If you're in any doubt about whether the applicant is the right person for your property, don’t go ahead with the tenancy. And if they rarely answer their phone or it takes a long time to have them referenced and information is missing, it’s probably wise to stay away.

Right to rent check

In addition to referencing your prospective tenant financially and personally, landlords and letting agents in England are required to carry out a right to rent check before starting a new tenancy or renewing an existing one, to check that the tenant has legal status to work and reside in the UK.

You must carry out the check on every person over the age of 18 who occupies the property – including family members, a carer or lodger, even if they’re not named on the tenancy agreement. And it’s good practice to ask for verification of the age of older teenagers, as appearances can be deceptive!

Non-UK nationals must be able to provide documentation to prove that they have the legal right to be in the country, in accordance with immigration laws. You must have sight of original documents, with the tenant or prospective tenant present. If they have an application or appeal outstanding with the Home Office, or the Home Office is currently holding their documents, landlords can use the online Landlord’s Checking Service

For British and Irish applicants who hold a valid passport, you can use certified identification document validation technology (IDVT) service providers to carry out digital identity checks.

If you fail to make right to rent checks, you can be fined £1,000 for a first offence, £3,000 thereafter and, in serious cases, you could even face a prison sentence. 

The government website has full information on which documents are acceptable and a step-by-step guide on how to make the checks. For more detailed information, see our ultimate guide to right to rent checks.

Will tenant referencing change under the new Renters (Reform) Bill?

There doesn’t seem to be anything in the draft Bill that would change any of the current referencing processes. 

However, given that tenants will be given the right to request a pet, it’s important to carry out checks on the animal before allowing them to live in the property. So, if you accept pets already or if your tenant requests one in the future, it is wise to:

  • Get a previous landlord’s reference to confirm whether any damage was caused to the property and find out if they would be happy to accept the pet again in the future
  • Meet the pet in person. This is essential in order for you to assess its behaviour and decide whether the property is a suitable environment for the type of pet
  • As pet insurance will become a permitted payment under the Tenant Fees Act, you can ask the tenant to provide evidence before the tenancy begins that they have a pet insurance policy in place 

Why would a tenant fail a rental reference check?

Having the right tenants is key to the success of any tenancy, and a robust reference for renting is the best tool at your disposal for finding the right tenants. 

But there are a number of reasons why a tenant might fail aspects of a referencing check which don’t necessarily mean that they won’t be a good tenant. So it’s important you’re able to understand the results of the checks and interpret them correctly.

If you feel that the would-be tenant might be a good fit for your property, here are a few examples of potential scenarios and what you can do about them:

  1. The tenant has received a low credit check score

Just because a tenant fails their credit rating, this doesn’t necessarily mean they won’t be able to pay the rent.

If they weren’t on the electoral register at a previous address or have never borrowed money or had a credit card in their name, they won’t have built up a credit history. That means they’re almost certain to have a low credit score and it’s often the case with students or younger people, who may nevertheless make excellent tenants.

By considering a low credit score in the context of the wider reference, you should be able to make a decision as to whether it’s a red flag or simply a result of circumstance. 

  1. The applicant is a student and has failed a number of checks

Students are worth a special mention because it's likely they won’t meet a number of the standard checks that are part of the tenant referencing process. They move often, haven’t usually built up a credit history, and are unlikely to be earning 2.5 times the monthly rent.

What’s more, students can have a bad reputation when it comes to renting – there’s often an assumption that they’re irresponsible, party all the time and can’t be trusted to pay their rent. But this doesn’t necessarily align with reality and there are lots of benefits of renting to students

Most students provide their parents as guarantors, giving landlords an easy way to reclaim any late rent payments, and the rent may also be subsidised by student loads, making late payments less likely.

Read more about renting to students in our ultimate landlord guide to student properties.

  1. The tenant has failed the affordability check

The employer’s reference is the key check to tell landlords whether a prospective tenant’s income meets the ‘affordability check’ – usually at least 2.5 times the rent. However, this doesn’t take into account whether they’re going to be receiving a contribution from parents or have savings.

As with student tenants, asking the prospective tenants to provide a guarantor and making sure you carry out reference checks on the guarantor in the same way you would a prospective tenant (see next section), is the solution here.

  1. The prospective tenant has no proof of address

This is one of the most important aspects of referencing, as being able to prove an applicant’s current address is key to avoiding fraud. But even in this scenario, there could be a valid reason why the tenant has no proof of address so, again, it needs to be considered in context.

Proof of address is usually a utility bill, a previous tenancy agreement or being on the electoral roll. However, often tenants aren’t responsible for paying bills, they may be registered on the electoral roll elsewhere, or they may be cohabiting with a partner and not named on the tenancy agreement. 

If the tenant has none of the usual forms of proof of address, ask them to get a letter from their bank that confirms where they’re currently living.

Referencing provides you with a risk assessment, but ultimately it’s up to you to investigate why the tenant failed the referencing check, piece together the jigsaw to build up a full profile of the applicant, and decide whether the reason for not passing is significant enough not to let your property to them.

It’s also a good idea to check with your insurance provider whether your insurance will be valid if you let to a tenant who failed the reference check. At Total Landlord, no claims will be paid out in relation to the illegal manufacture, cultivation, harvest or processing of drugs if your tenant(s) have not passed a four-point reference check. Read our guide to find out more about the growing threat of cannabis cultivation for landlords.

Using a guarantor

If your tenant fails a reference check but, having considered the wider context of their application, you feel they could still be a good fit for your property, asking them to provide a guarantor is a good option.

Guarantors have always been common for tenancies involving tenants on Universal Credit, students, foreign nationals and young people moving out for the first time. 

A guarantor is a landlord’s insurance policy against tenant default; someone who agrees to pay the rent if the tenant doesn’t. They need to be over 21 years of age, have a good credit history and ideally be a homeowner themselves - usually it’s a parent or relative of the tenant.

Guarantors should be referenced checked just as you would a prospective tenant and the guarantor’s agreement needs to be a legally binding document which must be witnessed, in line with the tenancy agreement. Find out more about using a guarantor.

Tenant referencing red flags

Applicants who don’t pass all the tenant referencing checks may turn out to be very good tenants, but at the other end of the spectrum are the fraudsters and serial bad tenants. These individuals target rental properties with criminal intent, often turning them into cannabis farms or splitting them into bedsits and subletting them illegally to dozens of tenants.

They are expert in faking their way through the referencing process, from registering false businesses at Companies House to using a ‘front couple’ to visit a property and undergo referencing checks, only for those people to disappear without a trace and be replaced in the property by the criminals.

Fraudsters tend to use rental properties advertised through social media, hoping that this way they can avoid formal checks. So, for landlords who are short on the time and experience needed to carry out a robust reference check, it’s well worth using the services of a reputable letting agent to greatly reduce the risk of getting a bad tenant.

Criminals, serial fraudsters and dishonest applicants will go to great lengths to portray themselves as the ideal tenant, but there are some common red flags to look out for. These include:

  • Offering to pay several months’ rent in advance
  • Wanting to keep utility bills in the landlord’s name
  • Asking for complete privacy (no inspections)
  • Refusing to provide information requested during the referencing process
  • Haggling over the rent or deposit
  • Putting you under pressure and wanting to move in straight away (circumventing the referencing process)

If a prospective tenant does any of these things, you should proceed with caution and listen to your gut instinct. If you’re in any doubt, don’t go ahead with the tenancy.

If a tenant does manage to move into your property under false pretences, they are committing referencing fraud, and that’s a specific discretionary ground for possession. Paul Shamplina highlights the increasing sophistication and frequency of rental fraud:

“We saw an increase in referencing fraud at Landlord Action during the COVID-19 pandemic, including cases where unscrupulous landlords provided good tenant references for tenants, when in fact the tenant had been defaulting on the rent. In this way, they could pass the tenant on, move them out quicker and avoid lengthy notice periods, slow court proceedings, and loss of - in some cases - over a year’s rent. Sometimes, landlords think they have taken all the necessary precautions but find themselves in a difficult situation. Technology has made it easier for people to falsify documents, which is why letting agents and referencing companies need to invest in even smarter technology to improve fraud detection. Landlords should ask questions and take time to drill down into any information which doesn’t appear to stack up.” 

Paul Shamplina, Founder of Landlord Action and Director of Partnerships at Total Landlord

Should I use a tenant referencing service?

Some landlords like to carry out the referencing process themselves, so that they can find out first-hand what the tenant is like. This approach is most likely to work for professional landlords who have time and experience on their side.

For landlords who aren’t sure what to look for, a professional referencing service such as Total Landlord’s partner,  TenantVERIFY, is likely to be a safer option. Serial bad tenants who move from property to property, conning landlords and other tenants with malicious motives, will often target private landlords who carry out reference checks themselves. So, employing the services of an established referencing provider that has professional indemnity insurance could be money well spent.

Their report can then be used in conjunction with your own checks and gut feeling. Many landlords who use a referencing service will then visit their prospective tenants at their current address to complete the tenant application form and get a feel for who the tenant is in person. 

How much does tenant referencing cost?

Professional referencing costs can vary depending on the company you use and the type of background check you need. TenantVERIFY offers four services: basic and comprehensive tenant checks, a comprehensive guarantor check and a prioritised comprehensive tenant check.

We recommend the comprehensive service to make sure you are meeting the requirements for the four-point referencing check required by most insurance policies, including ours.

“Referencing now, especially during a cost-of-living crisis, needs to be a lot more stringent. Landlords are rightly fearful that they might end up with a tenant who won’t be able to pay the rent. I would always advise landlords to opt for a fully comprehensive referencing service.”

Paul Shamplina, Founder of Landlord Action and Director of Partnerships at Total Landlord

Can tenants be charged for reference checks?

Following the Tenant Fees Act, landlords in England can no longer charge tenants for reference checks – the costs must be absorbed by the landlord or letting agency, even if the applicant fails the reference check. Similar changes were applied in Wales, and charging fees has been banned in Scotland since 2012. Landlords in Northern Ireland can only charge for the actual cost of the check.

Tenant referencing also has implications on whether you can legally retain a holding deposit if a tenancy application falls through. Under the Tenant Fees Act, a holding deposit must be returned to the tenant if the landlord or letting agent withdraws from the application process. However, if the tenant has provided all the relevant information but fails the referencing process, the letting agent or landlord is considered responsible and would have to return the holding deposit.

How long does tenant referencing take?

Some tenant referencing companies, such as TenantVERIFY, offer an expedited service and can turn the reference around in a few hours, but generally it can take up to a couple of days to gather all the information.

Of course, it can take longer than that if you’re carrying out the reference check yourself. Also, even if you’re using a professional tenant reference provider, unavoidable problems such as a previous landlord or employer taking their time to respond to a reference request, can cause delays to the process.

Is it illegal not to allow a tenancy?

Landlords should screen tenants by collating information about them and pre-qualifying them by phone. You have every right to find the ‘right’ tenant for you and your property, which will generally mean rejecting some applicants, and screening is your first line of defence in avoiding bad tenants.

However, you do need to be wary of discrimination, which is against the law. You can’t refuse to rent to a tenant for any of the following reasons, as they are ‘protected characteristics’ as part of The Equality Act: being disabled, pregnant, married, transexual, or on account of their sexuality, gender, religion, race or nationality. In addition, you can’t discriminate in advertising against a Universal Credit or housing benefit tenant.

You can choose not to rent to someone if you believe they won’t look after your property, if they fail the reference checks, if they smoke - or even if your gut feeling tells you not to. Ultimately, it’s your decision who you rent your property to, but you must not reject someone on the basis of one of the ‘protected characteristics’.

Beyond the tenant reference check

The tenant reference check is the best way to weed out problem tenants that are likely to cause you issues. You will also need to be able to demonstrate that you arranged a robust reference check in order for your landlord insurance to be valid if a bad tenant does manage to get through the checks and subsequently causes damage to your property. So make sure that all your checks are properly recorded in writing.

However, a rental reference check only confirms the tenant’s circumstances at that point in time. Their financial situation, health or any other aspect of their lives could change during the tenancy and may impact their ability to pay the rent or look after your property.  By treating your tenant as a valued customer and taking the time to nurture a good relationship with them from the outset, you'll be better prepared to deal with any unexpected issues that may crop up further down the line.

It’s very important at the start of the tenancy to explain what the tenancy agreement includes, agree access for mid-term inspections, clarify both your legal obligations as a landlord, and your tenant’s obligations, and take the time to explain terms and liabilities.

Remember, at the point of referencing, the tenant applicant wants your property and will be keen to secure it before another tenant does. But demand for rental properties is high, so don’t let yourself be pressured into letting someone move in quickly without ticking all the boxes on our tenant referencing checklist, and always trust your gut feeling.

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