Precedent set as letting agent loses referencing court case
In the Bristol County Court this week an unprecedented case was set when a letting agent who is an ARLA member that relies on third party referencing ended up with a CCJ and compensation claim.
Tenant Referencing UK has reported that on Tuesday, West Country landlord Ms Hale won her case against Blue Sky Property (BSP) for supplying unsuitable tenants, even after they were accepted by Let Risks. Mr Paul Routledge CEO of Tenant Referencing UK appeared for the landlord as professional witness of referencing standards.
The landlord claimed breach of contract under The Sale of Goods and Services Act 1982. The defendant had agreed to provide a lettings service and ‘carry out thorough referencing on all prospective tenants’, however did not perform that duty with due care and skill and the landlord ended up with tenants she would not otherwise have chosen. Lost rental and legal costs to evict the tenants cost the landlord over £4,000.
The defendant as an ARLA member argued that they did conduct thorough referencing which was done by a third party referencing agent called Let Risks - and the reason why the landlord suffered a loss was because the tenants’ relationship broke down.
Managing Director of the letting agency, BSP, Ms Maytham, insisted her company would not be held liable: "The prospective tenants introduced by BSP were referenced through established third party referencing agents, Let Risks, and the references were reported satisfactory.
I simply do not agree with the landlord’s claim that BSP are accountable for this issue having arisen in the first place. It was not BSP’s fault that the relationship between the tenants broke down or that the tenants refused to adhere to their contractual obligations under the terms of the tenancy."
After the eventual recovery of her property and repairing the damage done to it (another £4,000), the landlord demanded to see the tenants’ application forms and the full referencing criteria from the defendant letting agent.
The defendant letting agent BSP’s Tenancy Application Terms and Conditions state that:
- Should adverse references be returned on your application, which you have failed to disclose at the outset, your application fee and holding charge will be retained by BSP Ltd.
- Also required: last 3 months bank statements (if requested)
These tenants were proposed to the landlord who agreed to take them subject to satisfactory references.
Seeing the defendant letting agent BSP tenants’ application forms for the first time after the eviction of the tenants, the landlord established that:
• The male applicant ticked a box to say that he had never had a county court judgment registered against him (even though there was a box to tick ‘yes’ and provide an explanation).
• He stated he had been at his current address with his parents for 3 months.
• The female applicant stated that she was employed as a carer, earning £7,800 a year ‘working directly through the person’. Her address was given as the same as his.
From the Lets Risk report (which the landlord was previously blind to), the landlord was horrified to discover:
• Let Risks’ credit check discovered the male applicant had been given a CCJ in 2008 for £826 (which was paid off in 2009 and therefore satisfied).
• The amount of CCJs was given as £900 and number of adverse records was 1. No further information had been gathered.
• The male applicant was ‘Medium Risk’ with a referencing credit score of 644 near the higher risk threshold of 625 and that part of the assessment report has the warning note ‘Refer’. The female applicant was also in this warning note category, ‘Refer’.
• The male applicant’s previous landlord confirmed the dates of his tenancy to 22 August 2013. Both applicants gave their time at their current address as 3 months and signed it on 09 October 2013, i.e. they were just over 6 weeks there not the 3 months they claimed.
• The female applicant was not traced at the 6 week address, nor was she traceable via the male’s previous landlord address or known to that landlord at all. She was given ‘Refer’ for this however was ‘Accepted’ by ‘Overall Decision’ in the absence of ‘Adverse Records’.
• The female applicant’s employment and salary of £7,800 was confirmed by the ‘person she cared for’. No further questions were asked. As stated was as accepted.
Let Risks made an ‘Overall Decision’ to ‘Accept’ both these tenants. On the strength of this, the defendant letting agent BSP reported to the landlord that the tenants had passed referencing and a date was agreed for them to move in.
Unknown to the landlord, the defendant letting agent BSP took Let Risks’ ‘Overall Decision’ to ‘Accept’ without verifying the Let Risks’ results with the information BSP held on file i.e. the signed application forms. The defendant letting agent BSP gave the tenants the green light to move in without a discussion of the Let Risks findings with the landlord.
The Managing Director of the defendant letting agent, BSP’s defence was that: “We pay Let Risks to diligently check tenancy applications on our behalf, we have to be able to accept their findings and it is not practical to re-check their checks for every application nor do we have the time.”
The landlord drew the Judge’s attention to the Let Risks disclaimer on their Tenant Assessment Report which states:
“The details contained in this report should not be used as the sole reason for making a decision. Let Risks cannot be liable for any inaccuracy or incompleteness of any information appearing in this report as it has been provided to Let Risks by a third party.”
At the Possession Hearing the landlord discovered that the female tenant’s work was fictitious, and she had no income at all, only debts. Her ‘employer’ was a relative primed to respond to the questions of Let Risks so the landlord pursued the male tenant for the Possession Order and Judgment in the sum of £4000+. Of his £15k a year salary it transpired that he had protected earnings of £900 a month with the remainder accounted for by other long standing debts – hence the pursuit of the defendant letting agent BSP.
The landlord successfully argued that nothing had been done by BSP to establish the affordability of the tenants to pay the rent of £725 per month, which the Judge had already noted was a considerable jump from the previous recent rent of £550 per month. (It represents an increase of more than 30%).
Turning to Mr Routledge, the Judge asked how the tenants’ affordability to pay the rent could have been assessed: "In this case the gathering of bank statements, P60, wage slips and employer’s reference would have proven immediately that the tenants had lied about their income and would have endorsed their incomings vs outgoings. The process of referencing is not just about gathering information. The documents/references must be cross referenced to show that the tenants’ story and history is not fabricated."
Document verification, cross referencing and data sharing is now classified as the best referencing practice by Property Ombudsmen and the large landlord associations such as the NLA, RLA and ourselves at Tenant Referencing UK. Establishing an evidence trail of the tenants’ story and cross referencing it is a vital part of the process. As an ARLA member one would expect a certain level of comprehensiveness in all referencing undertaken and in this case neither the referencing company nor the letting agent have been thorough in the entire referencing process and the subsequent passing of the buck by disclaimer has resulted in a catastrophic failing of this tenancy’.
On having considered matters in full, the Judge was satisfied that the landlord would not have agreed to take these tenants if she had been correctly informed.
He stated that:
- The defendant letting agent should have reported to the landlord that one of the tenants had a CCJ albeit a satisfied one
- The tenants had not be truthful on the original application form
- The medium risk credit score near the high risk threshold should have been communicated.
- BSP should have requested the minimum of three months bank statements in this case from both tenants. Had the defendant letting agent BSP or Lets Risks done this, they would have learnt about the tenant’s debts.
The Judge stated that if the application of these two tenants had been rejected as it should and would have been, other tenants would have been found - and found quickly because it was a great property. The landlord would then not have lost the £3625 in rental arrears and the interest along with it nor would she have incurred the costs of the possession proceedings.
The referencing was not made transparent or evidenced for the landlord to make a decision. Based on all the references given, the referencing agency and the letting agent both relied on what the tenant told them to be true to a minimal and unacceptable standard.
The Judge said these were his own findings of the facts presented before him and he found in favour of the landlord that the letting agent BSP had lacked due skill and care. He concluded by saying that if he had got it wrong, he would defer to The Property Ombudsman’s code of practice which governs the obligations of letting agencies and cited Section 10 of the Code of Practice which sets out further obligations on the part of defendant letting agent, BSP:
Section 10 of the Code of Practice outlines TPO agents’ obligations when undertaking referencing. Regardless of whether a third party referencing provider is used, the agent remains duty bound to consider the results and highlight any potential areas of concern to both the landlord and tenant to allow both parties to make an informed decision as to whether they wish to proceed with the tenancy on the terms previously agreed.” (www.tpos.co.uk/news-media-and-press-releases/case-studies).
The Judge awarded the landlord the sum owed plus costs of £520 plus the interest at 2% to be agreed.