A different rental strategy for single let properties
What exactly are corporate lets?
Corporate lets, also known as company lets, are tenancy agreements that exist between a landlord and a limited company. A person (or people) will still reside in the property, but the company will be named as the tenant, and the occupant will be a sub-tenant or licensee.
Companies most commonly rent properties in order to provide short-term accommodation for contractors or members of staff who are temporarily relocating. This provides several benefits over hotel or bed and breakfast accommodation, such as the costs saved for the company and the enhanced quality of living for the member of staff.
Why corporate lets?
According to the Prime Location blog, corporate lets are not only common for companies in need of housing employees, but also among the expatriate community. The landlord’s concern is that the various costs are paid, and that the company is fully accountable for any default of payments of any of these costs.
Popular locations in London include Notting Hill Gate, Holland Park, Chelsea, Knightsbridge, Kensington, Croydon, parts of the West End, the City, Wapping and Docklands. However, corporate lets can happen anywhere a company needs (or is happy for) their employees or guests to live. Especially important for companies are good transport links to the sites where their employees must go. Due diligence is a must here and we recommend having the property listed on major property portals as well as privately pitched to possible company candidates (especially to their HR departments).
Right to rent and residents’ checks
Under the Immigration Act 2014, landlords are required to check the immigration status of prospective tenants and face penalties if they let their property out to tenants who are not eligible to live and work in the UK.
According to the Home Office, landlords offering corporate lets will not be required to conduct right to rent checks, as ‘right to work’ checks are already conducted by the company, who will be the liable party should the occupant’s immigration status be called into question
Many companies have their own tenancy agreements, which they insist on using. However, the landlord usually reserves the right to review and propose amendments to the agreement. In the event that the company does not have its own agreement, the landlord’s agent should be able to provide one. In this case, both parties reserve the right to review and propose reasonable amendments. If an agent is not involved, the landlord should produce an agreement from a solicitor.
You don’t necessarily need a solicitor to draft the agreement and in our opinion you should, in any case, be the one propising the clauses in it. Having said this, you should definitely have someone qualified in property law to check your lease and confirm it is both exhaustive and legally sound for what you need.
Remember that break clauses, renewal conditions, deposit, rights over the property, allowed residents, and every single aspect of the tenancy MUST be defined on the lease. THERE IS NO HOUSING ACT to fall back onto if you forget to specify “what happens if…”
Since the Housing Act doesn’t apply, you can only terminate the tenancy at the expiry of the term (if there is no renewal) or with a notice to quit.
Licensing and HMO rules
With the right agreement in place, a corporate let can be an amazing tool to get around licensing fees and local HMO restrictions. The right agreement for this would prevent the company from subletting and would limit the number of occupiers to below the “mandatory” licencing scheme. This worked for us in the areas where we operate, but we strongly advise you to check with your local council first. We always ask for a written (email) confirmation from the licensing department stating that no additional licensing is needed when the property is used by a corporation but no one is actually RESIDING there.
Corporate lets are trickier to negotiate than assured shorthold tenancies. In addition, once the lease is signed, the landlord has no say over who occupies their property (unless the lease specifies who the allowed occupants are and the landlord reserves the right to approve any change to these). Between these factors and the more antiquated legislation that governs company lets, buy-to-let mortgage lenders often shy away from funding this type of investment, viewing it as higher-risk than more traditional tenancies.
An alternative arrangement, which is becoming more common, is the company-sponsored let. In this arrangement, the tenant will be the occupant; he or she will sign a standard assured shorthold tenancy agreement, and the company will pay their rent. The tenant and not the company will be held responsible for any damages to the property, and the tenancy will be subject the more modern provisions of the Housing Act 1996.
The problem with the latter arrangement is that most of the legal advantages that a corporate let allows would not actually apply: the occupiers would in fact be tenants on ASTs. HMO rules, council licensing, deposit protection, protection from eviction, automatic renewal, right to quite enjoyment, right to exclusive residence, and so forth will all apply to the tenancy.
Here at AGAPE Properties we have secured finance on properties let on a corporate basis by using commercial mortgages (we often use them anyway because we are a company and not an individual landlord) and by making the company that rents from us disclose in advance the details of the property occupiers. This way we avoid individual people becoming tenants on ASTs and we can still operate legally withing the terms of our mortgages.
Checking the company
It might feel safe to assume that a company will be a more reliable tenant than an individual, but you should check a corporate tenant as diligently as any other.
- Use the Companies House service to get information about the company such as its registration details, previous names and directors’ details.
- Request, from the company, details of the employee who will be occupying your property and consider credit-checking them.
- Also request rent guarantees from one or two company directors and conduct credit checks on the guarantors.
- Take a damage deposit. Note that you needn’t protect this in a deposit protection scheme, as the requirement to do so applies only to assured shorthold tenancies. If the company will not pay a deposit (which many prefer not to do), you may need to ask that they sign a letter of indemnity against unpaid bills and damages, or that a clause to this effect appears in the lease. You can also state in the lease that the deposit will also cover unpaid rent
Companies that frequently relocate employees often have internal relocation services that are administered by human resources departments. Other companies might use external specialist relocation agents to find properties for their staff.
Relocation agents tend to look through established lettings agents in order to find properties, so ensure that you use an accredited letting agent or estate agent to source your tenants.
To maximise your visibility, though, you may also want to advertise the prperty directly to companies that could need a pied-à-terre in your area. Ask to their HR departments, send emails to them, hung posters and fliers in local hospitals or big construction sites. You never know when the right person will spot it.
Managing the property
Many corporate tenants expect (and indeed pay for) premium service, providing which might quickly become difficult for the DIY landlord. Agents on the other side may be clueless about what to do or charge a fortune for inexpensive things such as company referencing. First of all you would need a commercial lease, not an AST, and many agents may not know any more than you do about these, especially for a residential property used in this specific commercial way.
Below we provide a checklist for things you need to know before deciding how to use an agent. At this point, though, it is vital to remember one thing: agents should be providing you with a service worth your money. Don’t take their standard offer on something that is not standard! You tell them your terms: DECIDE WHAT YOU WANT THEM TO DO AND BE WEARY OF “ALL INCLUSIVE” PACKAGES. Here at AGAPE we usuall employ our agents on bespoke deals, rather than signing up for what is best for them.
We often take care of taking professional pictures, referencing tenants (which for companies is very easy and free on companies house), arranging for inventories and drafting contracts ourselvels (often outsorcing all of the above to specialists who are anyway chaper than the agents). We then counter-offer a reduced fee to the agent by highlighting that they will only have to show the property around, list it on Rightmove and Zoopla and “sell it” to the right tenants. Sometimes agents’ packages are actually competitive in price, but ALWAYS make sure they KNOW WHAT TO DO with commercial leases and corporate let managemet.
If you decided that corporate lets would help you maximise the returns from your portfolio, here is a final recap of what you need to do:
- Check if the property in a suitable location for either banks, construction companies, hospitals, universities, or other corporations with staff needing to relocate for medium to short periods. Ask HR departments, enquire with several letting agents or sometimes just “pop on site” and ask.
- Make sure the property is furnished and ready to go (down to TV, fast broadband, and often an all inclusive rent)
- Take professional pictures
- Make sure you understand the legal framework of corporate lets: read the relevant Acts (see legislation below) and speak to your solicitor if you are still confused.
- Make sure you have arrangements for an inventory to be taken (or that you know how to take a PROFESSIONAL one yourself)
- Negotiate a deal with an agent to have your property listed and marketed: remember that even if they say “we offer this rate”, you can always COUNTER OFFER.
- Whatever service you outsorce, make sure you have a good and trustworthy relationship with the other party
- Make a deal with a property manager, a handyman, or local tradesman so that property issues can be resolved quickly and without you running around like a madman
- Advertise your property on the open market, ideally on SpareRoom as well (as a whole property) and make sure you email companies about your service
- Agree on the terms of your tenancy and write or agree upon an appropriate lease (you can download one of our templates below, for free)
- Don’t let the tenant push you around, especially their accountancy department: it’s a business and they will try to squeeze the best conditions for them out of you. DON’T UNDER-SELL YOUR PROPERTY and only ever agree on terms that would work for you and for the extra management that this type of tenancy requires.
- Sign the lease only after the director or company officer has signed and initialled on behalf of the tenant (we use an online platform to facilitate this) – don’t forget to attach any addendum or gas safety certificate to the contract to be signed
- Take the first payment: you might need to invoice them for it.
- Have an inventory taken when the company take possession and ask them to sign it.
- Arrange for the right contacts to be provided to the company (such as agents, managers, handymen, and so forth) and set the house rules clear
- Be professional: firm and resolute but also customer friendly – the company is now your client and you want good clients to stick around and recommend you 😉
- Ask for a testimonial for when you will need to advertise again to other companies.
- Don’t forget to pay all the bills you promised to cover.
- …If in doubt: email us -> firstname.lastname@example.org
**Free copy of our company let lease template**
Sign up below to download our latest commercial lease for free: you can adapt it to your property and make sure you don’t forget any bit you want cover.
Also make sure you check the legislation you are referring to, such as: The Landlord and Tenant Act 1985, The Landlord and Tenant Act 1954, The Gas Safety (Installation and Use) Regulations 1998.