Assured Advice 36: Developers and rental income guarantees

Read the assured advice provided by Warwickshire County Council Trading Standards Service based on questions around buy-to-let investment opportunities and marketing properties on behalf of developers.

New build house in yellow brick

This Primary Authority Advice has been produced by Warwickshire County Council Trading Standards Service, in partnership with The Property Ombudsman and Propertymark, for use by member businesses as an aid to complying with the law. If you follow this advice correctly, your local Trading Standards Service should respect this and not ask you to comply with the law in a different way. If you are contacted by a local authority enforcement body, please inform them that you are a member of the scheme.

Assured advice issued:

1. What rules must an agent follow when marketing residential properties as buy-tolet investment opportunities with rental income guarantees on behalf of developers?

We understand that prospective buy-to-let properties may be marketed with rental income guarantees in two ways: ‘rent to rent’, and insurance.

In the rent to rent situation, the property owner/buy-to-let landlord uses a commercial lease agreement to let the property to a business, who in turn sub-let to the final tenant via an assured shorthold tenancy agreement.

Alternatively, a developer marketing new properties to buy-to-let landlords may simply offer an insurance policy covering the rental income as part of the deal.

In either situation, the person buying the property, being a buy-to-let landlord, would be a ‘trader’, for the purposes of the above legislation. An agent marketing properties to such purchasers would therefore need to ensure compliance with the Business Protection Regulations.

The rental guarantee is presumably offered as a marketing incentive, so the agent and developer will want to promote it; and it is to be expected that the prospective buy-to-let purchaser, being a trader, will undertake some due diligence before entering into any contracts. However, we would suggest that some buy-to-let purchasers will be more experienced in the business than others, so we would advise agents to be clear in their advertising that purchasers should seek their own independent legal advice before entering into any legally binding arrangement.

2. What due diligence should an agent exercise when marketing properties on behalf of clients who are developers?

We would remind agents that they will always need to carry out their own checks on the information they give in their advertising, to verify that what they are told is correct and what they say is true.

Just because the vendor is a property developer rather than a private homeowner, this does not mean the agent is absolved from undertaking appropriate due diligence, such as:

  • Checking the status of the property (e.g. build in progress, build complete, resale home, tenant in situ);
  • Checking the estimated completion date for off-plan properties;
  • Enquiring as to the developer’s experience and previous properties;
  • Checking the documentation relating to the rent arrangements is in line with the marketing information;
  • Recording the details of verbal conversations where material information is discussed.

Member agents may therefore wish to refer to the Propertymark Property Information Questionnaire (see Assured Advice 34).

Download the full version

Download the full version of this advice to see what legislation and guidance Warwickshire County Council Trading Standards Service considered before providing this advice.