Letting to a limited company

The majority of rental properties are let to individuals or groups of people, but it is possible to let your property to a limited company. In this article we examine the pros and cons of company lets, and what you need to bear in mind when letting to a company.

What exactly are company lets?

A company let is a tenancy agreement that exists 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.

This is very different to buying property through a limited company, which requires a limited company buy-to-let mortgage.

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, not least of which are the costs saved for the company and the enhanced quality of living for the member of staff.

Why let to a limited company?

Landlords who favour so-called corporate housing boast of higher rental income, fewer arrears and defaults, and tidier tenants. Because companies typically pay rent quarterly in advance, company lets are very good for all-important cashflow.

This is in exchange for a range of added onuses on the landlord providing the property. If the company is paying premium money, they expect premium accommodation. The property needs to be ready to live in from the get-go, down to broadband installed, television connected and even cutlery in the kitchen drawers. Corporate tenants also expect efficient service; expect to have to respond to issues on the day that they are reported.

Tips for providing company lets

Viable investment locations

The financial sector used to be the primary industry for which this type of tenancy was sought. Corporate lets have therefore been traditionally located in and around the Square Mile and in commuter towns with good transport links.

Now that corporate lets have become popular with IT and telecommunications companies, among others, your choice is broader – but only slightly. Central London is still the king of company lets, but other major cities such as Birmingham, Edinburgh and Manchester see a fair bit of this type of business.

Finding tenants

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.

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.

  1. Use the Companies House service to get information about the company such as its registration details, previous names and directors’ details.
  2. Request, from the company, details of the employee who will be occupying your property and consider credit-checking them.
  3. Also request rent guarantees from one or two company directors and conduct credit checks on the guarantors.
  4. 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.

Find out more about the tenant vetting process.

The tenancy agreement

Because entities such as companies are not covered by the Housing Act 1988 2, assured shorthold tenancies do not apply to company lets. Rather, the tenancy will be underpinned by a corporate lease.

Most companies that make a habit of relocating personnel have their own template lease, which tends to favour the company. You should reserve the right to review the agreement and propose amendments, such as break clauses for longer tenancies or indemnity clauses in lieu of security deposits (see ‘checking the company’ above).

If the company does not use its own agreement, your agent may be able to provide one. In the rare case that you aren’t using a letting agent, or if your agent cannot provide a corporate lease, you should instruct a solicitor to draw up an agreement. In either case, both you and the company should review the agreement.

Rent is typically paid quarterly in advance, though for longer leases it might be paid biannually or even annually.

Immigration 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. At the time of writing ‘right to rent’ checks are being piloted in certain areas of the West Midlands, and are likely to be rolled out across the rest of the UK throughout 2015.

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 1.

Managing the property

Many corporate tenants expect (and indeed pay for) premium service, providing which might quickly become difficult for the DIY landlord. Seeing as you should already be using a letting agent to find your corporate tenants, strongly consider employing the agent on a full management basis so that you can delegate the ins and outs of daily administration and tenant care.

Ending the tenancy

Because you won’t be using an assured shorthold tenancy, Sections 8 and 21 of the Housing Act do not apply to company lets. If you wish to terminate a company let, you will instead need to use a notice to quit.

Getting finance

Company lets are trickier to negotiate than assured shorthold tenancies. In addition, once the headlease is signed, the landlord has no say over who occupies their property. 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.

If you are considering letting to a company and would like to discuss the possibility of obtaining finance, get in touch with our advisors on one of the numbers at the top of this page.

References

  1. Norwood, G. “Home Office clarifies right-to-rent and corporate lets”. Letting Agent Today. 3 Dec 2014
  2. Housing Act 1988, Sch. 1 para. 4

This information should not be interpreted as financial advice. Buy to let mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.

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