What is a Guaranteed Rent Scheme?

A guaranteed rent scheme, also known as a rent-to-rent scheme, is where a landlord leases their property to a company, letting agent, or individual for a set period in exchange for a fixed monthly income. The middle tenant then sublets the property, manages it, and handles tenancy issues. This arrangement ensures landlords receive rent regardless of occupancy or tenant payment status.

How Do These Schemes Work?

In these schemes, the middle tenant signs a contract with the landlord, guaranteeing a monthly rent below market value. The middle tenant then markets the property, manages tenants, handles maintenance, ensures legal compliance, and deals with evictions if necessary. They profit by subletting at higher rates, often converting properties into Houses in Multiple Occupation (HMOs) to increase yield.

Who Offers Them?

Guaranteed rent schemes are offered by both public and private sectors:

• Local Authorities: Councils use these schemes to increase social housing. They lease properties, manage them, and ensure compliance, offering landlords guaranteed rent and professional management.
• Lettings Agents and Private Providers: These entities offer commercial arrangements, handling everything from marketing to maintenance. Unlike council schemes, they profit by subletting to private tenants.

Difference Between Guaranteed Rent Scheme and Rent Guarantee Insurance

• Guaranteed Rent Scheme: The middle tenant guarantees rent and handles management, regardless of occupancy or arrears. The landlord has no direct tenant relationship.
• Rent Guarantee Insurance: This insurance covers landlords if tenants default. It’s bought at tenancy start and covers arrears and eviction legal fees. The landlord retains a direct tenant relationship.