How Tenancy Fraud can affect Landlords' Finances and Families

Finance is increasingly global, with money and assets moving speedily between different jurisdictions. It seems criminals launder high amounts of illicit funds through the London property market. Often, the proceeds of crime are generated overseas, and the crooks use large financial centres like London as transit points for the money.

Estate agents, accountants and legal professionals can be exploited by criminals who use them to act as knowing or unknowing intermediaries to draft documentation, create complex structures that conceal ownership, store large amounts of money, and disseminate funds.

The National Crime Agency is responsible for tackling the threat of money laundering, working in conjunction with major financial institutions around the world. Let’s hope it never affects you, but if you suspect your property is being paid for with the proceeds of crime, you’ll need to submit a Suspicious Activity Report.

This is when a fraudster steals your identity by forging a passport or changing their name by Deed Poll. They then claim to be the rightful owner of your property so they can mortgage it or sell it, take the cash and disappear. This can be financially crippling for the landlord. The buyer also loses out because they’ve paid the deposit but never receive ownership of the property. 

You’re most at risk from this threat if you live abroad, are not registered with the Land Registry, the property doesn’t have a mortgage, or the property is empty. This is because empty properties give the fraudster a greater opportunity to intercept or redirect the post without anyone noticing.

To help address this, the Law Society has introduced a new protocol where solicitors do extra checks to verify the identity of the seller. However, fraudsters can forge convincing documents that even fool the legal experts.

As the property owner, you can apply to the Land Registry to be alerted if someone applies to refinance or change the ownership of your property. This service is free. It wouldn’t necessarily prevent the fraud, but it would alert you to the problem sooner, enabling you can take faster action. You can also check that the postal address the Land Registry holds is up to date, as it may not be the same as the property address.

Another thing you can do is ask your solicitor to register a restriction on the title. This requires the owner to provide proof of ID before any sale or refinance can go ahead. You’ll have to pay for this, but it means the buyer’s solicitor will know the certificate is required before completion, and it could therefore flag a fraudulent transaction in time for you to catch it.

Note that there’s a difference between ‘can’t pay’ and ‘won’t pay’. If a tenant doesn’t have the money, you won’t get it even if the Court says you should. When dealing with a fraudster who knows all the tricks, it’s difficult, if not impossible, to recoup the money they owe you.

If you’re the victim of a tenant who doesn’t pay, you lose the regular revenue you depend on. And then you have the cost of evicting them, the lost income while the property is void, and the cost of sourcing a new tenant. Not to mention potential court costs.

Evicting a tenant can cost between £1,300 and £2,200, depending on whether you go through the County Court (for claims up to £10,000) or the High Court. You’ll need to pay for legal advice too, although insurance can cover this expense. 

You and your family will also suffer the stress of going through the process. It’s also incredibly time-consuming. Sometimes you’re the one who has to make a judgment. Even if you’ve been wronged and lost money, is the hassle of a court case going to be worth it considering the impact on your own mental health, as well as the effect on your loved ones?

For the right to recover legal costs directly from the tenant, add a clear provision within your tenancy agreements that allows for the recovery of administration charges. Alternatively, add a clause to your tenancy agreements that allow you to pass on the costs of court proceedings to tenants through the service charge.

In the Homeppl 2023 tenancy fraud report, 91% of all tenancy fraud was from the falsification of financial documents. With the abolition of Section 21, you’ll want to be even more stringent with your tenant checking.

Make sure you complete thorough reference checks. Request that prospective tenants provide you with photographic identification in the form of a passport or driving license, a recent utility bill as proof of address, confirmation of employment with recent payslips, and references from their previous landlords. Also, do a credit check to ensure they have no recent CCJs or bankruptcies. Complete a money-laundering check to look for any theft charges or disappearances. Be on the alert for fake IDs, visas and doctored documents. In London, it’s increasingly common to ask tenants to submit their CV, which gives you even more chance to check out their employment history. Finally, you might want to invest in software or find a specialist provider who can support you with this by using Artificial Intelligence (AI) for tenant checking.