Claims against Letting Agents arising from inadequate referencing are a regular feature in the claims we manage in our work for Insurers. Issues generally arise in circumstances where the Letting Agent has sub-contracted the contractual obligation to reference the tenant(s) to a third party referencing provider. Following receipt of which there is little to no scrutiny of the information provided by the referencing provider and the tenant(s) are recommended to the client landlord for the purpose of the tenancy. What follows when the tenant(s) stop paying rent and/or damage the property are usually allegations of a failure to properly scrutinise the tenant referencing report or failing to take basic steps in the referencing process. If, upon reliance of inadequate referencing reports, the client landlord allows an unsuitable tenant(s) to occupy a property, then the cost of dealing with that can be eye watering and most often the target for the claim from the landlord will be the Letting Agent and their insurer
Where tenant referencing is carried out by a third party referencing company on behalf of the Letting Agent, it is imperative that the Letting Agent's business terms and conditions deal adequately with that to ensure that any liability for the failure of the third party referencing company is sufficiently limited. The Letting Agent should also ensure that it has checked and understood the terms and conditions upon which the third party referencing company are providing the service. Often the referencing provider will limit liability or provide a disclaimer in respect of reliance upon and accuracy of the information provided by them. Where they have done so, it is difficult to 'pass the buck'. The claims we see usually arise as the terms and conditions of business fail to deal adequately with the liability and the use of a third party provider.
Ultimately where the Letting Agent has contracted out the referencing to a third party provider, it does not want to duplicate time in carrying out its own checks. However, regardless of the contractual arrangements for the carrying out of the referencing report, the Letting Agent is required to provide its client landlord with sufficient information to allow them to make an informed decision about whether or not to proceed with the let. This will include (but is not limited to) checking photographic and address ID to ensure that the applicant is who they say they are. The circumstances of each application will be different and Letting Agents should be alive to any additional checks that may be needed in the circumstances
Clearly where insufficient steps have been taken to comply with the Letting Agent's professional obligations, a client landlord will seek redress from the Letting Agent for rectifying the situation. Claims are likely to include the cost of possession proceedings and eviction, remedial works to property where damage has occurred and / or rent arrears not recoverable from the tenant. This cost is likely to be considerable in respect of high end rental properties. The decision in Hale v. Blue Sky Property 2016, where a letting Agent was found liable for failing to check the references provided by a third party provider and provide any analysis to the landlord on the back of those references, despite the third party provider passing the tenant; should serve as a warning and reminder to all, that it is not enough to rely on a third party provider, where you receive a fee for providing a service. A Letting Agent is expected to scrutinise the information provided to ensure that the referencing bears out and that the information provided to the landlord is accurate and up to date to enable the Landlord to make an informed decision about whether to proceed with a tenancy or not.