The Tenant Profile and Tenancy Agreement | Serviced Accommodation
As you'd expect the agreements that need to be in place for the serviced accommodation investment model are a lot more complicated than with other types of buy-to-let. Today we discuss tenants, tenant profiles, tenancy agreements and look at the contracts Residential Estates use with their investors and landlords.
The Tenant Profile and the Tenancy Agreement
Rob: Hi, it's Rob from Property Investments UK.
In today's video, we're going to be looking at serviced accommodation and how it works from a tenancy profile and also tenancy agreement, and the structure that's in place between the letting agents and also the investor client.
When it comes to renting a property, let's say straightforward, vanilla buy-to-lets - with additional rental processes in place. An AST (an assured short-hold tenancy agreement) is very often used by the tenants and the landlord.
Now, when it comes to other types of tenancy profiles or other types of rental agreements - and we do a range of different properties on this site. We look at social housing, we look at HMOs, we look at serviced accommodation and they all have slightly different structures.
With service accommodation you guys are obviously are the managing agent, you run all that side of things and you have the corporate let, tenant profile in place, Paul.
How do you structure the agreements, I guess with you guys, the people that are going to be staying in the property, and then also the investor, the client, the owner of the property?
Paul: So, someone buys a property through us, as a normal buy-to-let property, which makes it easier all round for everybody else.
When it comes to completion - during this phase we'll have talked about what it... It's important to know that they've still got every option available.
The serviced model isn't an obligation.
If you buy a property through us you can go through a normal AST route.
You can manage it yourself, you can go to a local agent who specialises in that area, you get them to manage it, that is not a problem.
Rob: Because they're straightforward assets aren't they? Straightforward rental properties, there's no -
Paul: It's a straightforward asset. It's yours to sell when you want, it's yours to do whatever you want with it.
What we say to you is, we're offering you a third and fourth option, ultimately.
They both involve us looking after that property.
There are two different ones.
We will give you an assured rental on that property. This is an agreement between ourselves - Residential Estates - and the buyer. Separate contracts from us to you.
We'll give you an assured rental on the property, which will be higher than what you would normally get on, after a net AST.
With that, we'll pay all the bills, service charges, ground rents, you name it, it's paid for you and you just receive the next sum in your account.
Rob: On that assurance - there's some letting agents, mainstream high street letting agents and also some insurance products that give the assured rental guarantees.
But very often they are, it's a percentage of the rent, they might charge a fee if it's an insurance product. Or if it's a high street letting agent they'll say right, if your rent is - say 100% of the rental income - we'll take 25%, or whatever it might be after that.
Paul: Or, we'll guarantee you 75%.
Rob: And then we'll guarantee you that. So, if local market rent is this much then you're going to be getting well below that level.
Do you look at the same structure, or is it slightly different? You pay better, don't you?
Paul: No. As a company, we do that. On our normal ASTs, we do do that, like any other letting agent.
But, on the corporate model, it's slightly different.
We will look at it and we will - based on our occupancy rates - we will base it on what we assume we can quite easily give them.
For example, with Luton, 5%. Manchester, 6% - we're offering that 6% net which is higher than what you would achieve on a normal AST on any other guarantee.
That 6% we will also pay - over and above the 6% should I say - we will also pay the service charge, ground rent, management etc.
Everything comes out and whatever is left after that we make.
Rob: So, if you wanted a rent guarantee structure you can do it but you're not in a worse position because you're doing it.
You still get a very good return, don't you?
Paul: You're in a better position. And we'll also offer revenue share scheme, which is slightly more complicated to go onto on video.
But, what that means it's just a simple share. It goes on - I guess you'd call it a risk-reward basis.
Where we take 25%, you take 75%. you look after the cost of your 75%, which we will still manage for you. But that's where you can achieve a significantly higher income.
Rob: It's more like a traditional letting structure where you have the rental income coming in the top, management in place they take a management fee from it.
And then if it's not tenanted, unfortunately, there's obviously there's no rental income coming in.
But, it's important that therefore you do work on the right properties, right projects. You make sure your occupancy, you said before is like 98%.
Paul: Yeah. And there are aspects in place. We do have a parachute payment in place to make sure it's covered.
But, we also have breaks in the contract as well, because we do know - So, for example, if a client is going to be happy with 6% net in Manchester. That is, without a doubt. If someone offered you that you'd probably bite their hand off on a normal AST.
But, if you see that you could have earned potentially 12% in that year - when we show you how it's been occupied - then you can have a little bit of... why didn't I do it?
Rob: Yeah, should've gone for that one.
Paul: Yeah. We have breaks in the contract where we can say after six months okay, we'll have a look see what you're doing and then switch if you like.
We will also offer the parachute payments where, if we don't book it for a certain percentage of the month then we will give you what that return would have been.
To make sure that your finances are covered, your services charges are covered, etc.
But, I think it all goes back to the same thing.
At the end of the day, if we're giving a guarantee - If we're giving a guarantee in paying all the bills, we're incredibly motivated to make sure that we're selecting the right apartments and selecting the right clients.
On a revenue share, if we're on a 25/75 split, the bigger your 75% split is, the bigger our 25% split is.
It's important for the client to know that we are literally going into business with them.
They don't have to be involved with our suppliers. We'll have a separate contract with our suppliers.
That's nothing to do with the investor.
They will be notified who they're using, but our contract is saying 'we commit on the first or fifteenth of every month to giving you x pounds per month for your apartment, simple as'.
Or, we'll go on the revenue share scheme and that agreement between them and us.
Rob: Then the agreements you have in place you'll have a management agreement, I guess, in place between you guys and the landlords?
Paul: Yeah.... All legally, contractually binding.
Rob: I guess from an investor's viewpoint, it doesn't need to necessarily be complicated.
If they want to go down the straightforward buy-to-let route - straightforward AST - they can do, with the normal local tenant profile.
But, the option to achieve a better rental income on the property by going the serviced accommodation route - there's a structure in place that gives them a flexibility whether they want a guaranteed rent or they want something else.
Paul: I guess, the best way of putting it - on a normal buy-to-let you've got... there are only two doors, A and B.
A is managing it yourself. B is getting someone else to manage it for you, just on a standard AST. But now we give ...
Rob: Other options.
Paul: ... a sort of golden, platinum door as well to offer you.
Options are always good for someone, at the end of the day.
Because we're letting agents as well.
If for any reason, something didn't work, the corporate model didn't work, we would then make sure we just get it on a normal AST. At least, for a certain amount of time, to make sure something was coming in for you.
We have got every option available to us.
More importantly, if the buyer, when they're buying an apartment in a good location - it's going to make money, with more options. And they can be discussed any time.
It's nothing to do with the reservation, the exchange process. It's all to do with contact and saying right, okay we'll show you our real-time revenue and obviously share from other locations how it's working, you choose. These are the benefits.
Rob: Yeah, perfect. There are obviously tenancy agreements in place or agreements in place with the managing agents. But unlike a traditional straightforward tenancy if it were, a vanilla buy-to-let AST, there are other options.
When you buy an investment property like the one we're in today there are other options that you can run that property on, rather than just a straightforward buy-to-let.
There's also serviced accommodation which, as long as you have the right management contracts in place, can be a very good option too as well.
Hopefully, that video helps gives some context to the agreements and the tenant profiles as well, like the corporate let tenant profiles in place. All the best.