Private Tenancy Fraud in Zone 1 – Why It Matters

I’ve been a landlord – personally and corporately – since I was 26. Operating across the UK from rural social housing in northern Ireland to prime and fringe prime central London. I believe that a well regulated private rented sector has an important role to play in housing as the country navigates the chronic shortage which affects all of us across all parts of the market. Private landlords can also help with bettering the quality and choice of housing. However for many reasons, often valid and understandable, private rental has a poor image.

This needs dealt with – the real problems within the sector that lead to the image problems and then a more aspirational presentation of the value and role of private rented sector. Which in my experience includes numerous compassionate private individuals and SME landlords who care genuinely about their businesses and their tenant-customers.

But something I’ve noticed is that whilst this remains messy and unresolved, and in tandem with underfunded stretched court systems and the  boom of short term lettings platforms such as Air Bnb; a perfect storm has emerged where private tenancy fraud with links to organised crime has emerged within some of London’s most prestigious post codes. In the cases I’m dealing with it’s happened in Belgravia, Kensington and Chelsea.

Individuals take on ASTs for properties presenting as normal private tenants. They then quickly stop paying rent typically using disrepair as the argument knowing it will take circa 18 months for a landlord to obtain an eviction. They deny the landlord any access, advertise and sell the rooms on Air Bnb, Vimeo and to unsuspecting international and domestic visitors who are then staying in accommodation where the insurance has been compromised. Other residents, neighbours and freeholders have their security interests compromised as do any lenders affected. Presumably they are not declaring the income or paying tax. In high season a Belgravia flat can be advertised for thousands of pounds a night.

This matters because as you look at these hosts you then realise that in some cases they are hosting 20-30 other central London properties. Presumably ones they have also hijacked. Worse still in extreme cases they then try to threaten and intimate the landlords or the on-site building staf. This is difficult to seek police help for as landlord-tenant matters are generally classed as civil and the landlord would be typically be seen by a police officer as having more power than the tenant.

The only way of dealing with these is through the courts which does seem to work when you eventually get through the waiting times and the early hearings. Contacting the holiday rental platforms where you see your property listed each night doesn’t work. Our last lawyers letter to was some 8 weeks ago and has not even been acknowledged. A tenant whose eviction is slated for the 3rd week in July is still using their platform to rent out rooms (including a continental style breakfast and free WIFI) near Kensington Palace. It is harder than it should be for landlords and their staff or property managers to get help as experienced fraudsters, who are often linked to organised gangs operating at scale, can also currently use the laws  and systems we have in place in the UK that are designed to protect tenants from unfair treatment.

So why does this matter? Well apart from the links to organised crime which is a whole other LinkedIn post. Who wins from this? The landlord spends £20-£40k on legal fees, loses revenue and basically ends up with a loss that will get offset against their own tax bill for however many years. The fraudsters  takes the revenue and I’m assuming have a pretty loose rapport with HMRC. The online booking platforms take commission. However not on all transactions as very often the hosts will advertise online but then take cash payments in person. 

With one of our “hoteliers” – about to be evicted soon from a “5 star holiday heaven” (their words) near Harrods – I counted up their listings on Air Bnb alone and published room rates and assumed a 80% annual occupancy rate. It comes out at about £2.5m a year from which they will pay platform commission and some rent and a deposit to secure the tenancies initially. I have never cash flow modelled a criminal enterprise before so am unsure of all of the assumptions; however believe there is an annual profit of circa £2m. Its certainly lucrative as we can often track down and view open Instagram accounts which are littered with motivational  get rich quick quotes and photographs of hire purchase performance cars (as a tip you can search the registration number on for a fee of £7!).

So the critical investment that housing does need – from the private rental sector and the public purse – is restricted by the lack of funds flowing into it. Investors who experience it first hand question UK based professionals such as me why our legal system allows this to happen. This is difficult to answer as it would be easier to get help of this was a car, hand bag, tennis racket or literally anything else that belonged to you, that someone stole and that was being rented out by them to online complete with special offers such as free airport transfers or a ‘genius discount for a longer stay’. 

The scary, counter productive and illogical nature of this is something Merchant Land will continue to try and draw attention to.

There should be a fast track housing tribunal and better criminal law provision to wind down tenancy fraud of this nature within a maximum of 2 months of it being proven. We also need measures to prevent serial perpetrators from carrying on with a business model that undermines the best interests of everyone else.