Now it's the tenant's turn to get gazumped

Gazumping used to be the scourge of the housebuyer, but now, it's hitting the rental sector as well.

Tenants who are already paying through the nose after a year of rising rents face even tougher times ahead as competition for properties heats up. New research by FindaProperty.com shows that one in eight of those looking to rent has experienced rental "gazumping" in the past year, being outbid at the last minute by tenants with deeper pockets.

"This gazumping trend seems to be here to stay for the time being and it's spreading," says Nigel Lewis, an analyst for FindaProperty. "Agents are there to get the best price for the landlord and will pass on better offers so it is quite dog-eat-dog at the moment."

Although traditionally a problem for homebuyers, gazumping is a growing concern for tenants all over the UK, says FindaProperty, that but particularly in London and the South-East. This is largely down to the fact that rental demand is continuing to outstrip supply; the latest Residential Lettings Survey by the Royal Institution of Chartered Surveyors shows that fewer rental properties are coming to market and demand is increasing at its fastest pace since the end of 2008.

"There is an acute shortage of desirable one- and two-bedroom flats to rent at the moment because would-be first-time buyers are renting for longer. Other parts of the market are not facing the same drastic shortage, but there it is still not enough stock to meet demand from renters," says Stephen Ludlow, a director of London lettings agent Ludlowthompson.com.

With a lack of new stock and a spike in demand for rooms, landlords are in a strong position to push rents up. Figures from LSL Property Services show that average rents did fall for the first time in 11 months in December, by 1.2 per cent to £684. But Christmas typically marks a slow month and the news will do little to soothe tenants coping with average rents that rose by 3.8 per cent between December 2009 and December 2010. Buy-to-let specialist Paragon Group said that 41 per cent of the landlords it polled are planning to increase rents during the next 12 months.

As well as upping rents, landlords are cherry-picking the best applicants, resulting in many tenants being replaced despite having a verbal agreement in place. Many agents are also reporting an increase in the number of landlords asking for prospective tenants to lodge sealed bids, when interested parties put in their highest offer before a specified deadline, after which the landlord is free to take his pick. From a legal standpoint, there is little that can be done to avoid being gazumped because, until a contract has been signed, the landlord is free to change his or her mind about whom to offer a tenancy.

"A landlord and a tenant are bound to a letting only once they have entered into a contract (ie the tenancy agreement). This contract may be entered into before the start date of the tenancy itself, or it may be entered into on the day the tenancy is to commence, in which case there is an obvious risk of a change of mind on the part of one party or the other," says Tom Moran, partner at the law firm Speechly Bircham.

This means that even tenants who have paid a holding deposit – often hundreds of pounds – can lose out to another applicant because this deposit does not legally bind either party to enter into a tenancy. Holding deposits are designed to reserve a property until a tenant's references have been checked and the tenancy agreement is drawn up, but with landlords in a position to hold out for what they deem to be a better prospect, tenants could lose out. Furthermore, although this holding deposit should be returned if the landlord decides not to proceed with that particular tenant, some letting agents may ask for non-refundable deposits, leaving tenants without a home and out of pocket.

"If it is a non-refundable fee paid without any reciprocal obligation being undertaken by the landlord, then a tenant may lose this money even he or she is ready and willing to enter into the tenancy. The major message is that tenants should check what any up-front payment is for and the terms on which it is to be paid by them," says Mr Moran.

For tenants looking for ways to get ahead of the competition, it's crucial to understand what most landlords look for in a tenant. With many properties let within just a few days of coming on to the market, preparation is vital. This means setting a maximum rent, getting any documentation ready and raising the deposit in advance to avoid any stumbling blocks. For tenants sharing a property with friends, it can help to agree beforehand to be jointly responsible for the rent, instead of singly responsible which may put some landlords off.

"I think most landlords will consider reliability as important as price. What a landlord really wants is to have people who are organised, tidy, and who pay the rent on time. I would say that if a tenant has their references and the deposit ready and comes across as being on the ball, they are much less likely to be gazumped," says Mr Lewis.

Above all, tenants should make sure they sell themselves to the landlord and highlight anything they think might swing the decision in their favour. For example, young professionals with a steady income should be sure to mention this clearly when applying. For those without a reliable flow of income, securing a guarantor such as a parent or homeowner will go some way to persuading the landlord that they aren't a risk.

"The lettings market is no longer a buyers' market and the onus is very much on tenants to sell themselves to the landlord. If there is a reason why you might be more attractive as a tenant, let the agent know about it," says Mr Ludlow.

Expert View

Nigel Lewis, FindaProperty

'With property sales, once you get to the stage of exchanging contracts, there is a degree of restriction on what happens next. But with renting, until you've signed your contract, which can be very late in the day in many cases, someone else can come in and snatch it from under your feet.'

Case Study: Matthew Kattan, 26

A media buyer based in Clapham, Matthew Kattan fell victim to this trend last year when his move into a two-bed flat in Fulham went awry at the last minute.

"It was last October and I was living in Shepherd's Bush at the time but I found somewhere quite easily and put a holding deposit down so everything was going forward," says Matthew. "But the landlord pulled out a week before my friend and I were to move in.

This news came despite there being no issues with any references, or their ability to pay, and when pressed, the lettings agent simply said that the landlord had decided to go with someone else. Fortunately, Matthew had a friend with a spare room in Clapham and was able to move in there instead, but the experience has reminded him how vulnerable tenants can be.

"I wasn't left out of home but my friend had to crash on someone's couch for two weeks. It's just the nature of the business; lettings isn't regulated well and until you move in nothing is sure so if a landlord gets offered more money they are going to take it," he says.