Buy To Let: Landlords are now making tenants play the lottery of sealed bids

Central London landlords are boosting rents by as much as 20 per cent by requiring applicants to make sealed bids for tenancies.

Competition for rented accommodation has intensified in the past few months as many buy-to-let investors have sold out to owner-occupiers, and a large number of overseas executives have arrived to work in the capital.

Many landlords have responded by borrowing a trick used before in selling properties – demanding that applicants make sealed offers in writing by a deadline. Desperate applicants bid considerably above the asking rent to be sure of seeing off rivals, and may also offer longer lets and other inducements. It can all be highly stressful for would-be tenants.

Both sealed bids and the less formal "best and final offers" procedure – which uses email, fax and the phone rather than paper – are being increasingly used at all levels of the rental market, not just at the top end. All letting agents report that family houses of any size are virtually unobtainable, especially upmarket areas such as Kensington and Chelsea in west London, but even modest flats are in very short supply, according to Kari Trajer of Hurford Salvi Carr, operating in Bloomsbury, the City and Clerkenwell.

"The trend has been created by the shortage of flats at the smaller, bijou end of the market – one- or two-bedroom flats that used to rent at £350 a week are now fetching £420 a week," Trajer says.

The main advantage for the landlord is speed. "As soon as a property comes on, we organise two or three days of viewings and then ask for best and final offers for submission to the landlord," Trajer explains. "The three-day process focuses tenants' minds."

When selling a property, sealed bids concentrate on the price, but in the lettings market there are several other things a tenant can put in to improve their offer, such as waiving the usual six-month "break clause" and even paying all the rent in advance (a so-called premium lease), although the latter may have tax implications for the landlord.

Big rent increases can result from the best and final offers process, says Tim Hyatt of Knight Frank: "We have had cases where the property can make 10 to 20 per cent above the asking price, but it only works on immaculate properties in good locations."

Lucy Morton of WA Ellis has seen tenants pay even bigger rises to stay where they are and avoid having to fight for a new place. "We have seen tenants prepared to pay 30 per cent rent rises when the lease comes up for renewal, because they are so desperate to stay," Morton says.

But landlords have to invest to secure such big increases. "We encourage landlords to redecorate and refurbish their properties before they go for more rent," Morton says.

At the top end of the market, overseas executives are choosing to supplement the allowances their employers give them in order to get the places they want, says Jane Ingram of Savills.

"We have just had a house in Kensington that was seen by two tenants in the first hour and then went to best and final offers in 24 hours," she says. "In spite of both having corporate budgets, both parties were dipping into their own pockets to top up their offers."

For particularly desirable properties, tenants are signing on the dotted line as soon as their dream place becomes available, even if they are not ready to move in.

"One American tenant in Belgravia was so keen to move in that he signed the lease and has been paying the rent since April, even though he has not yet moved in. He has paid more than £80,000 so far to keep a place that he is not even living in," Ingram says.