A good time to be public-spirited

Private landlords are wary of tenants whose rent is paid by councils. But the rules are changing, says Chris Partridge

But investors who risk it often find that this isn't true, says Malcolm Harrison of the Association of Residential Letting Agents. "Landlords assume there must be something wrong with such people, but most are simply going through a bad patch," he says.

The Government is pushing local authorities to end the practice of shunting families into cramped, often squalid bed-and-breakfast accommodation, creating a demand for decent rented flats and houses. Private landlords were encouraged to help with the offer of rent paid directly by councils, eliminating the risk that the tenants would default.

Unfortunately, some local authorities proved to be worse payers than the benefits claimants. In Liverpool, landlords faced an impenetrable bureaucracy that delayed payments and sometimes left landlords in the lurch after properties had been damaged by tenants on benefits, who rarely have money for a deposit. Some councils even manage to claw back rent if they felt that they had overpaid.

The position has been made worse by the Government's new policy of returning to paying the housing benefits to the families rather than landlords. The laudable aim is to teach self-reliance, but this has deterred buy-to-let landlords from taking on claimants.

Harrison believes this is a mistake. "It is true that some tenants are beyond redemption, but in those cases the local authority goes back to paying the landlord directly."

Matters be saved by an emerging system called Private Sector Leasing (PSL), under which local authorities lease the housing they need for benefits claimants from a specialist provider which, in turn, leases units from buy-to-let landlords.

Landlords have the security of a long let with no voids and guaranteed payment by the quarter, in advance. At the end of the lease, the property is returned in good condition.

The local authority gets the housing it needs from a single supplier and a landlord with the management skills to meet the needs of vulnerable families.

The most prominent PSL contract so far is by the London Borough of Hillingdon, which has brought in the local estate agent Orchard & Shipman.

Nick Medhurst, Orchard & Shipman's chief executive, explains: "It started because the Government was keen to move families out of B&B, and Hillingdon responded by deciding to enlist buy-to-let landlords to provide 900 properties on medium-term leases of between three and five years."

The rent is not generous, Medhurst concedes, but other factors can make the deal more attractive. "Landlords get the market rent less 15 per cent, but the money is guaranteed by the council and paid three months in advance. There are no voids or arrears, and no management fee. If the tenants damage the property, it is repaired."

The properties are managed by Orchard & Shipman, using specialist staff who look after both the properties and the families. The aim is to provide families with a single contact with the council, who can help to get them the services they need. "Although we are not specialists in dependency or inability to cope, we try to identify needs," Medhurst says.

"We recruit and train people who are very different from the average letting agent. The main requirements is 'soft skills' - the ability to empathise, calmness and physical energy. Ex-service people are good. One was a sailing instructor, another a law graduate."

Unlike commercial letting agents, who usually visit properties only when a problem arises, Medhurst's people see their tenants frequently. "We make regular visits to make sure both the house and the family are OK," he says. "Our approach is holistic. The tenant builds up a relationship with one person and is not passed around between lots of officials who don't really care."

This regular monitoring prevents problems turning into vandalism or anti social behaviour. "In 1,250 tenancies, only 13 have resulted in possession orders because of antisocial behaviour," Medhurst says.

Orchard & Shipman has won a big contract to supply housing for benefits claimants in Edinburgh, and has started marketing the idea of renting to housing benefits claimants to local buy-to-let landlords. "We have made two presentations to landlords' seminars, and 300 investors have registered interest," Medhurst says.

Perhaps the idea of letting to benefits claimants is not so bizarre. Private-sector leasing can benefit everyone. Local authorities get the housing they need at an acceptable cost; investors get a reasonable return at low risk. And families at risk get a better service.

"We have imported a number of private sector practices but held on to the social housing ethic," Medhurst says.