Please note dear landlords, this is a simple, overview guide NOT a definitive comprehensive one. It highlights some (but not all), of your obligations and is designed to demonstrate to you the need to ensure you are compliant and what you could expect if you ae not! If you use an agent, then any good accredited agency should follow all of the required legislation which is why it is well worth considering having your property managed in the first place. Naturally such a service comes at an additional cost, but it is a legitimate business cost and can be put against your profit to reduce your tax obligations. In addition, by having your property professionally managed (and fully compliant), this could also save you many thousands of pounds should there be an issue in your property that would have resulted in a fine (or worse)! So it should definitely be a consideration.
There is a whole raft of UK laws that govern our property market in this country. Most landlords just do not have the time to keep on top of current legislation and I would remind you of a number of salient facts that are really very important to you.
- There are now currently over 50 acts of parliament and over 70 further regulations that govern our market sector and you as a landlord are responsible for complying with. If you don’t you are liable for prosecution under the relevant legislation.
- Ignorance of the law is no excuse and WILL NOT stand up in a court of law.
- The fact that a lot of these laws are ill thought out and enacted by people who have no idea of the implications both short and long term is (sadlyL), no excuse either!
- Like it or not landlords who were the saviours of the property market just a few years ago and actively encouraged with tax breaks and great mortgage facilities, are now are being deliberately targeted by government and actually sited by politicians as the cause of the property market issues. They have removed the tax breaks, plus new laws have been introduced with draconian fines and penalties for Non-compliance.
Before you get paranoid, let me reassure you that landlords are not alone here. Governments always blame everyone but themselves. That’s what politicians do sadly and that’s a fact! Not even an alternative factJ. The reality is that no government of any political persuasion, has invested correctly in the housing market for the last forty plus years. It is government’s lack of investment and greed, or lust for power that has caused a housing shortage not your entrepreneurial spirit! The statistics clearly show this is the case.
Just think back a few years where everyone was persuaded to but diesel cars. They promoted the diesel sector with less tax on fuel, plus less road tax on the cars. Yes the government of the day wanted and actively encouraged you to buy these cars.
Now as the owner of a diesel vehicle, you have just been classified as the devils next of kin! If indeed you currently own such a vehicle and live in our English capital, then the mayor of London (bless his sycophantic soul) wants to double the cost of diesel cars in the congestion charge areas. I rest my case!
The government’s strategy is simple. Governments over the years have paid millions in compensation to victims of Housing issues. People who die from carbon monoxide poisoning, or from fires, or explosions and so on. Therefore they are simply covering themselves by increasing the responsibility (and accountability) of landlords so they pay the compensation now, not the government.
So what are your responsibilities as a landlord? Or more basically just where do you begin? Well I have tried to put everything in a logical order so hopefully it makes sense to you.
Firstly if you owe money on the property and you are renting it out, then it must be a “Buy to Let” mortgage and you are required by law to have such a mortgage. A residential mortgage is not acceptable and the Bank (or body), who has granted that loan can call your loan in immediately, if you have failed to specify the correct nature of the property use.
Equally your property should be insured and that insurance must be a specific “Buy to let” insurance. If you have residential insurance policy on it, simply you are not covered. So if there is a claim made on the policy, it is automatically null in void.
We are aware of a landlord who rented his property out for over 10 years with the same insurance that he had when he lived there himself. Unfortunately one of his tenants started a cannabis farm that was subsequently found and raided by the police.
There was well over £25,000 of damage (both structurally and cosmetically) and the insurers deemed that the property insurance was invalid due to the owner not informing them of the change of use. A very expensive lesson for that landlord who thought he could save a few pounds on his insurance!
Before your property can even be marketed for rent or sale, the property must have a valid EPC (Energy Performance Certificate), which givers both the actual and potential energy efficiency ratings. This law has recently been updated, so that from April 2018 only properties with a rating of A-E can be rented. Properties that are rated F&G will no longer be allowed to be rented after this date. If you are the owner of such a property please feel free to contact me and I will try and help you sort out this problem, it is not insurmountable and there are certain exemptions that you may qualify for.
Once your property is ready for the tenancy to commence, the next requirements are to make the property ready for occupancy.
Let’s start with the basic “utility” letting requirements as specified within the housing act “Landlord and tenant Act 1985” (landlord repairing obligations) and the Housing planning Act 2016.
Firstly if gas is present in the property, then you must have a valid Gas Safety CP12 certificate which is updated annually. The electrical safety is unfortunately much more complicated, but never the less equally important and I am told is most likely to be actioned in the case of an incident or accident where personal safety is compromised. Although their currently is no law that specifically states you must have a valid electrical safety certificate. There is already a clause in the Housing and planning Act 2016 that says an electrical test is a mandatory requirement. At the time of writing this article, this particular part of the act has not yet been made live.
However you need to be aware that there is already a clause in an earlier act that says “That your rented house must be safe and the electrical system in the house must be safe”. If you think about that statement for a moment it becomes very obvious that the only way you can prove your electrical system is safe is by having it checked and certified. So until the new part is enacted, it could still be argued (and probably would be in a court of law), that an electrical check is actually a legal requirement already. So please be aware of this.
We as a company advise all of our landlords to adhere to this and all of our managed landlords sign up in their agency agreement to have an annual visual inspection plus a full fixed wired inspection every 5 years. There is of course already a mandatory electrical check enacted in the HMO licensing scheme as part of the criteria for licensed certification.
The Electrical Equipment Safety regulations Act 2016 (which started on 8th December last year), is also very relevant to landlords, especially at the start of the tenancy, as now all electrical items must be checked prior to the start of any tenancy. This is to ensure that the insulation is intact on both the appliance and the cables, so as to prevent arcing. In addition, fuses (where possible) should be checked prior to the start of the tenancy to ensure the correct fuses are in the relevant electrical items.
The rationale behind this, is that in the previous tenancy the iron or kettle might have blown a fuse. This could have been replaced by the tenant, with the wrong fuse making the product dangerous. Although no accident may have occurred during that tenancy, it is still possible that such an accident could occur (power surge etc.) during the following, new, or even subsequent tenancies where different tenants could be injured (or killed), through no fault of their own. It is now legally the landlord’s responsibility to check this and if they don’t and an accident occurs. The landlord will be held liable in a court of law.
There is also now a legal requirement for a “Legionella “Risk Assessment” (Health and safety Act 1974, 4th amendment L8 2013). This needs to be performed on your property either every two years, or at every time there is a change of circumstances. For change of circumstances read; New boiler, New pipework, or new tenants.
Basically you have to check all the pipes (that are available to view), to ensure there are no dog legs where water can collect and stagnate (allowing legionella bacteria to form). Secondly you need to check the temperature of the water (both hot and cold) to ensure they are to the current required legal standards. Then you need to record the outside temperature at the time the risk assessment was done. Finally you need to record this information and keep a proper record to prove that you have correctly performed a valid risk assessment should there be a case of Legionella in your property. The basic equipment you will require for these assessments are; a mug, a thermometer and a smart phone. You can of course get the full requirements from the HSE website.
However we would recommend that if you have a property with water tanks in the loft etc. that you employ an accredited company to perform this assessment (you do not want to contravene the health and safety at heights work act do youJ)!
Of course if you have what we would describe as a “typical or updated property” i.e. Combi boiler, kitchens, toilets and bathrooms. Then you can complete this assessment (initial exercise probably 40 mins to one hour) and subsequent assessments (providing no new pipes), in 20-30 mins max dependant on the size of your property. We provide all of our own tenant find landlords with a free Risk Assessment form (and guide of how to do the Risk Assessment), with every confirmation of let. For our managed landlords we do the typical or updated property for our managed properties as an integral part of our property management package.
You will also require a professional inventory. By that I mean an inventory (or schedule of condition), that shows and describes the property as it is at the beginning of the tenancy. This needs to be signed and dated by the tenant at the beginning of the tenancy. This is in effect a definitive description which can be used to by the landlord for two main reasons. The first is to identify any damage or cleaning requirements at the end of the tenancy which could result in the deduction of monies from the deposit at the end of the tenancy. The second and equally important reason for the inventory is that the landlord has a definitive list of his property where he or she can identify any “Wear and Tear” issues and upgrade, replace or redecorate, where appropriate after the tenant has left and before the next tenancy.
That completes the basic preparation stage for the property, now we need to look at what you need to do with your potential tenant.
Well once you have agreed in principle (subject to referencing and the correct payment of monies and the arranging of on-going rent payments). Firstly you need to do a financial reference on the tenant(s), to ensure they can afford to rent your property. We would also suggest a previous landlord reference and an employment reference to ensure they are who they say they are and are suitable occupiers of your property (we also in addition gain additional information on our tenants to help keep us ahead of the game. In addition, since 2014, you now need to do a “Right to Rent check” The latest update was the upgraded “Immigration Act 2016” which now makes it a Criminal Act for landlords (or agents), who fail to comply, as opposed to the 2014 Act where it was simply a civil offence. A very big change with very serious financial and or custodial prison sentences for non-compliance!
Theses checks are to establish that your tenants are legally allowed to be in this country and that (if relevant), they have (if required), the correct and appropriate visas and work permits etc. to be in and work in this country.
It is important to note, that if the permit expires during their tenancy, it is your responsibility to ensure they have valid documentation at all times they are your tenants. Therefore you need to record (and keep appropriate records), when these visas, permits, etc. expire and if they do not re-new, you must report this to the border agency.
Failure to do so will result in a hefty fine and could even include a custodial sentence as it is now a criminal offence to fail to comply. If we manage your property, we take this responsibility over from you and monitor this on your behalf.
You also must register your tenant(s) damage deposit in the appropriate government approved scheme within the required time limit and any monies taken initially must be deemed to be the deposit. If a deposit is taken initial monies received cannot be used as rent until the deposit element has been registered and lodged. It is worth reminding you at this point that there are some twelve different considerations that must be adhered to in the lodging of a deposit including time periods to lodge, prescribed information to be issued including the lodging and identifying of the “relevant person” (if there is one etc.). Recording the “Relevant Person on the prescribed information, providing the relevant Person with a copy of the prescribed information etc. Non-compliance on ANY of these considerations (if reported), can lead to a mandatory fine of minimum one times the deposit, maximum three times the deposit plus the deposit, which goes directly to your tenant.
It is also worth pointing out that there is a six year statute of limitation on this legislation (Localism Act April 6th 2012), which basically means that your tenant has six years to make a claim from the time they gave you the deposit. Just to add insult to injury, we are aware of companies that are setting up offering “No Win No Fee” options for tenants that want to make a claim. If you want to check this out just google “Tenant Deposit Claim line” and watch their promotional video.
That basically covers the pre-tenancy stage. Once they have moved in then of course you enter the next stage where you have all the responsibilities of your repairing obligations as a landlord (Landlord and tenant Act 1995 and Housing Planning Act 2016 just to name two of the fifty plus Acts of Parliament. There are also regular property visits during the tenancy, the correct legal notices to serve, the obligation to provide your tenant with the correct legal notices and timed notice for such visits to ensure you are not disturbing their legal right to “Quiet enjoyment”.
Following the tenancy obligations, the last stage is when your tenants finally want to leave either at the end of the fixed term or during the periodic term that automatically follows the fixed term. This includes the checkout and returning of the deposit either in full or part whichever is agreed with either your tenants or via the deposit arbitration service. This is where your professional inventory is worth its weight in gold. If you do not have an inventory you cannot legally claim a penny from the deposit as you are unable to prove in law the state of the property at the commencement of the tenancy which invalidates any damage done during the tenancy as no proof exits. This is why your tenant needs to date and sign the inventory in the first place at the beginning of the tenancy.
At this point it is probably worth mentioning perhaps the most important fact of all when choosing an agent to help you let or manage your property. Regardless of who you use, YOU and You alone are legally responsible for what happens in your property NOT your agent! The tenancy is in your name not the agents and even if the agent is managing your property it is only their address on the tenancy. You are the legal owner, you are the person whose name is on the agreement and YOU are the person that will be prosecuted if anything goes wrong! If you use someone who offers you a cheap price and they are not accredited then the chances are they will be a limited company which simply means they have limited liability for themselves, if anything goes wrong and if they don’t know the law which is very often the case, then the chances are it probably will at some point, chances are they will simply close the company down and leave you to face the consequences on your own. We have seen this situation so many times.
A few years ago I visited a property at the coast where a landlord was (in their words), “Dissatisfied with their current agent” and wanting to explore the possibility of using us as a managing agent.
“So how much would you charge for managing my property” was the first question I was asked. 12.5% for the service you have requested I replied. “Well I get my management for 8% can you match that?” was the haughty response. “I am so sorry I can’t” I said in all honesty you just could not effectively manage a property for that amount of money. “However” I responded “That was indeed a very keen price indeed. Why on earth would you want to move when you have such a good deal?
“Well they have disappeared and gone off with eight months of our rent, never contacted my tenant and never even visited the property indeed they didn’t even have a tenancy agreement! Basically they just took my money and didn’t even give any of it to me!”
Well I am sure I don’t need to tell you my response to that!J.
Anyway we got the management and everything ran smoothly from then on. They paid £35 per month extra (In total £1,170 fees a year and they also received £6,630 on top of that in rent payments. If you compare this versus their previous agents who provided no service whatsoever, did not even get a tenancy agreement in writing, did nothing but collect the landlords rent and kept it themselves, providing a loss of £5200 with their previous agent in only eight months.
There are currently thousands of agents in the UK. At the last time I personally counted, there were sixteen agents within 500 yards of our Jesmond office and approximately one hundred and eighty to two hundred letting agents in Newcastle upon Tyne!
Some working from their bedrooms (with a fancy website so you wouldn’t know), some were landlords who had a number of properties they owned themselves and thought it would be easy to make money letting other people’s properties as well as their own. This also gives such people the opportunity to let their own properties first at the expense of their clients (although not all do so). Whereas a lot of these people are well meaning, they have no idea of the legislation that needs to be covered for their own (or anybody else’s) property(s).
There are of course (sadly the minority), others who are fully accredited, bona fide letting agents who are registered with all the relevant authorities and carry “Client money Protection” insurance (The property industries version of A.B.T.A) that ensures any money your tenant (or yourself) gives the company, is protected at all times.
These are the agents to put your trust in. At best they know the law and protect your property ensuring you are compliant. At worst you have redress through all the relevant legal bodies and they are covered by the relevant legal insurances to allow you to receive any compensation if appropriate. Your rental property(s), could well be a bigger investment than your own home. It could be your family income, please don’t gamble or risk your investment with non-compliant companies who do not have your best interest at heart.
Business is not about what is cheapest. It is about what is best value, longevity of income and the maximisation of both rental income and capital growth. If you would like to discuss your rental letting and management needs, please feel free to call me at my Durham Office on 0191 212 6970 and I will be happy to discuss.