A Guide for landlords
Letting your home may be purely an investment decision, or it may be dictated by business relocation or other personal circumstances. Whichever it is, the issues to consider are the same, and this guide is designed to provide you with some useful information, although it is not intended to be a substitute for other professional or legal advice you may wish to seek. Should you wish to discuss any of the matters contained in this Guide, or have any further questions, please do not hesitate to contact us.
For the vast majority of landlords, the overriding concern when letting a property is finding a reliable tenant who will respect and care for their property. The first step to achieving this is to find an experienced and conscientious High Street Estate Agent who will work hard to closely match the profiles of the landlord and tenant, and who offers a varied scope of service which will allow you to determine the level of involvement most suited to your requirements.
Our staff are trained to provide both professional guidance and practical assistance. As a registered member of the Ombudsman for Estate Agents Scheme for Lettings, we are bound by rules of conduct to offer a fair deal to both landlords and tenants. Membership requires that we hold Professional Indemnity Insurance and through its insurance protects the financial interests of consumers who deal with members, which basically means that both landlord and tenant monies held by the member Agent is insured and protected.
Our Terms & Conditions of Business for landlords, detailing our services and fees are transparent and there are no hidden charges. Third party disbursements will be agreed beforehand such as Gas Safety checks and an independent check in and inventory. The following information outlines some of the practical and legal issues of which landlords should be aware.
Furnished or unfurnished?
There is a demand for both, but little difference as far as the rental income is concerned so therefore most lets are unfurnished. To allow you the maximum flexibility we do not recommend the purchase of furniture until tenants have been introduced. Should furniture need to be purchased, we have contacts who can deliver reasonably priced items within 48 hours. Existing furniture must comply with the furniture and furnishing regulations described later under Your Legal Responsibilities.
First impressions are all important and the higher the quality of the decoration and furnishings the easier it will be to achieve a good rent and maximise the letting potential of your property.
Generally, we have noticed a preference for plain and neutral colours for decorations, furnishings and carpets and a requirement for a shower with curtain/screen in bathrooms.
Please note that all properties offered for letting, even an unfurnished letting, will be expected to include carpets, curtains, light fittings and major kitchen appliances, i.e. fridge or fridge-freezer, oven, hob, washing machine and a dishwasher should be considered. (where possible a tumble dryer can help alleviate condensation issues)
Please note also that if the tenant is required to be responsible for the care of the garden, the appropriate equipment including a lawn mower should be provided.
If the property is vacant at the time of viewing, ensure you have removed any items which will not be included in the letting. If it is occupied, advise your Agent and prospective Tenants exactly what will and will not be remaining in the property at the start of the tenancy. We recommend that you do not leave anything which carries sentimental value.
The length of the tenancy
Generally properties are rented for periods of one year, but the tenancy can be for any term agreed. However under the provisions of the Housing Act 1988 repossession from a tenant reluctant to leave cannot be granted to the landlord in the first six months of the tenancy, therefore it is preferable where possible to arrange tenancies with a minimum six month term.
Most tenancies will contain a release clause effective after the completion of six months and if required an option to renew for a further term can be inserted into the contract, however, this is subject to negotiation.
Once the tenancy has commenced the tenant has security of tenure for the fixed period, provided they are not in breach of the terms of the tenancy agreement.
At the expiry of a fixed term tenancy the landlord can take possession of his property (in the case of an Assured Shorthold Tenancy two months’ notice must first be served) unless it is agreed to renew or extend the tenancy.
Unless otherwise stated, the rent will be exclusive of telephone, water, gas, electricity and council tax, which are payable by the tenant direct to the utility companies.
Any ground rents or service charges applicable to the property are payable by the landlord.
The normal method of payment is by calendar monthly instalments payable in advance by standing order.
Where we are receiving the rent on your behalf we will deduct our fee and any other appropriate costs before forwarding the balance to your bank account. Wherever possible we make payments to our clients using internet banking twice weekly, to ensure you receive your money as quickly as possible.
The security deposit
At the start of the tenancy, the tenant is required to lodge an amount, usually equivalent to six weeks rent, as security against damage and disrepair. At no time can these monies be used in payment for rent.
Compulsory tenancy deposit protection
Housing act 2004
From 6 April 2007, all tenancy deposits paid by a Tenant in respect of an Assured Shorthold Tenancy must be safeguarded by a government authorised Scheme. There is a choice of three Schemes, all of which provide a dispute resolution service to deal quickly and fairly with any disagreements which may arise between the Landlord and the Tenant about how much of the deposit should be returned to the Tenant.
Property In.com are members of the Custodial Scheme, administered by The Deposit Protection Service (The DPS).
Under the Custodial Scheme, all deposits in respect of Assured Shorthold Tenancies under the above services will be passed by us to the Scheme administrator to hold throughout the term and until the termination of the Tenancy in accordance with the Terms and Conditions of The DPS.
The DPS will confirm to the parties that the Deposit has been received by them and provide information relating to the applicable time-scale for the return of the Deposit and the arrangements for the resolution of any disputes that may arise in accordance with the Alternative Dispute Resolution (ADR) Rules
No deductions may be made from the Deposit at any time without the written consent of both the Tenant and the Landlord.
The Terms and Conditions and ADR Rules governing the protection of the deposit including the repayment process can be found at www.depositprotection.com
Housing act 2004
If you instruct us to pass the deposit to you at the commencement of the Tenancy, you will be solely responsible and liable for safeguarding the deposit in compliance with the regulations and we will have no liability for any loss suffered if you fail to comply.
We will pass the deposit to you within 5 days of receiving it.
You will then have a further 9 days to notify the Tenant in writing of the details of the Scheme under which the deposit is held.
If you fail to do so the Tenant can take legal action against you in the County Court. The Court will make an order stating that you must pay the Deposit back to the Tenant or lodge it with the Custodial Scheme. In addition a further order will be made requiring you to pay compensation to the Tenant of an amount equal to three times the Deposit. You will be unable to serve a Section 21 Notice on the Tenant until compliance with the above conditions and the Court will not grant you a possession order.
We require you to provide us with written confirmation of your membership of either the Custodial Scheme or one of the Insured Schemes prior to the start of the Tenancy. If you fail to do so we will pass the deposit to the DPS Scheme administrator within 5 days of receiving it, as outlined above.
Equally important to the amount of rent you hope to achieve on your property, is the tenant who will occupy it. Tenants in residential property are required to:
Give an honest and truthful account of themselves during the application process.
Observe all the terms of the tenancy agreement.
We ask all tenants to provide confirmation of their identify, by means of a certified copy of their passport of photo id and before a tenancy can be granted, references should be taken on each tenant. This is normally undertaken via a credit search agency.
The cost of all references and credit search fees is paid by the tenant.
In some instances, e.g. in the case of students or where there is insufficient employment or UK financial history, it may be necessary to request the provision of a guarantor who is prepared to undertake responsibility for the full amount of the rent should the tenants be unable to do so at any time during the tenancy.
The guarantor will be required to sign a Guarantor Deed prior to the tenancy commencing and allow references to be taken on them.
The tenancy agreement
The tenancy agreement must be signed by all parties prior to occupation. In many cases the tenancy created will be an Assured Shorthold Tenancy in accordance with the Housing Act 1988. This applies to all tenancies where the rent is under £125,000 per annum and the tenant is an individual or individuals for whom the property will be their main or principal home and where the landlord does not enjoy resident landlord status.
Where the tenancy does not fall within the scope of the 1988 Housing Act, a Company or Contractual Tenancy will be arranged as applicable.
The inventory, (check in and schedule of condition)
It is very important that a detailed and independent Inventory of the Contents and Schedule of Condition of the Property (commonly referred to simply as “the Inventory”) is created for every property offered for letting. An Inventory is a key element in the letting process, and should detail not only the contents of the property but, of equal importance, the descriptive condition of every item including doors, walls, ceilings, lights and so on. We therefore insist that this is prepared by a professional independent inventory clerk, as it is in your best interests to do so, failure to do so will invalidate any dispute with DPS.
Prior to the tenant being granted possession of the property, the inventory is prepared and a copy of the report and the inventory is sent to both the tenant and landlord for their information.
At the end of the tenancy the inventory is checked again and any costs for damage or disrepair will be agreed with the tenant and deducted from the tenant’s deposit. It must be expected that there will be a degree of “wear and tear” which is not covered by the tenant’s deposit.
The cost of preparing the inventory and check in is the landlord’s responsibility and varies according to the size of the property and its contents, although due to our high volume we have agreed a special rate of £125 plus vat on all properties let through Property In. In general the cost of checking out is paid for by the tenant.
As well as notifying you insurers of the letting, you are strongly advised to ensure that contents insurance is sufficient throughout the period of the tenancy and that this includes liability insurance covering injury to the tenant or his guests.
Buildings insurance should also be maintained and would in any case be a requirement of any mortgage lender. If the property is leasehold, this is usually included in the service charges.
The tenancy agreement also provides for the rent to be suspended while the property cannot be used following a fire or flood. You should therefore make certain that all appropriate insurances are in place covering the full value of any loss during a Tenancy, including loss of rent, as many household policies do not do so.
Your legal responsibilities
Consents/Your right to let
Before entering into any agreement to let your property you must check whether there are any restrictions to your doing so and whether consent needs to be obtained. It is best to ensure at the outset that these are in place, to prevent any unnecessary delays once a tenant for the property is found.
If you hold the property on a lease you must ensure that your lease permits you to let the premises and that you are granted consent to do so. You must also ensure that the letting is for a period expiring prior to the termination of your own Lease. A copy of the Behavioural Schedule, which is the section in the Lease relating to tenant behaviour and performance, will be required, as it must be attached to the Tenancy Agreement.
If the property is subject to a bank loan or mortgage, in most cases permission will be required from the lender before the property can be let. If mortgage consent is not obtained, the tenancy may be deemed unlawful and the lender may have an automatic right to bring the tenancy to an end and take possession of the property.
Most insurance policies require you to notify them if the property is to be let. Failure to do so may void the policy. Insurers may require an increased premium for let properties, or may withdraw some areas of cover relating to accidental damage or unforced entry, or may impose special requirements if properties are vacant and unsupervised for over a certain period (e.g. 21 or 30 days). However policies vary and it is important to clarify these with your insurance company prior to entering into a Tenancy Agreement.
In addition to a landlord’s duty under common law to ensure the safety of rented property so that no injury or damage is caused to the occupants, neighbours or the public, there are a number of statutory obligations are placed upon landlords that must be adhered to. Responsibility for compliance with the following regulations is the personal obligation of the landlord. Failure to comply with safety legislation is a criminal offence and can lead to prosecution, fines or imprisonment or both.
The furniture and furnishings (Fire) (Safety) regulations 1988 As Amended in 1993
All upholstered furniture and soft furnishings supplied to a rented property and being part of a letting must comply with these Regulations which aim to improve safety by requiring they pass the “cigarette”, “match” or “ignitability” tests.
The Regulations apply to beds, upholstered headboards, mattresses, pillows, sofa-beds, futons and other convertibles and put-u-up beds, nursery furniture and garden loungers/seats, scatter cushions, bean bags, window seats and seat pads, padded stools and chests and loose and stretch covers for furniture. The Regulations do not apply to bed-clothes (including duvets), pillowcases or loose covers for mattresses, curtains and carpets.
Furniture and furnishings manufactured before 1 January 1950, when inflammable materials were not in use, do not need to comply. This exempts “period” or antique furniture, unless they have since been re-upholstered. New furniture is required to carry a display label or fixed label to show that it complies with these Regulations. Furniture manufactured since 1 March 1989 or sold by a retailer after 1 March 1990 will automatically comply, but where there are no labels, or you do not have a receipt to prove date of purchase, it will be necessary to contact the manufacturer or retailer for confirmation of compliance.
It is illegal to let a property with furniture which does not comply. If in doubt the items should be removed or replaced.
The gas safety (installation and use) regulations 1998
Landlords are responsible for ensuring that appliances and pipework in tenanted premises are maintained in good order and in a safe condition to prevent risk or injury to any person.
The Regulations require that the appliances and pipework are checked for safety by a Gas Safe qualified gas engineer prior to the start of a tenancy and every 12 months thereafter. A record of the safety check must be supplied to each tenant and a copy kept by the landlord and/or his managing agent for at least two years.
It is a criminal offence to allow a tenant to take occupation of a property where an inspection and any necessary repairs or maintenance works have not been carried out as described above.
A tenancy cannot commence until a current Gas Safety Record is in place and we require a copy of any current and all subsequent Gas Safety Records. If you wish we can instruct a Gas Safe engineer to attend the property and deduct the contractor’s fee from rental monies received.
Important Note: Where we are not instructed to do so and you fail to provide us with a current Gas Safety Record 48 hours prior to the commencement of a tenancy, we reserve the right, subject to being able to obtain access, to make these arrangements on your behalf and deduct the contractor’s fee from rental monies received.
Further information can be obtained from Gas Safe 0800 4085500 or www.gassaferegister.co.uk
The electrical equipment (safety) regulations 1994
Impose an obligation on the landlord to ensure that all electrical wiring and appliances in the property are ‘safe’ and will not cause ‘danger’. Electrical appliances must carry a ‘CE’ mark and instruction books or clear working instructions must be provided for the tenant. Confirmation that inspections have been regularly undertaken could be requested, although no specific time-scale is given, nor is there any requirement for inspections to be made by members of specific bodies, other than the person be competent.
It is recommend therefore that tests be undertaken for earthing, insulation and leakages prior to the start of a tenancy and that cables, fuses, plugs and sockets should also be inspected annually and replaced where necessary. If you wish we can arrange this on your behalf and deduct the contractor’s fee from rental monies received.
Part P Building Regulations (Electrical Safety in Dwellings) Installation, Repair & Maintenance of Electrics From the 1st January 2005 new rules came into force designed to prevent unskilled people from working with electricity.
The regulations control who can carry out certain works on certain electrical installations in property and the procedures around those works. Failure to comply with these Regulations is a criminal offence, which could result in a maximum fine of £5,000 and or imprisonment.
All but the most minor of electrical work undertaken in dwellings must comply with these Regulations and be carried out by an approved person competent to do the work, who is registered by an approved body such as NICEIC or British Standards Institution amongst others.
If the contractor is not registered to ‘self-certify’, it will be necessary for the work to be notified to the local authority building control who, on payment of a fee, will check that the work complies with the relevant safety regulations.
The Smoke and Carbon Monoxide Alarm (England) Regulations 2015
Working alarms save lives – in the event of a fire in your home you are at least 4 times more likely to die if there is no working smoke alarm.
The Smoke and Carbon Monoxide Alarm (England) Regulations 2015 have been approved by Parliament and will come into force as planned on 1 October 2015.
Private sector landlords are required from 1 October 2015 to have at least one smoke alarm installed on every story of their properties and a carbon monoxide alarm in any room containing a solid fuel burning appliance (e.g. a coal fire, wood burning stove). After that, the landlord must make sure the alarms are in working order at the start of each new tenancy.
The requirements will be enforced by local authorities who can impose a fine of up to £5,000 where a landlord fails to comply with a remedial notice.
There is a booklet providing information about the requirements and who they apply to. It is designed as a Q&A to cover the most common situations but it cannot cover every scenario and is not a substitute for reading the Smoke and Carbon Monoxide Alarm (England) Regulations 2015.
Landlords should be aware that the regulations do not contain all the fire safety requirements which their premises may be subject to. There are fire safety requirements under other legislation which may be applicable, such as under Part 1 of the Housing Act 2004 and the Regulatory Reform (Fire Safety) Order 2005.
All must be fitted with mains-operated interlinked smoke detectors/alarms on each floor and a carbon monoxide alarm installed. all properties to be let are fitted with smoke alarms and are checked. We can arrange for the installation of smoke and carbon monoxide alarms on your behalf and deduct the contractor’s fee for the supply and installation, from rental monies received.
Landlord repairing obligations
Section 11 of the Landlord and Tenant Act 1985 as amended by Section 116 of the Housing Act 1988 places an obligation on landlords to keep in repair and proper working order the installations for the supply of water, gas, electricity and sanitation including basins, sinks, baths and toilets. The landlord is also responsible for maintaining the installations for central heating or other forms of space heating and water heating. This responsibility cannot be transferred to the tenant, although if damage has occurred to these installations as a result of tenant misuse or neglect, a claim for reimbursement from the tenant’s deposit may be possible. However repairs cannot be delayed whilst agreement over responsibility is reached.
The income you receive from your home is unearned income and is subject to tax at the standard rate. We recommend you consult a tax adviser/accountant to advise you on the full tax implications for your particular circumstances and who will be able to keep you updated on any changes in the law and ensure all allowable outgoings can be offset against tax.
UK Residents: If you are resident in the UK during the term of the tenancy, you remain responsible for paying the tax.
Overseas Residents: In accordance with the Finance Act 1995, which introduced the system of self-assessment, agents are required by law to deduct tax at the basic rate from rental monies net of expenses prior to paying these monies to overseas landlords. The payments must be made to the Inland Revenue quarterly and at the end of the tax year. This obligation also applies to tenants paying rent directly to the overseas landlord.
The agent is only excused from the above requirement if the landlord applies for and is granted an authority from the Inland Revenue to allow the agent to pay him the gross amount of the rent without deduction. If granted the agent is issued with an Exemption Approval Number, whereupon they are allowed to pass the rental monies to the landlord without deduction of tax. This is not an exemption for the landlord from paying tax on his rental income, it is an exemption for the agent from the requirement to deduct the tax prior to passing the rent to the landlord.
An Exemption Approval Number is not transferable from Agent to Agent. If the Landlord changes his Agent he must inform the Inland Revenue who will issue a new approval number to the new Agent. An Agent cannot accept an approval issued to a landlord’s previous rent-receiving Agent. We would strongly recommend that you apply for Exemption Approval and we can provide you with the appropriate application form. Our reference number is 904/N0032728.
Further information can be obtained on the website at www.gov.uk
Stamp duty land tax
With effect from 1 December 2003, Stamp Duty Land Tax, introduced under the Finance Act 2003, may be applied to some qualifying residential tenancy agreements. The liability is individually assessed by the Inland Revenue based on the rent payable and the overall length of the tenancy including any subsequent extensions. The liability for payment, where applicable, is the sole responsibility of the Tenant and there is no longer any liability for stamp duty on the Landlord.
House in multiple occupancy licence
Since 6 April 2006 Landlords letting properties defined by their local authority as a House in Multiple Occupancy (HMO) may need to apply for a Mandatory Licence. Generally an HMO is defined as a property on three or more storeys occupied by five or more people in two or more households who share basic facilities. Some Councils may choose to license smaller HMOs as well. The criteria and requirements vary, therefore we strongly recommend that you contact your Local Authority immediately to check whether your property is subject to licensing, and advise us accordingly.
The energy performance of building regulations 2007
From 1st October 2008 all properties marketed for letting need a valid Energy Performance Certificate (EPC). The EPC is valid for 10 years. The Landlord is responsible for ensuring a valid EPC is available prior to a prospective tenant receiving written details of a property or first viewing a property. The penalty for not having a valid EPC includes a fine of up to £5,000.
Property In.com can, if instructed by the Landlord and provided that access to the Property is made available to the contractor, arrange for the EPC to be prepared on behalf of the Landlord. The contractor’s fee for providing the certificate is £65.00 inclusive of VAT and is payable by the Landlord. We must be put in funds prior to these arrangements being made. Any works that may be recommended on the EPC are the responsibility of the Landlord.
If you already have a valid EPC, we can download this. We will not be able to commence the marketing of a Property until the EPC is in place.