We, together with Dexter and Sharpe, held a Residential Lettings Seminar at The National Golf Centre, Woodhall Spa. We are so pleased with the fantastic turnout, with over 100 landlords attending and have received so much positive feedback.
RESIDENTIAL LETTING LAW UPDATE: -
1) FEE BAN
The single most significant change in legislation for years came in to effect on 1 June 2019. The fee ban on letting charges is governed by the Tenant Fees Act 2019. To summarise:
To start with it will apply to new tenancies and renewal of tenancies. It will exclude statutory and contractual periodic tenancies that arise after the tenant fees act. Pre 1st June 2019 Tenancy Agreements will remain same until 31st May 2020. The deposit will not need returning where over 5 weeks at this time unless and until the tenancy is renewed. Banned charges include:-
- Charging for a guarantor
- Credit checks
- Cleaning services
- Professional cleaning
- Having the property pest treated – a condition of allowing pets at a property
- Administration charges
- Requirement to have specific insurance providers
- Gardening services
RESTRICTIONS ON RENT
There is a ban on setting rent at a higher level for the first portion of the tenancy and then dropping it down afterwards (this is to prevent landlords or agents trying to offset the ban by artificially increasing the rent for the initial period to make up the costs). Of course a higher rent than you would normally charge for the property that is consistent throughout the tenancy will be fine. The Government however believes this is unlikely to happen though as tenants will shop around for the lowest price. The argument is that rents will go up across the board to counter balance the losses. From an agents point of view we don’t believe rents will suddenly increase dramatically (maybe slight increase), because ultimately there is a ceiling of affordability, so if rents go too high Landlords will have empty properties and eventually they will find their sensible level.
HOLDING DEPOSITS (Payment by a prospective tenant pending finalising the Agreement)
Will be limited to a maximum of one weeks rent and will have to be paid back to the tenant on day 15 if the tenancy does not go ahead unless it is the tenants fault but then this would have to be proved.
Are limited to five weeks rent as a maximum amount for a tenancy where the annual rent is below £50,000 (deposit of tenancies where the annual rents are £50,000 or more are limited to the equivalent of 6 weeks rent).
BREACHES OF THE TENANCY AGREEMENT (DAMAGES)
When a tenant has breached their tenancy agreement and caused damage as a result then landlords may still seek compensation via a deduction from the deposit or court action.
LANDLORDS ARE ALLOWED TO CHARGE FOR TWO COUNTS OF DEFAULT PAYMENT
Loss of keys and late payment of rent. Both are subject to restrictions.
- Loss of keys – a reasonable cost can be charged but this must be evidenced in writing.
- Late payment of rent – landlords may charge on the late payment of rent from the date the payment is missed until paid (3% above Bank of England Base Rate Per Annum = level).
CHARGES AND CHANGES TO THE TENANCY
Landlords and agents are still allowed to charge certain small sums to a tenant if the tenant requests a change of occupiers or early surrender.
CHANGE OF TENANT
£50 can be charged for a tenant swop, all charges to be evidenced in writing. (This is including VAT).
If requested by a tenant, charges equivalent to the loss incurred (rental loss due to the unforeseen void period).
SECTION 21 NOTICES:-
No Section 21 Notices, (Landlords notice of evictions – tenants no fault detailed notice), may be given so long as a prohibited payment was requested by the landlord and is paid by the tenant and is still being held by the landlord or agent. The prohibited payment can either be refunded or with the permission of the tenant can be used towards the deposit.
FEE BAN (Summary)
- From the legislation described you will see the two key issues are the level of deposit is restricted to 5 weeks rent which when you think about repair charges, VAT etc. doesn’t leave you with a lot to play with. So it is important to ensure all works when reported are carried out as soon as possible, are documented and an approved specialist is used. This helps with negotiation with deposit matters at the end of the tenancy. The Tenancy Deposit Scheme require proof of every claim from the landlord taking the view that the deposit held is the tenants money and the onus is very much on the landlord / landlords agent to prove the claim rather than so much the other way round.
- You cannot charge additional deposits for pets, the restriction is five weeks regardless and you cannot enforce professional cleaning on the tenant for pest treatment at the end of the tenancy unless the property was professionally cleaned and pest treated at the beginning and there is documented proof. The idea being that the tenant should not be expected to leave the property in a better condition than when they took it on. Rents may be increased to account for a pet but this would have to be reasonable and clearly documented as it could lead to issues in consumer protection law.
It will be interesting to see how this area develops and whether people will just stop pets being allowed in properties. From a cleaning point of view it may be good practice for a landlord to have the property cleaned at the beginning of a tenancy and then impose this at the end making it a rolling situation each time. From a deposit negotiation point of view there will be big questions on whether a quote from a professional cleaning contractor will be sufficient evidence if a tenant leaves a house unclean. There will also be a need to prove works required are a tenant caused issue rather than wear and tear. This has always been true but will be more so with the new legislation I believe.
The general data protection regulations (GDPR) will also need considering. Already with deposit negotiations we have had requests to provide tenants with all inspection reports throughout the tenancy.
2) EPC’S (ENERGY PERFORMANCE CERTIFICATES)
The EPC came into effect in 2008. It gave a SAP rating of A efficient to G inefficient on a property, whereby SAP stands for Standard Assessment Procedure (a standard way to measure the Energy Performance of a property).
From April 2016 a tenant could request certain works be carried out on a property to increase the energy performance rating and thus the thermal capacity of the property and its efficiency. As of April 2018 any properties that are advertised to let must be E rated or above. As of April 2020 all rental properties need to be an E rating or above. This applies to all privately rented property in the domestic and non-domestic sector in England and Wales. (While Landlords are now under an obligation to obtain an EPC for a property before it is rented out, there has been and is no obligation to obtain an EPC where a property was let before 1st October 2008 and remains let under that tenancy – pre EPC Law).
The general rule is it is a legal requirement to have an EPC to sell or rent a property. The EPC remains valid for 10 years. When it expires it only needs to be renewed if the property is marketed for sale or to let. The letting restriction on rating though applies as described above (E plus).
The legislation on minimum standards is entitled Minimum Level of Efficiency Standards (EPC band E) – known as MEES and there is guidance for domestic and non-domestic landlords.
If a landlord believes an EPC F or G rated property qualifies for an exemption from the minimum energy efficiency standard that exemption must be registered on the exemption register – a self-certification database. A copy of the below E rated EPC needs to be added to the register and details as to why the property is exempt needs to be provided together with supporting evidence. This may be for example, you are a new landlord, you have recently purchased the property, listing implications, the cost to improve the energy level is proved to be too great. (Current cost cap £3,500).
THE EFFECTS OF MAINTENANCE WITH REGARDS TO EPC’S
When carrying out any major maintenance upgrade to a property it is a good idea to consider its energy rating, how to increase to the E or above, for example wall insulation works required whilst maintenance being done, generally this may be the time to consider matters.
It is expected going forward that the E rating as a minimum will more likely move in time to a C or a D and in preparation for this work should be considered.
Boilers should be installed by “gas safe” registered specialists, “OFTEC” if oil and although it is not law at present to have the electrics checked as part of the new “fit for habitation” rules which will be addressed later in this talk it is recommended. We widely anticipate electrical checks on a five yearly basis will be mandatory soon and at present it is considered good practice and is detailed in the How to Rent booklet provided to a tenant at the beginning of a tenancy.
So when carrying out significant maintenance or refurbishment our recommendation would be to have an energy assessment carried out by an energy assessor. They can lodge this in draft in the first instance with details on how improvements can be completed. You can then consider what your plans are for the long term future of the property and whether it is cost effective to do any alterations which would then increase the EPC. The assessor can then reflect this in their table and increase the EPC accordingly. Generally the EPC works on floor area, the perimeter of the property, the insulation, the number of low energy light bulbs, the type of heating, the heating controls and any secondary heating.
The prime problem with the EPC that does generally bring the rating down is whether it is LPG gas, this seems to be a rather significant reduction, also loft conversions. In addition open chimneys can also cause the rating to go down. If an open fire is left in a property there are additional implications to consider, a carbon detector has to be added, the chimney has to be swept and it is a grey area as to whether continued sweeping of the chimney is the tenants responsibility or the landlords, (you can ask a tenant to sweep it but can’t force them to pay a third party). It is questionable as to whether the landlord would want their biggest asset to be maintained by a tenant particularly when the fire is so combustible and ultimately could cause such damage to the structure of the property if not maintained. The installation of any wood burning facilities needs to be carried out by a HETAS registered specialist.
3) FITNESS FOR HABITATION ACT 2018
This came into effect 20 March 2019. It was introduced by a labour MP Karen Buck and is aimed at improving the standard of housing in the rental sector. It basically sets a series of amendments to the Landlord and Tenant Act 1995. It clarifies the landlord’s maintenance responsibilities and makes it easier for a tenant to force them to make improvements. In a nut shell the landlord has an explicit duty to ensure the property they are renting out is fit for human habitation before a tenant moves in and that it remains so for the duration of the tenancy.
To make a place fit for human habitation a property has to be adequately maintained across a number of key areas:
- Freedom from damp
- Internal arrangement
- Natural lighting
- Water supply
- Drainage and sanitary conveniences
- Facilities for the preparation and cooking of food
- Disposal of waste water
- Prescribed Hazards (England Only)
PRESCRIBED HAZARDS (ENGLAND ONLY)
Under the Housing Health and Safety rating system (HHSRS) this is a hugely complicated assessment tool designed for environmental health professionals not letting agents and landlords in which various types of hazards are categorised by severity.
There are lots of different hazards mentioned in the regulations from mould to asbestos to overcrowding and internal lighting. The rating is A to J with A to C as category one severe.
This legislation sounds baffling because it is and is above the norm for a landlord or their agent.
That said the Department of Communities and Local Government have produced a helpful guide you can use as an informal assessment. It is important to realise the legislation is to stop rogue landlords so generally it is not onerous for a good landlord and general common sense.
4) SECTION 21 NOTICE – (AS IT STANDS AT PRESENT)
The Government has announced that they intend to abolish the no fault eviction ground for landlords under section 21 of the Housing Act 1988.
This (if it happens which sounds probable – as the labour party has similar plans), will be a major shake-up of the private rental system and could affect the future of housing and housing supply significantly.
Initially, obtaining possession under section 21 was fairly straight forward. The landlord had to serve notice giving not less than two months’ notice and apply to court for a possession order. The main challenge for landlords was getting the notice drafted correctly.
The Government then started including pre-requisites, the first being:
- A deposit if paid to the landlord must be properly protected in a Government authorised tenancy deposit scheme.
- The prescribed information served within 30 days of payment of the money.
- Licensable houses in multiple occupation (HMO’S) must have a valid licence.
Many landlords fell foul of these rules in particular those requiring protection of the deposit.
Then new rules were introduced in England via the 2015 Deregulation Act including:
- The need to serve a valid gas safety certificate and EPC.
- The Governments “How To Rent Booklet” giving guidance to tenants. 3) New rules about timing and new prescribed forms.
Despite all this extra protection the Section 21 has been misused by some landlords and is regarded by many as evil.
Unfortunately rogue landlords have given the Section 21 a bad name and they use the threat of the Section 21 to terrorise tenants if they dare complain about the poor condition of their properties. Because the rental tenants sector of society is now so large the Government believes abolishing the Section 21 Notice will be a vote winner. But really good landlords and agents will always follow the law but rogue landlords will always be rogue and ignore the law.
Has the Government really thought through the implications of losing the Section 21 Notice?
Its own data shows that the average tenancy length is longer than 4 years. Nine out of ten tenancies are ended by the tenant and not the landlord.
Most landlords do not want to evict tenants, they want a good landlord / tenant relationship that benefits both parties. When a tenant leaves (whoever’s decision it is) it leads to a void period and costs to a landlord.
The Section 21 enables landlords to remove bad tenants with less fuss and costs than other methods of eviction (such as Section 8, which the Government has said will need to be reviewed).
Take away this ability to remove tenants more easily and the Government risks:-
- Prospective buy to let investors deciding against investing. If a tenant has longer security the landlord will not be able to sell so easily and this may affect a mortgage offer.
- Existing landlords who have suffered nightmare tenants would be put off reletting.
- The housing supply could be reduced, rents will go up and before the Section 21 ban there may be a flood of Section 21 evictions and homeless tenants.
The reasons to evict without a Section 21 Notice:
- The tenant is in arrears of more than 8 weeks.
- The tenant consistently pays their rent late.
- The mortgage company is repossessing the property from the landlord.
- The terms of the tenancy agreement have been broken by the tenant.
- The landlord wishes to make repairs and renovations (though there must be suitable alternative accommodation provided to the tenant).
- The tenant undertakes anti-social or illegal behaviour.
- The tenant has damaged the property beyond normal wear and tear. 8) The tenant provided false information to obtain the property.
It will be interesting to see what eviction tools will be put in place if the Section 21 is removed and how the Section 8 Notice and any other Notices available currently to a landlord are altered.
5) CONCLUSIONS / OTHER
To summarise the lettings law is ever changing. It will continue to change and there will be more and more regulation imposed on landlords and their agents. The legislation will continue I think to be more weighted in favour of the tenant.
The general maintenance and condition of the property at the beginning, middle and end of the let though is the common thread that seems to link all the rule changes together and in order to gain the property back the landlord / their agent will not only have to prove the safety certificates are in place and have been throughout the tenancy – gas, electricity, carbon detectors, smoke detector etc., that the energy performance at least meets the minimum level, or there is a good reason why it doesn’t, but also a tenant has not been unreasonably charged for any service regarding the tenancy (the fee ban).
Some of the laws or requirements are a little bit wishy washy for example legionnaires. A check on legionnaires is by a competent person and this person can be a landlord, a landlords agent or a specialist contractor but it is important to realise this is at a point in time so if there ever was an issue it is all about proving the right steps and a belt and braces approach has been carried out by the landlord / landlords agent. So documentation, record keeping and accurate files are most important.
On a positive note much of what is in the new legislation is something that good agents and landlords will always follow and a lot of what is being asked is general common sense that most people do at the start and during the tenancy anyway. Also it is important to remember that residential letting in my opinion certainly still remains a good investment and over time not only does it supply a rental income but also the value of the property steadily rises. It is true to say that if you buy a property on a Monday and expect to make a profit by Friday you won’t but generally speaking if you look over the last ten years or so we have had peaks and troughs in the market but on the whole property prices have increased.
So always remember overall your rental property is a good investment and not only is it important to have good maintenance at that property as a landlord you should ensure you follow all of your landlords covenants but also as an investment proposition and future saleability of the property good presentation will always be preferred over a property in a tired and unkempt condition. The guidance of a good letting agent is recommended.
Sharon Kirk Bsc (Hons) Est Surv MRICS Head of Residential Lettings
01522 538888 (Lincoln)
01507 522222 (Horncastle)
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