An Overview of Being a Leaseholder Landlord
Many people who buy flats do so with the intent to sublet them. They must however check the subletting covenants within their lease which usually requires them to get consent from the freeholder. After purchase they not only have to adhere to the terms of their lease as leaseholders but also by landlord and tenant legislation as landlords.
Landlords have three options about how their rental properties are managed:
1: Lettings Only/Landlord Management
In this option the letting agent will carry out the following:
- The marketing of the property;
- Providing advice about what rent the landlord should ask for;
- The finding of a tenant and subsequent reference checks if required;
- Providing the tenancy agreement.
Once the tenancy agreement has been provided the landlord then takes on all the management of the property when the tenancy starts. The agent will usually charge a one-off fee for their work in getting to this point and payment will normally be based on the rent (usually one month). The agent is also likely to charge the tenant an administration fee (for the same reason). Both the landlord and agent must be in agreement about what the amount of the tenancy deposit should be and make sure that tenants receive protection for those deposits .The landlord will then have to give proof to the tenant that the money is in one of the three government-approved deposit protection schemes (2 insurance-based and 1 custodial-based).
2: Tenant Finder/Rent Collection
Self explanatory and again whilst the agent will usually charge a one-off fee they may also add a small monthly percentage for rent collection. The landlord will deal with repairs, and regaining possession at the end of the tenancy if the tenancy is not renewed.
3: Full Agent Management
This covers all aspects of management including repairs that can either be carried out without requiring the permission of the landlord or those which the landlord prefers to deal with. Rent collection, commencement of the tenancy and the first steps of bringing a tenancy to an end such as serving notice (but not proceeding to court action) are also provided.
This level of service will naturally be the more expensive option.
REPAIRS AND MAINTENANCE
The standard of rentals is governed by the overarching legislation of Part 1 of the Housing Act 2004, specifically under the Housing Health and Safety Rating System (HHSRS) which requires inspectors to examine properties for health and safety defects that include fire risk, damp, overcrowding, poor lighting, and pests. Once the defects are identified they consider the likely harm that could happen as a result of such findings and use a scoring system to determine the seriousness of such defects, of which there are 29.
Note: This legislation can also be used for defects in the common areas.
For rentals under 7 years duration the installations in the property must be gas, smoke and carbon monoxide safe, and electrically safe. Even if such obligations are not contained within the tenancy agreement they are implied by the statutory obligation under s11 of the Landlord and Tenant Act 1985 (repairing obligations in short leases).
There is now new legislation in the form of the Homes (Fitness for Human Habitation) Act 2018 which is now law.
Landlords should deal with all repair requests in a timely manner, with the Association of Independent Inventory Clerks (AIIC) outlining the recommended time scales for landlords to respond, depending on the problem:
- Emergency response – gas and water leaks, serious electrical faults;
- 24 Hour response – heating and water systems and other non life threatening electrical problems eg broken windows if not caused by tenant negligence;
- 72 Hour response – kitchen appliances and other items that affect the daily life of a tenant;
- Less urgent responses – broken lawn mowers, a fallen fence panel or a dripping tap.
Accessing a Tenanted Flat
Landlords also need to be aware of the process for accessing tenanted flats to carry out repairs under s11 (ss6) of the Landlord and Tenant Act 1985 which reads as follows: ‘in a lease in which the lessor’s repairing covenant is implied there is also implied a covenant by the lessee that the lessor, or any person authorised by him in writing, may at reasonable times of the day and on giving 24 hours’ notice in writing to the occupier, enter the premises comprised in the lease for viewing their condition and state of repair’.
So landlords wishing to carry out repairs do not have the right to turn up unannounced to check on a property or a tenant, instead a mutually convenient date and time must be arranged which must be at a reasonable time and after giving the tenant not less than 24 hours notice in writing. More notice can be given if the works are to be prolonged or disruptive and in such cases tenants should be given details of the works to be carried out and a rough idea of a finishing time or completion date.
If the landlord or the contractors attempt to enter without permission the tenant can launch a claim for trespass as they have the same rights over the premises just as an owner-occupier does. Therefore landlords should be wary about entering the property when the tenant is not there. Where a tenant has given permission, but has advised they will not be at the property themselves, it is recommended that landlords/agents are best accompanied by a witness.
Cross Sector Issues
Whilst owner-occupiers are responsible for the upkeep of their own flats there are situations when landlords, freeholders and leasehold management must work with each other. For example whilst condensation might be caused by the living habits of tenants it could also be caused by external factors such as penetrating damp (which can be found at any level) and rising damp (often found on the ground floor blocks of flats but rarely seen in flats above the ground). In these situations, the landlord must report it to the freeholder or managing agent and should not attempt to carry out any repairs themselves as this is not in their remit. Equally,it may be may be caused by an internal lack of ventilation (the most common cause of the problem) and taking our own block as an example, landlords here have not only sealed up the fireplaces but the vents too whilst some vents have been replaced by smaller ones, with yet others being painted over!
Another cross over are plumbing leaks because when a slow leak penetrates through the floor of a flat and through the ceiling of the flat below, not only is it a landlord issue but it also damages the structure which belongs to the freeholder. Of course the causes of some leaks are obvious but slow leaks can be difficult to find and remedy and can lead to serious problems such as a collapsed ceiling. This photograph shows what happened when our block had one such collapse!
TRADE BODIES AND ACCREDITATION
If landlords want to stand out from the crowd (and there are over 2m of them in operation in the PRS) then gaining landlord accreditation is a good idea. Scheme members will be required to take a mandatory training course and once accepted, will need to get regular continuing professional development (CDP) as a condition of membership. Members will also sign up to the scheme’s code of practice which then allows them to be recognised as ‘fit and proper persons’.
Local authorities usually run these schemes, along with landlord trade bodies such as the National Landlords Association (NLA). Other trade bodies are the Guild of Residential Landlords, and the Residential Landlord Association (RLA). The largest accreditation scheme is run by the London Borough of Camden, which is that of the London Landlord Accreditation Scheme.
There is also the Accreditation Network UK (ANUK) which is a central resource for tenants, landlords and scheme operators interested in accreditation of private rented housing. It provides support, expertise and promotes best practice for scheme operators.
The PRS has taken over from councils and housing associations as the biggest provider of rented homes in this country but not only has there been a slow down of new landlords entering the market but many established landlords are selling some or all of their portfolios. There are a number of reasons for this:
- The introduction of the stamp duty surcharge of 3%:
- The scrapping of the 10% tax relief for wear and tear to the property by 2020 (landlords can now only deduct the cost of replacing household items like for like);
- Landlords can only offset 75% of their mortgage interest when calculating their tax bill with that reducing to zero by 2020 although they can claim a tax credit of 20% of their mortgage interest;
- Under ‘right to rent’ legislation, landlords have to check the immigration status of their tenants with a £3k fine if found to be renting to a someone here illegally;
- The requirement for landlords to be licenced is spreading across the UK after its introduction by the London Borough of Newham;
- In addition to the 20 specific grounds for eviction under 8 of the Housing Act 1988, the process for evicting tenants with under s21 of the Housing Act 1988 is now more difficult for landlords with the introduction of 2 new regimes under the Deregulation Act 2015 designed to stamp out what are commonly known as ‘retaliatory’ evictions;
- Landlords who live abroad are also bound by the same responsibilities and if out of the country for more than 6 months they must pay tax on any income they get from renting out property in the UK. If the landlord is a company or trustee, the rules about their usual place of abode apply.
- Letting agent fees will soon be banned with the Bill due to receive Royal Assent in the coming weeks, before being passed into law and implemented on 1 June as the Tenant Fees Act 2019.
- Signs that the tenancy deposit schemes may be changing such as deposit free renting in the build-to-rent sector and apps offering tenancy insurance;
- On 24th January 2019 the Communities Secretary announced that all landlords will be legally required to join an Ombudsman scheme with a 5K fine for non-compliance. The link to this will appear when published.
There is no doubt that for many people, renting is a preferred choice of tenure and it can work but far too many are forced to rent because they cannot afford the deposits needed in order to purchase their own homes. It seems strange though that so much legislation has been introduced to the detriment of landlords when the PRS is so heavily relied upon to offset the lack of social housing. Or is it that the rental sector is moving toward build to rent as the norm? Only time will tell!