An Overview of Rental Management
Many flats are purchased with a view to subletting and when it comes to how to manage their rentals, landlords have three options:
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.
Where the leaseholders rent out their properties for under 7 years duration, as a landlord both they and their letting agents (if they use one) have a duty under common law to ensure the safety of the property and its contents so that no injury or damage is caused to the occupants, neighbours or to the public.
So, the properties must be gas safe, smoke and carbon monoxide safe, and electrically safe and 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). Other key legislation that covers the health and safety of rented flats can be found here.
In addition to abiding with the covenants contained within their leases, landlords also have to abide by a large amount of legislation regarding the renting of their properties. There are far too many to put them all on this site but some of the main ones can be found here.
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;
- 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.
- 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 renting can work but far too many people 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!