An Overview of Leaseholder Landlords
When leaseholders want to sublet their properties and become landlords the first part of the process is to obtain permission from the freeholder. The controlling mechanism for subletting will usually be a Licence to Sublet which links the freeholder to the landlord.
When it comes to managing 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.
Not only do leaseholder landlords have to abide by the covenants (promises) contained within their lease, when they rent out their properties for 7 year or less, they (and their letting agents if they use one) are required by common law to ensure the safety of their 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).
The Homes (Fitness for Human Habitation) Act 2018 creates a new duty on all residential landlords under s10 of the Act (repair, stability, freedom from damp, internal arrangement, natural lighting, ventilation, water supply, drainage and sanitary conveniences) by implying a covenant (promise) into a residential tenancy to ensure that the property is ‘fit for human habitation’ at the beginning of the tenancy and throughout. The Landlord and Tenant Act 1985 defines the term by stating that a property is to be regarded as unfit for human habitation if it is “so far defective in one or more of those matters that it is not reasonably suitable for occupation in that condition”.
Additional responsibilities are checking the immigration status of their tenants under ‘right to rent’ legislation and ensuring that the tenancy deposits they receive are protected. There are signs though that the deposit schemes may be changing such asdeposit free renting in the build-to-rent sector and apps offering tenancy insurance.
Additionally the requirement for landlords to be licenced is spreading across the UK after its introduction by the London Borough of Newham.
Landlords also have to abide by a large amount of legislation regarding the renting of their properties, which can be found here.
LANDLORD ACCREDITATION AND TRADE BODIES
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;
- 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.
- 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!