When Leaseholders Sublet
Many flats are purchased with the aim of subletting them. Leaseholders who choose to trake this route and become landlords are not only bound by the covenants contained within their leases but if renting for 7 years 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.
These obligations require the properties to be gas safe, smoke and carbon monoxide safe, and electrically safe. There should always be repairs procedure in place with access always arranged in advance (unless it is an emergency).
Landlords are also required to check the immigration status of their tenants under ‘right to rent’ legislation and ensuring that the tenancy deposits they receive are protected.
Note: There are signs though that the deposit schemes may be changing such as deposit 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 should also make sure they are familiar with the ‘How to Rent Guide’ when issuing Assured Shorthold Tenancies.
If landlords are serious about their rentals and 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.
We also have Safeagent, (formerly known as the National Approved Lettings Scheme) a not for profit accreditation scheme for letting agents, and landlords and the UK Association of Letting Agents (UKALA).
On our block I’ve yet to find any proof that any of of our landlords have signed up to any accreditation schemes. We are in the East End of London and unfortunately many landlords around here prefer to operate under the radar as much as possible.
Even landlord licensing didn’t really assist because of the failure of the council to effectively use Part 3 s87(6)b of the Housing Act 2004 which requires the applicant to give copies of the application, or information about it, to particular persons, which in our case would be our RMC Directors or managing agent. Some landlords are actually exempt from the licensing process because they have leased their properties to a local authority for a pre-determined period for them to use in one of two ways:
- Private Sector Leasing, a scheme for families and individuals who find themselves homeless and so are helped to find immediate, temporary accommodation whilst their claim for permanent housing is being processed;
- Nightly let schemes, again for temporary accommodation.
Both schemes are council-led but the problem with the former is that the actual landlord is not named on the tenancy agreement. This is because that position is assumed by the LA’s managing department or agent. It is the LA who is responsible for the finding, vetting and placing of tenants and dealing with any later issues. In effect these leaseholder landlords have stepped back from all aspects of flat management.
So why do landlords sign over their properties? In one word, incentives, which are offered under s25 of the Local Government Act 1988 (consent required for the provision of financial assistance etc). These incentives include:
- The authority paying the costs of leases;
- Making small one-off grants (“finders’ fees”) to landlords to encourage them to let dwellings to households owed a homelessness duty;
- Paying rent deposits or indemnities to make sure accommodation is secured for such households;
- Making one-off grant payments which would prevent an eviction;
- Discretionary Housing Payments (DHP) to give financial help to meet a shortage in a person’s eligible rent and the housing authority consider that the claimant is in need of further financial help. Such payments are governed by the Discretionary Housing Payment (Grant) Order 2001.
Note: Whilst there is no limit set on the amount of financial help that can be provided, authorities are obliged to act reasonably and in accordance with their fiduciary duty to local tax and rent payers.
The most damaging thing about this was that tenants with various issues such as anti-social behaviour, alcohol and drug use were often placed with what the press coined ‘rogue landlords’ and even though some of the worst offending landlords have sold up over the years, we could still do with a few more doing the same!
LANDLORD MANAGEMENT OPTIONS
Yet another issue when things go wrong is not knowing what type of management option landlords have chosen, of which there are 3:
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.
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 as some believe it to be? Only time will tell!