UK soon to have 100K Build-to-Rent units

According to a recent report of the British Property Federation (BPF), the Build-to-Rent sector in the UK is currently 95,918 units strong. Not all of these homes are completed units though; the figure includes homes under construction and homes awaiting planning permissions. The latest report indicates a whopping 37.4 percent growth in the sector as the Build-to-Rent sector comprised of only 69,824 homes by the end of the first quarter of 2017. Therefore, the progress of the Build-to-Rent category is being demonstrated by not just the proximity to the 100,000 units milestone, but also by the rate at which the sector is marching towards the achievement of this landmark.  

With 54,978 units, the majority of the Build-to-Rent units (completed + under construction + waiting planning permissions) in the UK are in London. But, the number of units under construction in the Build-to-Rent sector is 12,316 in the regions, while London has only 11,696 units currently under construction.

The British Property Federation’s Director of Real Estate Policy, Mr. Ian Fletcher says:

“Our data allows us to track Build-to-Rent’s growth across the UK, and ensures we are as transparent as possible when communicating the sector’s current and projected contribution to the country’s housing supply. Correcting the supply-demand imbalance in the UK is fundamental to addressing the housing crisis, and we have demonstrated that Build-to-Rent has much to offer.”

“We are pleased by the Mayor of London’s continued support of the sector and his recognition of its capacity to deliver much-needed homes. We look forward to the government’s formal response to the national Housing White Paper, which formally recognised Build-to-Rent in the National Planning Policy Framework. We need all housing tenures to be fully supported by the right policy framework if we are going to reverse the damage caused by years of undersupply.”

Though the data from British Property Federation’s report suggests that the Build-to-Rent sector will be able to largely salvage UK’s housing market, it is alarming that only just above one percent of the investments made in the Build-to-Rent sector in the UK are in Scotland. The implementation of a new Private Residential Tenancy regime in Scotland from 1st December 2017 is being viewed skeptically by investors and this could be one of the reasons behind the slow rate of growth of the Build-to-Rent sector in the region. The Scottish Government seems to have realized the significance of the Build-to-Rent category as Kevin Stewart, Scotland’s Minister for Local Government and Housing says:

“Build to Rent is an important part of the Scottish Government’s approach to growing and improving the private rented sector.”

Highest Fine for Non-Compliance of Selective Licensing in UK

When the selective licensing scheme of the West Lindsey District Council came into effect in July 2016, Mr. Jagdish Singh wouldn’t have thought that a year down the line he’d go on to become the poster boy of the regulations.

Mr. Singh has been ordered by the Lincoln Magistrate’s Court to pay a total fine of £108,000 for not licensing eight properties of his under the selective licensing scheme. Apart from the £13,500 fine per each of the instance of failure to license, he was also fined £4,500 for each of the three occurrences of ignorance of improvement notices. Further, he is also liable to pay £ 2,000 as costs to the winning side. The £108,000 fine received by Mr. Singh is said to be the highest ever handed out in U.K. to a single landlord for non-compliance of a selective licensing scheme.

All the landlords renting properties in selective licensing areas are supposed to get licenses in accordance with the selective licensing scheme of the area. The three major aims behind selective licensing are improvement of property management standards, maintenance of real estate values in the area and elimination of unacceptable landlord behaviour.

Other than Mr. Singh, the Lincoln Magistrate’s court found three other landlords also guilty of having violated the selective licensing scheme of the West Lindsey District Council. Gurjit Singh, Balbir Kaur, and Harpal Bindra Singh were each fined £ 15,000 for each of the times they failed to comply with the selective licensing scheme. The total fine amount payable by the four defendant landlords amounts to £232,155.68.

Councillor Sheila Bibb who heads the Prosperous Communities Committee of the West Lindsey District Council had the following to say about the Lincoln Magistrate’s court’s verdict:

“The courts have made it very clear in these prosecutions – that landlords will face tough fines and restrictions if they do not comply with the scheme.

The private rented sector is the only option available for some of the most vulnerable people in our area and this action sends a clear message that the council wishes to work with good landlords to improve this sector and identify the poor or criminal landlords.”

Seeing how the court has issued hefty fines for failure to license properties under a selective licensing scheme, it is imperative that all the landlords in U.K. cross check whether they are running afoul of any of the regulatory requirements which they are supposed to meet.

Interest Rates Hike: Effect on Mortgages

The hike of interest rates by the Bank of England last week marks the first increase in interest rates in U.K. in a decade. The last time interest rates were increased was in July 2007. The interest rates have been increased to control the inflation that is currently affecting U.K. The base rate has been increased from 0.25% to 0.5%.

This decision of the Bank of England is not surprising as the 0.4% growth shown by the GDP in the last quarter had indicated such a move from the part of the bank. The Bank of England’s Governor Mark Carney too had hinted about interest rates hike.

Effect on Mortgages:

Homeowners who are on fixed-rate mortgages won't be immediately affected by the hike in interest rates. But, they'll be affected once their fixed term ends.

As far as standard variable rate (SVR) mortgages are concerned, if the mortgage amount is £125,000 and the remaining mortgage period is 20 years, the 0.25% increase in interest rates would cause a £15 monthly increase in mortgage payments and thus a £185 yearly increase in mortgage payments. Therefore, it can be seen that the increase caused in mortgage payments by the increase in interest rates is not significant. But, it must be borne in mind that the interest rates will be increased frequently and hence, eventually, mortgage payments could end up being much higher than what the borrowers had anticipated.

Impact:

It is too early to assess the impact of the interest rates hike on the people of U.K. The citizens of U.K. have been struggling with their financial needs ever since Brexit and the hike in interest rates leading to higher mortgage payments could severely affect their purchasing power and thus, their lifestyle. Further, pessimistic observations about the British economy by the Governor of the Bank of England, Mike Carney also didn’t sit well with many citizens. He made statements to the tune of the British economy having been permanently damaged by the financial crisis which occurred in the last decade. The silver lining of the interest rates hike is the possibility of some of the banks increasing the interests given on deposits. The Bank of England must be hoping that a decrease in the rate of inflation occurs so that the increase in mortgage payments is set off by the decrease in expenditure due to the low rates of inflation.

Tenant’s Injuries and Landlord’s Liabilities

A landlord is liable for the injuries to a tenant if the injuries were caused by negligence on the part of the landlord. Therefore, it is extremely important that landlords take care to prevent such injuries. Also, a landlord should be aware what constitutes negligence on his part.

Negligence Per Se

A landlord is said to be guilty of ‘negligence per se' if the tenant's injuries were caused because the landlord failed to comply with a legal duty. For instance, if a tenant suffers an injury due to an electrical fitting installed by the landlord and if that electrical fitting turns out to be not one complying with the standards prescribed by law, the landlord will be held liable for the injury caused to the tenant.

Proof of Negligence

In situations apart from negligence per se, the tenant has to prove that the injury caused to him/her was due to negligence by the landlord.

The parameter used to assess negligence is ‘standard of care’. Standard of care is the minimum prudence that should be showed by a person in a particular circumstance. In the case of landlords, the ‘standard of care’ required is ‘reasonable care’. A court first ascertains how a reasonable landlord would act in the given situation. Then, the court examines whether the degree of care observed by the accused landlord is at the minimum what a reasonable landlord would have observed.

Depending on the situation, a court may also decide that the landlord should have exhibited a standard of care higher than reasonable care. Such situations mostly involve injuries caused to children or the disabled.

Damages

There are two kinds of damages tenants can claim against landlords for injuries caused to them due to the negligence of the landlords. They are 1) General Damages and 2) Special Damages. The injury’s nature and circumstances of the case determine the whether general damages and/or special damages apply.

General damages deal with compensation for the physical, mental, emotional, or other injuries suffered by the tenant as a result of the negligence of the landlord.

Special damages deal with the compensation for the financial losses caused to the tenant by the negligence of the landlord. These include the cost of rehabilitation, cost of medical treatment, and other pecuniary losses.

 As tenants being injured is not in the best interests of both the landlords and the tenant, landlords must try their best to avoid situations that could result in injuries for the tenants.

Private Tenancy Sector in Scotland Undergoes Radical Change

The Private Housing (Tenancies) (Scotland) Act 2016 will come into force on 1st December 2017. This legislation seeks to replace the Short Assured Tenancy (SAT) system in the country with Private Residential Tenancy (PRT). All current tenancies will continue to be SATs until they are terminated, modified, or extended.

Some of the changes that will be brought about by the act are:

1)     Tenancies will no longer come with an expiry date. Leases can be terminated only if one of the parties gives notice for the same.

2)     The existing ‘no fault’ ground to remove a tenant can no longer be used. Currently, a landlord can remove a tenant without specifying the reason for the same.

The notice period of the notice given for termination of the lease by the tenant must not be less than 28 days. In the case of a landlord, such a notice must be based on one of the 18 grounds specified in the act. The notice period for a notice given by the landlord for repossession could be either not less than 28 days or not less than 84 days, depending on the ground invoked by the landlord and the duration for which the tenant has been staying in the property.

The grounds to end tenancy as given in the act include sale of property, sale by mortgagee, renovation of property, conversion of property for religious purpose, conversion of property for non-residential purpose, breach of tenancy agreement, non-payment of rent for three consecutive months, and  tenant’s conviction of a criminal offence, among others.

If a landlord invokes one of the grounds given in the statute to end the lease, and then is later found to have invoked the ground in bad faith to remove the tenant from the property, the landlord will either have to offer the tenant so aggrieved either a new tenancy or have to pay the tenant six months’ rent as compensation.

A tribunal which deals exclusively with tenancy issues will be set up. Also, under the new act, Scottish ministers will have the power to determine the maximum level of rent that can be levied in a district.

Though the act has been enacted with the noble intention of according protection to tenants, the provisions of this act could deter people from investing in the private rental sector. The increased difficulty of evicting a tenant combined with the introduction of a tenant-friendly tribunal and ceiling levels on rents introduced by this act could prove counter-productive for the tenants if landlords choose to leave or not invest in residential rentals.   

Practices of Letting Agents in Scotland to be Governed by Legislation

‘Shelter’ is one of the basic needs of a human being. Malfeasance or carelessness from the part of letting agents detrimentally affects the satisfaction of this need of many. It is in this context that Scotland has introduced a legislation to regulate the practice of letting agents.

The Letting Agent Code of Practice (Scotland) Regulations 2016 will come into force from 31st January 2018. This legislation aims to improve the quality of the private rental sector, reduce malpractices by letting agents, and empower tenants.

As the name of the statute suggests, it describes the code of conduct that must be followed by the letting agents in Scotland. All the letting agents in Scotland are expected to comply with these regulations from the date of enforcement. Also, all the letting agents in Scotland are required to register their names in the Register of Letting Agents which will be maintained by the Scottish government. Non-compliance with the registration requirement would result in fines less than or equal to £50,000 and imprisonment for a period of not more than 6 months. Further, post the enforcement of the regulations, top officials of letting agencies will be qualified to remain in their positions only if they possess at least the lowest levels of training as mandated by the statute.

The statute creates an obligation on the letting agents to have Professional Indemnity Insurance and Client Money Protection. Both the landlords and the tenants have been accorded the locus standi to challenge letting agents who do not comply with these regulations at the First-tier Tribunal for Scotland (Housing and Property Chamber).

Kevin Stewart, the Housing Minister of Scotland said the following about the Letting Agent Code of Practice (Scotland) Regulations 2016:

"We are committed to ensuring the highest quality private rented sector, which empowers tenants. Our framework for regulation and the need for the sector to meet key standards and expectations through the code is an important step in achieving our ambitions.

Many letting agents already do a great deal to continuously improve standards and inspire confidence amongst landlords and tenants. The introduction of the code means a level playing field for all and ensures clarity on rights, responsibilities, and expectations.

For many people, private renting provides a place to call home, and they deserve the necessary standards and protections to find and keep that home. With six months until the code comes into force letting agents must take steps now to be ready for these new ways of working."

European Convention on Human Rights

Article 8 Of The European Convention On Human Rights and Private Tenancy

The question - Whether Article 8 of the European Convention on Human Rights can be a defence against possession claims in private tenancies? – was under the consideration of the Supreme Court in the case McDonald v. McDonald [2016] and the court answered in the negative.

Background

The Article 8 of the European Convention on Human Rights deals with the right to respect for private and family life. Post the judgments of the Supreme Court in the cases Manchester City Council v Pinnock [2011]and Hounslow London Borough Council v Powell [2011], Article 8 of the European Convention on Human Rights has become a defence against possession proceedings in public tenancies. And whether the Article 8 defence extended to private tenancies too was deliberated upon by the court in McDonald v. McDonald.

The Supreme Court’s View

According to the court, Article 8 of the European Convention on Human Rights cannot be used to vitiate the contractual relationship between the landlord and the tenant as laws dealing with the interests of both the tenants and landlords have already been legislated.

The court feels that since the legislature has enacted laws to maintain a balance between Article 8 (European Convention on Human Rights) rights of the tenant and landlord’s rights as per Article 1 of the Protocol No.1 to the European Convention on Human Rights, there is no need for the courts to further get involved and determine the proportionality of actions taken by landlords in pursuance of possession.

Further, the court observed that the Protection from Eviction Act, 1977 and the Housing Act, 1980, are sufficient to protect the interests of the tenants.

Impact

The prudence that the Supreme Court displayed while delivering this verdict is indisputable. Allowing Article 8 of the European Convention on Human Rights to be a defence against possession in private tenancies would have led to unnecessary detriments to the landlords in many ways. Firstly, as mentioned by the Supreme Court, when the legislature has already designed the laws in a manner which would be fair to both the tenants and the landlords, further accrual of rights to tenants would have caused an imbalance in their favour and therefore, would have been unjust to the landlords. Secondly, the Article 8 defence, had it been granted, would have resulted in delays in procession proceedings and thereby causing harm to the landlords. Thirdly, such delays would have dissuaded new players from entering the rental market, which would have been followed a shortage of properties available for rent. Thus, the decision of the Supreme Court in McDonald v. McDonald has proven to be a boon not just for the landlords, but also for the society in general.

Rogue Tenant Destroys House

A middle-aged landlord in Liverpool recently found himself at his wit’s end due to a rogue tenant.  As reported by the Liverpool Echo, Steve Parry, a 55 years old surveyor ended up losing upwards of £9,500 because of a tenant in one of his properties. His ordeal is a great example of a landlord’s vulnerability.

Non-payment of rent and eviction

Steve served the tenant of his Wavertree property with a notice to quit the property after she went back multiple times on her promise to pay up the rent due to him. She had also breached the tenancy agreement by keeping a dog. He subsequently sent her two more notices and eventually had to go to the court and get an order for possession of his property. But Steve regained actual physical possession of his property only months later when he engaged court bailiffs.

Wreckage

It was only after the tenant left the property that Steve saw the damage inflicted upon it. There were heaps of junk in various parts of the house. The doors were broken while the cupboards had been pulled out. To top it all, the ceiling of the bathroom had come apart as a result of a flood in the bathroom.

Break – up of losses

Steve believes that he lost around £6,000 due to the damages and £2,000 as unpaid rent. He also spent £1,500 on court fees.

Impact on Steve

Steve who had looked forward to spending his retired life comfortably with the income from his two houses, is disheartened by the entire incident. He has decided to not give his properties on rent to tenants who pay rent through benefits, even though he knows that most of the tenants who depend on benefits are decent.

Takeaway(s)

The major takeaway from the whole episode is that there must be more stringent laws to prevent landlords from being taken for a ride. Landlords too are regular human beings doing business. There shouldn't be much delay in imparting justice to landlords when tenants act unfairly against them.

Also, tenants who live on benefits must realise that any bad behaviour from their part will affect many others who rely on benefits in the future.

Let’s hope that this event in Steve’s life serves as a wake-up call to the tenants and the authorities. Otherwise, the mental and financial health of many more landlords will be in jeopardy.

Private lettings possible only with minimum EPC rating after 2018

Starting 1st April 2018, all private rental properties, commercial or residential, cannot be let in England and Wales, without an EPC (Energy Performance Certificate) rating of at least ‘E’. This applies to not just new tenancies, but also to the renewal of tenancies. Even all the existing tenancies are to comply with this requirement - by April 2020, if it’s a residential letting and by April 2023, in the case of a commercial letting.

Legislative Basis:

It is The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 which has introduced the above qualification. This statute is a part of the legislature’s effort of achieving its target of ‘close to zero’ CO2 emissions from all buildings by 2050.

Penalty:

The maximum penalty for not complying with the minimum EPC rating rule is £150,000 for commercial properties and £4,000 for residential properties.

Improvements:

What this means for the landlords is that they may have to make improvements to their properties like loft insulation, wall insulation, double glazing, and boiler upgrade, among others, to be able to let them. But more energy efficiency would mean lower running costs for the building. This is beneficial to both the landlords and the tenants. In fact, a better EPC rating would make a property more attractive to potential renters, which in turn means the landlord could charge higher rents. Also, we shouldn’t forget the larger interest here - that of the environment. A healthy environment is absolutely essential for the landlords too, just like all other living beings in the world.

Exemptions:

There are a few exemptions to the minimum EPC rating condition. These exemptions are only available for a period of 5 years and that too only upon registering on the central government’s ‘PRS Exemptions Register’. Also, the exemptions are not passed over to the new owner upon the sale of a property. The new owner has to either improve the property or register the exemptions again, before letting the property. The following are the grounds for exemptions:

1) Cost-effectiveness: If the landlord has carried out all the relevant energy efficiency improvements that can be carried out cost-effectively (cost-effectiveness determined by a seven-year payback test or the Green Deal’s Golden Rule) and still the EPC rating is below ‘E’, he/she will be exempt from the minimum energy efficiency regulation.

2) Lack of third-party consent: There could be instances where the landlord is not able to make improvements to the property because he/she couldn’t obtain consent for the same from a mortgage lender, local authority, tenant, or some other third party.

3) Devaluation of property: If the implementation of measures needed to comply with the minimum EPC rating regulation would reduce the market value of the property by more than five percent.

4) Recently becoming a landlord: Sometimes a person becomes a landlord suddenly and it is not reasonable to expect such a person to abide by the minimum EPC rating stipulation. This exemption is available only for a period of 6 months.

Student accommodation rental prices haven't increased since 2015

According to a report named ‘What Students Seek’, prepared by Glide Utilities, the average student rent per week has remained unchanged in England, in the last two years.

The average weekly rent of students has been static within the £100 - £119 range for the past two years, though it must be said that 15% of the students in London are paying more than £200 a week, whereas 69% of the students in the North East pay below £90 a week.

Considering the fact that students’ expenditure on accommodation is only second to their spend on fees, the finding that rents are remaining static is extremely important. While those who are students at present must be immensely relieved that the rents haven’t increased in a while, this phenomenon could also encourage a lot of people to not abandon their plans of pursuing a higher education.

Even though the rents have remained constant for a while, students are fairly divided over the question of whether their place of residence offers good value for money. Only less than half (45%) of the students answered in the affirmative, while 36% felt that landlords need to understand students better.

On an average, a student shares his/her property with four others. This is a major cause of dissatisfaction; 48% of students prefer to live with not more than two people.

The changes in the society and the way of living also reflect in the needs and demands of students from the landlords. For instance, majority of the students (60%) feel that a television is the least important factor while choosing a place of residence. In fact, after rent, it is fast broadband which is the most important factor for students. It is not impossible to draw a parallel between this and the worldwide movement of consumers from television towards web-based content.

Based on the report, landlords could do the following to improve their chances of letting to students:

1) Provide fast broadband internet.

2) Furnish properties with good storage spaces.

3) Equip the lettings with double beds.

4) Charge rent inclusive of bills.

5) Proper response on maintenance issues.

6) Good conservation of properties.

7) Clear and honest communication with tenants.

As per the report, the university cities in the North East are the best places for landlords to invest as both tenant satisfaction and annual returns are high there. Middlesbrough rentals offer 16.1% annual yield and have a customer satisfaction of 82%. On the other end of the spectrum, the same parameters are 2.7% and 76% respectively for London.

Young men can no longer afford a bachelor pad!

Talking of bachelor pads, one can’t but recall the escapades of Bertram Wooster, the star character created by the master of satire, P.G.Wodehouse, and the bachelor pad he used to live in with his faithful butler the all-knowing Jeeves. However, today, bachelor pads are hard to come by, especially for young working men who need to desperately find living quarters.

Whatever the social status of the young men of today, finding a bachelor pad of their own is just a pipedream. The only option seems to be the shedding of their cherished bachelorhood and getting hitched, so that they can find some decent accommodation. Whoever heard of a young, carefree male getting married just because he can’t find decent accommodation?

According to a research conducted by the Halifax Building Society, more than half the male crowd in the 18 to 35 age bracket are struggling to find decent accommodation and are having to turn to their partners to help them find a decent home.

Bachelor pads seem to be things of the past, and almost 20% of the young men and 10% of the young women have come to the conclusion that it makes sense to buy a property jointly, instead of chasing a house that is never in sight.

Blame it on the steadily increasing real estate prices, especially the houses in the residential areas. The sad part is that the earnings of today’s young crowd do not match the steep increase in property prices. With hardly any savings to talk about and the going rate for deposits in the range of £33,000 a home is beyond the reach of most of the youngsters of today.

It is no wonder then that most of the bachelors are desperately seeking partners, which will automatically make them eligible to rent a decent home, whether they are eligible bachelors or not is another matter. While some are contemplating buying a new home of their own, thinking that they will somehow cough up the mortgage payments, some others are totally confused with no home to go to after getting back from work.

Finding a partner overnight also is not a feasible alternative, and the sad plight of today’s young men is not appreciated by landlords and the general public who know hardly anything about their sufferings. Whether this sudden demand for homes, to buy or rent, will push up property prices is anybody’s guess.

Tenants of National Trust Properties Facing Huge Rent Rises

The National Trust couldn’t care less about the elderly. The trust has told an octogenarian tenant in his late 80s that his rent payments are set to rise from £148 to an astronomical £15,000 per annum, reported The Times recently.

It’s not just this helpless old man, there are several other hundreds of tenants who have been faithful tenants for long who face the prospect of rent increases that are unrealistically high. With over 5,000 homes owned by this charitable trust, there are over 10,000 tenants who don’t know where to go with their belongings.

There are some other problems as well. Most of these tenants are paying monthly rent payments, though in between several leases changed hands and were sold as long leaseholds. The lease agreements were drawn long back with 49-year terms, and the rents fixed were obviously based on the cost of living index prevailing then.

With most of the leases periods nearing maturity, the tenants are forced to apply for extensions. That’s when the National Trust puts its foot down saying the lease agreements cannot be extended on the same terms. The tenants have two options: either pay increased rental charges, or pay huge deposits in order to “buy up” or make up for the low ground rent they are paying.

The quandary the old man is finding himself in is that he has to cough up close to £80,000, along with some 300 others who find themselves in the same fix. What with the Government ministers pledging to ban what they refer to as “feudal” leases, and replace such rents with hefty ground rents, for which they are able to find gullible buyers through building companies.

The National Trust is not altogether merciless and is trying to reduce the “ground rents” by at least 50% for certain genuine cases, though even after such a huge discount, the amount payable is far beyond the means of the hapless tenants. While some at the National Trust feel that the leaseholders may have been misled by unscrupulous agents, they are willing to consider letting such tenants off the hook by waiving off the “ground rent” deposit demand altogether. If that should come to pass by some act of providence, the tenants who are already in a sad plight might get some succour after all. One can only wait and watch the future course of events.

Landlords Turning to Holiday Lets

A whole lot of private rented properties are being put up on “holiday let”. No one seems to bother about breaking the 90-day planning rule, and most of them browse the Internet and find their tenants online. This has caused a lot of problems for the regular tenants who just can’t seem to find houses as most of them are let out to tourists for much higher rents.

Research indicates that there is a considerable increase in the number of listings on the Internet, particularly in the past year. Moreover, most of the ads blatantly announce that properties are available for more than 90 nights in a year, which is in stark contravention of the rules laid down for holiday letting. The result of these ads is that there is a considerable increase in the number of properties available for “holiday let”.

While the above is the scenario in London, the trends emerging elsewhere are not very different. According to the survey conducted by RLA over 7% of the 1,500 landlords covered in the survey have been offering their properties as holiday lets. They have been getting these temporary tenants by advertising on portals like Airbnb or some portal or the other on the Internet.

If not for the holiday rush, most of these properties would have been available on regular long lease in the private rental sector, making life a lot easier for the locals. The startling truth is that with this trend of “holiday let” emerging, a few hundred thousand private rented homeshave shifted from the conventional private rental market to the latest boom in the “holiday let” market, where short let accommodation fetches much higher rents with less hassles.

Most of the landlords blame the recent changes in the tax sector, which has forced them to consider letting their properties on short term basis. What makes things worse is the difficulty in selling property due to CGT, which most of the property owners feel is quite unjustly thrust on them. The net result is that there will be very few properties available for rent on long term basis, putting the common people to a lot of difficulty.

The RLA is trying to prevail upon the Government to scrap the mortgage relief changes, so that the property owners can be wooed back to the regular way of letting out their properties. The need of the hour in London and most other parts of the country is for many more new homes that can be made available on long-term rent basis.

More than 4 Tenants on a Single Tenancy Agreement?

According to the Property Act of 1925 a landlord shall not have more than 4 tenants in one tenancy agreement. So, what happens when a good tenant turns up with a family of five or six?

There seems to be a bit of a confusion here in interpreting the rules. Most of the landlords and letting agents have heard of the provisions under Section (2) Law of Property Act,  which stipulates the 4-person rule, which is contrived that a rental agreement shall not have more than 4 people, however this is not quite true. 

The 4-person rule applies only in relation to the legal hold or ownership of the property. The Act further stipulates that if there be more than 4 tenants figuring in the agreement, the first 4 of the lot shall hold the property “on trust” on behalf of the remaining number of tenants. Thus, the law can be interpreted that tenants one to four shall own legal title on the property and hence will automatically hold the interests of the remaining tenants figuring in the agreement.

This is similar to the way private trusts function, for example family trusts that are set up for minors will have trustees who will be the actual owners of the property. These trustees will also be managing the financial affairs of the minors until they reach adulthood.

When it comes to ownership of property, whether on lease or as freehold, there are two parts in the English law under which they come. One is legal ownership and the other is beneficial ownership. While the legal owner can be a different entity and the beneficial owner can be someone totally different. The tenant who has been bestowed with the beneficial interest has every right to enjoy and make use of the property after taking possession. Hence, when there are more than 4 tenants figuring in the agreement, the additional tenants will enjoy the same rights enjoyed by the first 4 tenants.

Of course, the first 4 tenants will still have a say in the legal ownership of the tenancy, for themselves and on behalf of the additional 5th, 6th or 7th tenants. This happens by default, hence there is no need to specifically mention it in the tenancy agreement, merely listing of the tenants will do just fine. However, it is important to name each tenant clearly, and they will also have to append their signatures in the agreement, indicating that they agree to the terms and conditions set in the agreement.

Periodic Tenancies: Notice-to-Quit

If a tenant wishes to end a tenancy contract, he or she has to give the landlord a written notice to that effect. The written notice needs to be duly signed by the tenant and the address of the premises has to be clearly mentioned. The notice should also include the date on which the tenancy contract/period ends.

That’s not all; the tenant has to make sure that the notice is handed over to the landlord personally. In case that is not possible due to any reason, the tenant may send the notice by registered post with acknowledgement due. If either of these is not possible, the notice can be sent via email or by fax. If the notice is sent by fax, make sure you get a copy of the notice printed and save it for future reference.

Whatever the fixed term agreed upon has to be honoured by both the landlord and the tenant. Although neither party has the right to end the term, under section 21, the landlord has a right to serve a 2-month notice period asking the tenant to vacate the premises. Please note this will be a “Notice Requiring Possession” and not a “Notice to Quit” being issued on the tenant. However, the landlord needs to make sure he or she has a court order for possession before the eviction proceedings can take place.

If the fixed term takes its course naturally and the tenant refuses to budge at the end of the term, both parties need to agree to what is known as a Contractual Period Tenancy (CPT) and let the tenancy turn into a Statutory Period Tenancy (SPT) automatically. One advantage with SPT is that it is almost the same as the original term contract, though the 2-month notice period will not apply here. Similarly, the notice period for the SPT will depend on the nature of the new contract: if it is a monthly rent contract the tenancy will be a monthly period tenancy; for a 3-month period it will automatically become a 3-month periodic tenancy.

In case the landlord wishes to serve a notice to quit to a tenant who is on an SPT, he or she has to give a minimum notice of 2 months according to section 21. If the same is for a 3-month period, the notice will be for 3 months. However, the 1988 Housing Act is not very clear about the tenant’s notice for an SPT, though it is covered under Common Law (notice to quit) for protection from the Eviction Act of 1977.

Property Maintenance and Cleaning for Landlords

Being a landlord, the onus is on you to maintain your property in a good condition so that it attracts tenants who are looking for vacant premises. When you showcase a well-maintained property, you are bound to get quick offers at better rents and there are fair chances for attracting tenants who hold reliable jobs and do not have problems paying their rent promptly. Moreover, moving into a property that is spic and span will naturally prompt the tenants to continue maintaining it in the same manner.

If you want to maintain your property really well you need to call in professionals who are adept at maintaining residential accommodation. If not regularly, you should at least call them in whenever the tenancy period ends for a cleaning routine that will ensure that the property is in good condition and attractive for the next tenants. If you have difficulties in locating a good professional cleaner you should get in touch with a professional letting agent who can handle the job for you.

Many landlords have understood the convenience in contracting letting agents for managing their properties. Letting agents are experienced in this line of work and have the right contacts, though they usually charge a steep fee, but one which is generally well-worth paying. Apart from helping maintain your property, a letting agent is the best person who can help find the ideal client who won’t make too much of a fuss or make a general nuisance of himself or herself as they perform various due diligence checks prior to the tenancy beginning.

Cleaning the premises and carrying out minor repairs whenever necessary are two important aspects that can be taken care of by most landlords on their own. What with companies advertising online, it is easy to locate a professional cleaning company and sign up for annual contracts. However, there are a few landlords who are not quite aware of how to go about such things, and they become the targets of letting agents who tend to capitalise on their ignorance. Hence it is important to beware of some unscrupulous letting agents who tend to overcharge landlords for extending such services.

There being no set SLA (Service Level Agreement) to go by and many landlords don’t know how to go about contracting with an agency in this regard. The costs can vary from agent to agent, and unwary landlords often end up spending more than necessary. Hence, it makes sense to make a thorough search before signing up with a cleaning company or letting agent in order to avoid problems at a later stage.

Dealing with the Unthinkable - Landlord Repossessions!

One of the most painful tasks that most landlords hate is evicting their tenants for whatever reason. Usually, the reason is rent arrears that have been piling up for quite a while. However, this is not the only reason. Some tenants can be really careless with the way they handle the property and can cause damage to the property, which naturally upsets landlords, though they can’t do much about it except to evict the troublesome tenant.

When it comes to confronting the tenant, the experience can turn quite nightmarish, and even if the tenancy contract is about to end, most tenants have the audacity to stick on for however long possible. Suing the tenant is the last thing any landlord would want to do as the case can drag on for ages, what with adjournments happening too often, leaving both the landlord and tenant running around in circles. The worst part is the prohibitive legal costs that can spiral to over £10,000, not to mention loss of income and other incidentals. For landlords living in larger cities, the costs can be close to 50% higher.

However, there seems to be no dearth of such cases with a sharp increase being recorded in possession orders and the warrant process time that keeps extending. This was not the case a year back. Some landlords are close to ruining their lives as the fight to get possession of their properties can extend up to 45 weeks or more.

As of March 2017, over 35,000 possession cases were registered in England and Wales. As per the statistics released by the Ministry of Justice, more than 25% of these cases have dragged on to become repossession cases that had to be handled by a court bailiff. Most of the tenants refused to budge until they were forcibly evicted by these bailiffs.

How does one avoid such unpleasant incidents? Your best bet is to be thoughtful enough to have a strong agreement with a letting agent who can take care of the fees, should anything go wrong with the tenant. There are several landlords who silently suffer, not being able to evict defaulting tenants, and are left with hardly any recourse. Landlords need to make sure that they deal with a letting agent who includes rent guarantee and legal insurance while signing a rental/lease agreement, to be on the safe side.

 

Tenancy Surrender & Mitigating Loss

What if your tenant decides to surrender the tenancy midway and refuses to pay rent? As a landlord do you have the right to insist that the tenant pays the rent for the entire period he or she signed up for? According to law the landlord has a right to insist on the payment being made, and there are precedents like one of the earliest ones - the case of British Westinghouse Electric Company versus the Underground Electric Railway Company in 1912.

However, it is left to the discretion of the landlord to let the tenant go scot free and re-let the property to make up for the losses caused by the erring tenant. The other alternative is to refuse to accept the surrender and take the tenant to court, though the outcome could take quite a while, and there is no guarantee that the losses can be made up at the end.

There have been cases like the one involving Reichman (landlord) versus Beveridge & Gauntlet (a firm of solicitors). Although it was a 5-year lease, the tenants broke the contract in 3 years and vacated the premises. The tenant’s contention was that the landlord failed to re-let the premises and also refused an out of court settlement for a negotiated amount. The judge, however, ruled that the landlord did not have any obligation to mitigate the losses, though the defendants went on further appeal.

The case went to the Court of Appeal, which had to rule whether the landlord’s claim was unreasonable as far as continuing the tenancy was concerned. This is one reason why landlords need to think twice before accepting surrender when the contract is being broken well before the contract period ends. Landlords normally insist that the tenants themselves find a suitable replacement before vacating the premises, so that the losses are mitigated. However, the landlord has the right to demand rent for the entire lease period or until a suitable replacement is found, whichever is earlier.

The above case was for commercial premises, and the same yardstick may not be applied for a residential property and cannot be taken as a suitable precedent. Of course, it is the prerogative of judge to consider tenants to be consumers who need to be given due protection. If the remaining lease period is rather lengthy, it is up to the landlord to consider the case and act accordingly by accepting the surrender graciously.

Lodger landlords must carry out Right to Rent checks

Right to rent checks by lodger landlords have been made mandatory since February 2016. Hence all the landlords in U.K. have to necessarily carry out checks on the occupants and make sure they have a right to rent lest the landlords become liable to pay hefty fines.

Landlords need to go on a damage control exercise by making sure that the tenant has a genuine right to rent, and prove to the authorities that as a landlord he is following the rules by the book so that there is no need to pay fines. While the onus of keeping out illegal immigrants is the immigration department, a landlord should make sure he or she is no harbouring illegal immigrants with or without having any knowledge about it. It is better to follow some basic tips like:

  • Keeping meticulous records of every check and the findings
  • Recording the date on which the check was carried out
  • The name of the person who carried out the check
  • A transcript of the questions asked and the answers given by the tenant
  • Photo copies of ID documents provided by the tenant while moving in

The above records need to be maintained safely for at least a year after the tenant moves out of the premises.

Another important point to remember while carrying out the checks is to make sure that checks are carried out on the entire family, leaving out just the underage children. Teenagers who look suspiciously above 18 years need to be verified thoroughly by scrutinizing their papers as well. It is better to include all the names (with ages) in the tenancy agreement, and it is better to include a clause that there should strictly be no sub-letting of the premises, nor should anyone be allowed to move in after the tenant occupies the premises.

The above rules apply to landlords as well as people who take in lodgers on a temporary basis. The rules also apply to those who plan to rent out property under a license and to property guardians as well. It is advisable to keep updated with the information the Home office is constantly updating on its website. Landlords are expected to keep themselves informed of the latest developments, ignorance will not be accepted as a valid excuse. Fines can be rather stiff, with £1,000 being charged in the first instance, and £3,000 for subsequent deviations.

Current Status of Buy-to-Let Market

According to property experts most of the buy-to-let investors are seeking greener pastures and prefer investing in commercial property. Traditional residential property seems to be losing its charm, and shops, office complexes and restaurants seem to be more lucrative investment options. Most of the landlords living abroad are disposing off their buy-to-let properties, especially in the London area. Ownership of buy-to-let properties has come down drastically from 26% in 2010 to a dismal 11% currently, and is fast declining to single digit figures.

However, though overseas investors are hesitating to invest in buy-to-let properties, Britain-based investors are showing keen interest in investing in buy-to-let properties, which is keeping the prices somewhat stable for now. One major reason why foreign-based investors are fighting shy of investing in properties in the U.K. is stringent tax regimen, particularly the capital gains tax, which is a deterrent.

Although Brexit triggered a fall in the value of the sterling, foreign investors were not too keen on investing in property. There was a sharp drop in property prices post Brexit, but there were hardly any takers, especially in the buy-to-let segment. The changes brought about in the stamp duty have escalated the costs of investing in buy-to-let properties. Even owner-occupied properties did not seem to be lucrative enough to attract buyers. Looking at the buy-to-let segment alone, the decline in the number of purchases is quite alarming, what with the “additional property” stamp duty playing spoil-sport, the number of properties being bought and sold has steadily declined since April 2016.

Most of the Britain-based investors are not cash rich and all have mortgage payments to contend with. With returns from property plummeting, default in mortgage payments is a regular occurrence. However, investing in commercial property is a different ball game altogether, and the segment is attracting more investors than ever before. The commercial property range includes small garages (easy to rent out) commercial buildings and sprawling industrial estates that house a wide range of factories.

The main attraction with commercial properties is the higher return on investment, though the appreciation of commercial property is much lower than that of buy-to-let properties. Moreover, the tenants in commercial buildings do not make a fuss about amenities and go ahead and spend out of their pockets if they need small improvements. The business-folk take care of the insurance premiums and minor repairs as well. This trend is expected to continue for a while, until the next boom in buy-to-let property comes.