Letting a property? Here are your legal obligations as a landlord
Letting a property brings with it many potential rewards, but it’s also true that the UK private rented sector is one of the most regulated markets in the country.
It’s important that you are aware of just how much legislation there is to contend with, and how important it is to play by the rules, when letting your property to tenants.
Exact numbers are hard to come by, which in itself makes it doubly difficult to keep track of, but it’s predicted that there are hundreds of pieces of legislation that a landlord must abide by, from energy efficiency and fire safety to Right to Rent and deposit protection.
According to research by the Residential Landlords Association in November 2019, the number of new laws affecting landlords has soared by 32% since 2010, with a total of 156 pieces of legislation, up from 118 a decade ago.
In 2020 alone, even with the coronavirus crisis raging, a number of key pieces of legislation have been updated or implemented to keep landlords and letting agents on their toes.
It’s impossible, of course, to lay out every single piece of landlord legislation here – that’s where an experienced, reliable letting agent is worth their weight in gold, helping you to remain compliant with all laws – but below we outline the major pieces of legislation you must know about as a landlord.
Since April 2007, landlords have been obliged to place their tenants’ deposit in a tenancy deposit protection scheme if the home is rented on an assured shorthold tenancy – as the vast majority of tenancies are.
There are three government-backed schemes in England and Wales – the Deposit Protection Service, mydeposits and the Tenancy Deposit Scheme – where you (or your letting agent on your behalf) must place your tenants’ deposit within 30 days of receiving it. These schemes ensure your tenants will get their deposit back if they: meet the terms of your tenancy agreement, don’t damage the property and pay the rent and bills on time.
Two options are offered by all the schemes – custodial or insured. In the former case, the scheme holds the deposit for free, in the latter case you or your agent holds the deposit and you pay the scheme to insure it.
At the end of a tenancy, the deposit must be returned to your tenants within 10 days of you both agreeing how much they’ll get back, while the deposit will remain protected in the scheme during a dispute with your tenants until the issue is settled.
A ban on tenant fees
Since June 1 2019, the Tenant Fees Act has banned most upfront lettings fees as well as placing a cap on deposits. Originally, the ban only applied to new or renewed tenancy agreements signed on or after June 1 2019, but from June 1 2020 it applied to all existing tenancies as well.
It means that landlords or letting agents can only charge certain upfront fees to tenants including rent, bills, council tax, default fees for late payments of rent and payments associated with the early termination of a tenancy, when requested by the tenant.
Deposits, meanwhile, are capped at no more than five weeks’ rent where the total annual rent is less than £50,000, or six weeks’ rent where the total annual rent is £50,000 or more. Holding deposits (to reserve a property) can be capped at no more than one week’s rent. Landlords or letting agents can no longer charge a higher deposit for those with pets, for example. You can see the guidance here.
The initial fine for non-compliance is £5,000 and, if you commit a further breach within five years, you face a £30,000 fine (or being taken to court).
At a similar time, the Homes (Fitness for Human Habitation) Act was introduced in March 2019, designed to ensure that all rented accommodation is fit for human habitation as well as strengthening tenants’ means of redress against the minority of landlords who do not keep their properties safe.
Non-compliance can lead to one or both of the following penalties: tenant compensation or compulsory improvement to the condition of the property. Equally, tenants have the right to take their landlords to court if they believe their home is not fit for habitation.
From March 2020, the Act was extended to include existing statutory periodic tenancies. Before that point, it only applied to tenants who signed contracts on or after March 2019.
Extra stamp duty and the phasing out of tax relief
Two of the most controversial new pieces of legislation in recent years have been the introduction of the extra 3% stamp duty surcharge on second and buy-to-let homes (introduced in April 2016) and the phasing out of mortgage interest tax relief (starting from April 2017).
In the former case, landlords effectively must pay stamp duty twice when they buy an additional residential home worth more than £40,000. The phasing out of mortgage interest tax relief, meanwhile, completed by the end of the 2020/21 tax year, means landlords can no longer offset mortgage interest against their profits.
Elsewhere, April 2020 saw dramatic changes to how Capital Gains Tax (CGT) is calculated. Until then, CGT had been paid on profits made through the sale of any property that isn’t the owner’s principal home. Homeowners could also seek lettings relief (a tax break) if they once lived in the non-principal home themselves.
This was scrapped, however, and landlords can only claim lettings relief if they share the property with their tenant. Furthermore, landlords will need to pay the full amount of CGT owed on a sale within 30 days, rather than having until the next tax year to pay.
Keeping your tenants safe
As a landlord, you assume a legal and moral duty to keep your tenants safe when letting a home to them. Gas safety, electrical safety and fire safety are all major parts of that.
There is regulation surrounding smoke and carbon monoxide alarms as well as fire safety. In the former case, since October 1 2015 it’s been mandatory for all private landlords to have at least one smoke alarm installed on every storey of their properties and a carbon monoxide alarm in any room containing a solid fuel burning appliance (for example a coal fire or wood burning stove).
When it comes to fire safety, you must ensure that all furnishings and furniture are fully fire retardant and fire safe. Tenants must also have several safe means of escape in the event of a fire.
As well as this, you need to make sure that all plug sockets, electrical equipment and white goods abide by safety guidelines, on top of making sure that your boiler is serviced regularly by a qualified professional. Another requirement for your property is a Gas Safety certificate, endorsing the safety credentials of all the gas appliances in the home.
In addition, you should conduct a yearly gas safety check – carried out by a Gas Safe Register engineer – to ensure that tenants are at no risk from their gas supply, with the check also confirming that all pipework, flues and appliances are installed correctly and being maintained in the right way.
From July 1 2020, new electrical safety standard regulations were introduced – albeit in a very confused way - by the government. This article explains the changes very well.
Huge fines can be levied on those who don’t adhere to gas, electrical and fire safety standards, with prison sentences also a possibility, so it’s something that landlords need to pay extra special attention to.
Making your home energy efficient
Since the new energy efficiency regulations (MEES) came into force in April 2018, it’s been illegal for landlords or their agents to let to new tenants unless the home has an Energy Performance Certificate (EPC) rating of E or higher.
This means that anyone with a home with F or G ratings can no longer legally let them out. From April 1 2020, all existing tenancies fell in line with the new law. Landlords who don’t comply face a fine of up to £5,000.
The above is just the tip of the iceberg in terms of letting legislation. You must also consider the controversial Right to Rent scheme, the new rules on HMOs which came into effect in October 2018, and the ongoing issues with section 21 eviction notices. Not to mention data protection and complying with GDPR.
Now, more than ever, landlords need to partner with reliable, local, experienced letting agents, who know the market inside out and can ensure you stay on the right side of the law. The twin challenges of coronavirus and the ongoing introduction of new legislation require the advice and support of someone whose reputation you can trust.
Here at Knight Edmonds, we can provide you with all the advice and assistance you need to get the most out of your rental properties. Please get in touch with our expert team today on 01622 291 491 or by emailing email@example.com.