01 . INTRODUCTION
Tessa Shepperson, solicitor and owner of the landlord information service, Landlord Law, gives advice to landlords in this six-part series of articles.
To the inexperienced, renting out a property to tenants may seem like a doddle. Money for old rope. After all, you just need to download a free tenancy agreement from the internet, hand over the keys and Bobs your Uncle. What could be simpler?
In fact, managing rented property is extremely challenging. To you, your buy to let property may be an investment. But to the tenants and to the authorities, you are providing a home. And as all tenants are deemed to be consumers, you are providing a consumer service. Which is regulated accordingly.
Not only are there a massive amount of rules and regulations that must be complied with, the penalties for non-compliance are getting larger, and enforcement is getting stricter.
So although renting property to tenants can be lucrative as an investment often considerably more so than other types of investment), this will only be the case if you manage your property properly and avoid the twin problems of:
· Rent arrears, and
· Financial penalties for non-compliance with the rules.
This series of posts will help alert you to the main issues you need to be
aware of. And I am going to begin by looking at the things you need to
consider right at the start.
DO YOU HAVE THE LEGAL RIGHT TO RENT OUT YOUR PROPERTY?
This is something that many people don’t even think about, but which could cause them a lot of problems. The three main circumstances where problems arise are:
· Long leases
· Mortgages, and
If you are renting out a flat, you are almost certainly owning this under a long lease (e.g. a 99-year lease). Houses and maisonettes may also be leasehold, but most leasehold property tends to be flats.
It is not always realised that owners of flats do not have an automatic right to rent it out (or ‘sublet’ it) to tenants. Or indeed to rent it out to holidaymakers for example on Airbnb. So before starting to prepare a property to rent and hunt for tenants, you need to look at your lease and see what it says. For example:
· If may make subletting conditional upon obtaining the freeholder’s permission, or
· Forbid subletting altogether
You need to be very careful about this, as if you sublet your flat to tenants in breach of the terms of your lease, this could trigger a right for your landlord to start forfeiture proceedings – which would ultimately result in you losing your flat.
If you find your lease hard to understand, you should take legal advice before doing anything. We have a Telephone Advice Service which you can use at Landlord Law.
If you own your property outright you won’t need to worry about this, but if your property is held on a mortgage you also need to check what your mortgage says about renting.
Most ‘ordinary’ mortgages will not allow you to rent to tenants without permission (which may result in a higher interest rate), and even special ‘buy to let’ mortgages may prohibit renting to unrelated sharers in a ‘House in Multiple Occupation’ or HMO.
So make sure you know what your mortgage has to say about renting to tenants and make sure you comply with any requirements they may make. Otherwise, technically, your mortgage company have the right to call in your loan!
You will need to have insurance protecting your property – but if the property is to be let to tenants you must have special landlord insurance.
Your normal domestic insurance will not be sufficient and if you use this and don’t tell your insurers that you are renting the property to tenants, they will be perfectly entitled to refuse any claims you may make.
There are a lot of very good insurance products on the market. So this need not be a problem. We have a free ‘insurance mini-course’ you can read here which explains the main things you need to know.
WHAT TYPE OF LETTING WILL YOU BE DOING?
· Will you be renting to a family, or
· Will you be renting to sharers?
This is very important as if you rent to three or more people who do not form one ‘household’ (basically a household equates to ‘family’) then you your property will be a House in Multiple Occupation and will be subject to
the HMO management regulations.
If you rent to five or more people who do not form one household you will need to obtain an HMO license from your local council.
It is vital that, before you start doing any preparatory work on your property, you know whether or not you will require a license.
Note that in some areas, you will need to get an HMO license even if the number of occupiers is less than five. Some areas will have ‘selective’ licensing schemes which will mean you will need a license, even if your property is not an HMO.
So, contact your Council and find out what their requirements are. You can find your local council details via this page. Landlord Law members can also use our Local Authority Directory.
If your property will require a license, you need to sort this out before taking in any tenants, as Local Authorities often impose conditions to licenses and it will be easier for you to do the necessary works if the property is untenanted.
Be aware also that the penalties for non-compliance are very high, plus your tenants will have the right to apply to the First-Tier Tribunal for a Rent Repayment Order.
OTHER TYPES OF LETTING
This series of articles will be considering the law relating to tenancies.
However, it is also possible to rent out property:
· For a holiday let, or as
· Serviced accommodation, or
· To lodgers
As regards the first two, they both have their good points and their bad points. For example, if tenants refuse to vacate a genuine holiday let (and it must be a genuine holiday let), you don’t need to get a court order to evict
Occupiers of serviced accommodation will be licensees rather than tenants, where the eviction procedure is simpler should landlords need to evict (although you will still need a court order). However, this will only be the
case if the services are actually provided.
Otherwise, no matter what the agreement they have signed says, the occupiers will be tenants, and you may be vulnerable to prosecution for letting under ‘sham licenses’.
Lodgers are people who rent a room in their landlords’ own home, and so the laws protecting them are laxer. However, much of the protective legislation will still apply to lodger landlords including the HMO rules. We have a special Lodger Landlord website here with guidance for you.
BE AWARE THAT THE BUCK STOPS WITH YOU
As the landlord of a property, you will be liable for any penalties, even if the reason is that your letting agent has let you down.
Many landlords use letting agents, and there are many excellent agents who will look after your property and are worth their weight in gold.
However, be aware that if you use agents, you are legally liable for everything that they do. So, you need to be careful who you use, as although there are many good agents, there are also many bad agents and a few who are criminal.
You may also be personally liable if you have rented your property to someone to sublet to tenants on a ‘rent to rent’ basis. Rent to rent arrangements can be very risky as you can see from the training video here.
That’s all for this first introductory article. In my next article, I will be looking at the things you need to do when preparing your property to let.
In the meantime, if you need further information, please visit my website Landlord Law at www.landlordlaw.co.uk.