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NOV 2016
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LANDLORD | PROPERTY | INVESTMENT
OBLIGATED TO REPAIR? THE INS AND OUTS OF HOME STANDARDS
- Tom Entwistle
LANDLORD INCORPORATION: DOES IT MAKE SENSE?
- Tony Gimple
HOW TO SUCCESSFULLY JOINT VENTURE WITH OTHER PEOPLE
- Simon Zutshi
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WELCOME TO THE NOVEMBER ISSUE OF LANDLORD INVESTOR! Editorial Editor
Tracey Hanbury editor@landlordinvestmentshow.co.uk Editorial Contributors Gerry Fitzjohn Katrine Sporle Kevin Wright Magna Group Marie Parris National Landlords Association Peter Littlewood Shawbrook Bank Simon Zutshi Steve Cox Tom Entwistle Tony Gimple
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CONTENTS
We have officially reached the end of our 2016 shows in the heart of the capital at the London Olympia Conference Centre, and what a fantastic year it has been.
Expert Advice
To date we have now successfully delivered 43 events since 2013, with 2016 seeing fourteen shows in ten locations across the U.K.
Industry Spotlight
Tax Advice Financial Industry Update L.I.S Updates
This year’s November issue covers a wide range of different subjects from updates from The Property Ombudsman to essential tenant referencing tips and much more.
Your Property Partner
This month Tom Entwistle, editor of LandlordZONE, covers the ins and outs of repairing and maintaining your property and explains how to keep on top of making sure yours meets the minimum decent home standard.
Landlord Associations
For tax advice this month, Tony Gimple, Succession Planning Specialist for Less Tax 4 Landlords, explores the world of landlord incorporation and ponders whether or not it makes sense. Also this issue, Simon Zutshi, founder of property investors network, covers joint ventures and how you can make your property journey work as a team. We hope you enjoy this edition and we hope to see you at many more of our shows in 2017. Happy reading!
Investment Landlord Insurance
06 14 18 20 24 26 28 32 38 40
Visit us at:
LONDON OLYMPIA Tuesday 8th November
London Olympia Conference Centre
Tracey Hanbury | Editor Landlord Investor
Tracey Hanbury
November 2016
LANDLORD INVESTOR
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EXPERT ADVICE
OBLIGATED TO REPAIR... Tom Entwistle - LandlordZONE The growth of the private rented sector, due partly to the effects of the assured shorthold tenancy, (AST) and the buy-to-let mortgage, has made it bigger than the social sector, and has resulted in a large number of let homes in the UK which don’t meet minimum decent home standards.
IT HAS BEEN ESTIMATED THAT AROUND 16% OF PRIVATELY RENTED HOMES FAIL TO MEET THE STANDARDS IN THE MOST SERIOUS WAY BY HAVING CATEGORY 1 HAZARDS. I have written at length about condensation and mould growth, one of the most common hazards, and how this is often attributable to the tenants’ lifestyles – lack of heating, ventilation and creating excessive moisture – but nevertheless some properties are prone, and far more likely to get this problem. This is particularly the case at the bottom end of the letting market. Unfortunately, whatever the cause of dampness of this kind, the authorities tend to look to the landlord as being to blame, and in many properties or tenant situations, without spending money on insulation, energy efficient heating and in some cases automatic ventilation and air circulatory systems, the problem will not go away.
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LANDLORD INVESTOR
Also unfortunately, it’s the responsible landlord that has to “jump through all the hoops” of the regulations brought in to tackle these problems and those “rogue” landlords at the bottom end of the market, those who are largely responsible for letting poor quality and sometimes dangerous homes. Media pressure has forced the government to act, and given the size and importance of the PRS it has recently acted in quite a big way by introducing a “slew” of quite onerous regulations designed to tackle the problem of “rogue” landlords and poor housing conditions.
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The section on repairs and maintenance reminds landlords of their repairing obligations imposed by statute and common law; it emphasises the importance of acting quickly in proportion to the urgency of a repair and informing tenants about how to report these issues.
ENFORCEMENT BY THE AUTHORITIES Despite many in the industry arguing that existing legislation was perfectly adequate for local authorities to deal with disrepair in the PRS, many authorities have fallen down dismally on this task. While some authorities introduce licensing schemes, bringing a new layer of bureaucracy into letting and often adding costs for the majority of landlords, but still failing to tackle the rogues effectively. To be fair, local authority resources are “thin on the ground” in this area, and under the present rules it takes endless time and resources to bring just one offender to justice, and even then the courts often let them off with a paltry fine.
EXPERT ADVICE
Back in September 2014 the Royal Institution of Chartered Surveyors (RICS) introduced their Private Rented Sector Code of Practice (goo.gl/cFHy6z) intended to promote best practice in the letting and management of private rentals, but in most cases it has either fallen on “deaf ears”, or has never heard of.
It would seem though, that now there is to be a concerted effort by government to change things in the PRS. New rules in the Deregulation Act (2015) on retaliatory eviction and the requirement for landlords to follow strict letting rules, although burdensome for the majority, will prevent evictions where disrepair is reported and confirmed by the authorities, or where landlords / agents have not followed strict maintenance procedures. For more information on these new regulations see: goo.gl/2S6cmH The courts now seem to be taking PRS offences more seriously and are handing out much more appropriate fines, plus many authorities are targeting bad landlords, particularly the illegal Houses in Multiple Occupation (HMOs) with serious overcrowding, safety and HMO licensing issues.
THE NEW REGULATIONS New regulations yet to be enforced in the Housing and Planning Act (2016) are designed to seriously clamp down on the rogues by introducing the concept of Banning Orders; a national database of landlord / agent offenders; out of court financial penalties of up to £30,000 to be imposed by local authorities, and Rent Repayment Orders. The effects of migration, of “Generation Rent” and its inability to buy, and the demise of council housing, have led to a surge in the size of the PRS which the authorities, with limited resources devoted to the sector, struggle to properly manage. The result is a lot of poor housing at the bottom end of the rental market. Is this about to change with the introduction of these new laws? Only time will tell, but given the size of the task and past experience, I would say, don’t hold your breath!
November 2016
LANDLORD INVESTOR
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EXPERT ADVICE
ENERGY PERFORMANCE STANDARDS Coming up is another important repair issue for landlords, which although EU inspired, it is thought unlikely that Brexit will have any effect on the introduction of the Minimum Energy Efficiency Standards (MEES) regulations. These will make it unlawful from April 2018 to let buildings (both commercial and domestic) in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of ‘E’. As poor energy performance is not limited to old or obsolete buildings, MEES will have significant impacts for a number of landlords, tenants, and property agents. Landlords should really be thinking about this, planning for and taking action now to avoid higher costs and protecting their revenues from their properties. The MEES regulations apply in England and Wales. There are different but complimentary regulations applying in Scotland, which have been developed under Section 63 of the Climate Change (Scotland) Act, known as ‘Action on Carbon and Energy Performance’ (ACEP).
OCCUPIERS' LIABILITY Landlords are vulnerable in some disrepair situations if it can be shown that as a result of theirs or their agent’s negligence, someone is seriously injured or killed. A landlord’s liability for injuries to persons on or near his premises can be onerous and ultimately very expensive, hence the vital need for good landlord’s insurance. A Landlord’s liability to repair will depend on his or her contractual obligations under the tenancy agreement and also statutory rules and regulations – various acts of parliament. Whereas a residential landlord is responsible for all substantial repairs, a commercial landlord finds herself in a slightly different position depending on the lease repairing obligations and the rights of access she has to the premises. Under the provisions of the Occupiers’ Liability Act 1957, anyone injured whilst visiting the property may seek compensation from the occupier (not necessarily the owner). When premises are rented, the claim would be brought initially against the occupier (the tenant). However, in a situation where injury occurs because of the disrepair of the premises the landlord could be in the firing line. Where the Landlord has a duty to repair and has not carried out the necessary work, the claimant would have the same rights against the landlord as against the tenant. The landlord’s defence, however, has always been that a Landlord will be held liable only if he or she has been notified of the defect which caused the injury and was “on notice” to do the work. Under the Defective Premises Act 1972, premises let under a tenancy where the landlord is obliged to carry our repairs (all Assured Shorthold and Residential Tenancies) the Landlord has a statutory duty to take reasonable care to ensure that those at risk of injury, including occupants and visitors, are protected from personal injury.
November 2016
LANDLORD INVESTOR
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EXPERT ADVICE
This duty applies where a landlord knew, or ought to have known in the circumstances, of a defect which could result in an accident / injury. The landlord’s position on this was clarified by an appeal court decision in the case of Sykes v Harry and another (2001). The tenant and his wife on a shorthold tenancy (AST) suffered from carbon monoxide poisoning which led to brain damage. The tenants claimed that the landlord was in breach of his implied obligations under s11 of the Landlord and Tenant Act 1985 to keep the property in good repair, which included the servicing of the gas fire, and also for his breach of the duty of care owed by a landlord under s4 of the Defective Premises Act 1972. However, the obligation under the 1985 Act applies only where a Landlord has knowledge of a defect. The Judge initially held that a breach of covenant could not be established and ruled that there was no ‘relevant defect’ as required by Section 4. The Landlord was not to be liable. However, on appeal the judge held that where a landlord ought to have known of a defect, this would be sufficient under Section 4 of the Defective Premises Act 1972 for the landlord to be held liable. The Landlord was held to be liable. Although he was not aware of the defective fire, he should know that a gas fire requires regular maintenance.
Under a commercial lease where repairs are the responsibility of the tenant the landlord may be in a position to avoid any liability for injuries as a result of defects in the property. However, in the case of Hannon v Hillingdon Homes Limited (2012) which concerned a landlord’s liability under the Defective Premises Act 1972 (DPA), it was shown that commercial property landlords can be held liable in certain circumstances. A commercial landlord can be held liable under the DPA if the lease contains provisions such as (1) a requirement that the landlord is responsible for maintaining or repairing the premises. Here the duty will arise if the landlord is put on notice of a defect, and (2) an express or implied right in the lease which allows the landlord to enter the premises to carry out maintenance or repair. Here the duty will arise if the landlord could be in a position to exercise this right. Landlords could be held liable for injuries caused by defects due to changes made by their tenants, even if these changes are in breach of the lease terms. Commercial landlords in particular but also residential and HMO landlords should be aware of the clauses in their agreements regarding management responsibilities. Secondly, landlords should have procedures in place which give rise to regular inspections where this is appropriate.
November 2016
LANDLORD INVESTOR
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EXPERT ADVICE
Make sure your policy includes Property Owners Liability up to something like £5 million of cover. It is vital that you are covered in this way against death or injury to individuals, and that cover extends to: damages awarded to the claimant, legal expenses and costs defending against a claim, medical expenses, loss of income and the claimant’s legal costs if you are found at fault.
EDWARDS V KUMARASAMY The Edwards v Kumarasamy case threatened to “upset the apple cart”, to completely change the status quo on repairing liabilities and caused a lot of concern among landlords, particularly those of leasehold properties in blocks of flats. A tenant had slipped and fell on a pathway outside a block in which the landlord owned one flat. The question was, is the landlord responsible even though he did not own the path leading to the block and even though he had not been informed and had no idea of the disrepair on the path? The shock decision of the court of appeal was in favour of the tenant and consequently had serious implications for all landlords and just how far their liability can extend.
However, and thankfully, this case was taken to the Supreme Court which has overturned the decision of the Court of Appeal. The case is complicated and relates to the landlord's obligation to do outside repairs in relation to flats. The Court of Appeal rejected the argument that the landlord was only liable in outside repairs if he was given notice of the defect, but held that this did apply to disrepair which is within the property rented to the tenant. For more information on this case see: goo.gl/rf5aen
MANAGEMENT OF REPAIRS Landlords need to be aware of the need to respond quickly to requests for repairs following the new retaliatory eviction regulations if they are to avoid problems with section 21 possession claims. Failure to manage the situation properly could result in a bad tenant using tactics which could stymie a landlord possession claim. To be safe and following the lessons of Edwards v Kumarasamy, landlords and/or their agents should make sure they have proper arrangements in place to ensure that their tenants know how to report repair issues, they carry our regular risk assessments and inside and outside inspections, and have a regular maintenance plan. Above all, landlords should make sure they have a comprehensive landlord’s insurance policy in place to cover them for these risks. Tom Entwistle is editor of LandlordZONE® and an experienced residential and commercial landlord. ⌂
November 2016
LANDLORD INVESTOR
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12
EXPERT ADVICE
THINGS YOU NEED TO KNOW Peter Littlewood Southern Landlords Association
THE DEPT. OF COMMUNITIES AND LOCAL GOVERNMENT (DCLG) FREQUENTLY ASK FOR COMMENTS ON NEW IDEAS VIA PUBLIC CONSULTATIONS. There are two consultations at the moment:
FIRST CONSULTATION On extending mandatory licensing. It covers the following areas: •
Extending the scope of mandatory HMO licensing. They are proposing to extend mandatory licensing to:
• All HMO’s with 5 or more people. Currently it is 5 or more people and 3 or more storeys, so they are proposing to remove the storey rule;
November 2016
LANDLORD INVESTOR
•
Any flat above or below business premises.
•
National minimum room sizes in licensed HMOs. The proposal is to only allow a minimum room size of:
1. 6.52 sq m (70 sq ft) for one person;
2. 10.23 sq m (110 sq ft) for two persons •
Impact assessment. An assessment of the impact on landlords and local authorities.
• •
Fit and proper test. Implementation of some of the proposals contained in the 2016 Housing Act, meaning that more landlords and agents will not be allowed to manage HMO’s. Refuse disposal facilities. It is proposed that part of the license condition is that suitable waste receptacles are made available at the property.
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HOW TO RENT
Purpose built student housing. Applies to student housing managed by the education body.
These proposals are based upon the results of an earlier consultation the responses are in the DCLG paper ‘Extending mandatory licensing of Houses in Multiple Occupation’. Both of these can be seen on-line. The easiest way of finding them both is to Google ‘DCLG Consultations’ and a list will come up in chronological order.
SECOND CONSULTATION
I have told DCLG about this and they are to investigate, because it was not what was intended. Note also that you have to be careful when serving the new style Section 21 (form 6a). When the Government initially issued this form they got it wrong and apparently many people are using the old one by mistake, and courts are throwing them out. Be careful to check you are using the correct version.
PROPOSED CHANGE TO EPC
Additionally the DCLG are requesting comments on:
The Government have carried out an investigation into the science of producing an EPC and have established that they have been doing it wrong!
‘the current affordability and security offered to tenants when accessing and moving within the Private Rented Sector and what may be hindering their access and movement.’
Apparently solid walls are better at insulating a property than first thought; but conversely any filled cavity walls are worse than first thought.
The SLA are in discussion with DCLG on this, as are many other organisations. Any thoughts on this should be fed back to us so we can report it through.
Consequently the way EPC’s are worked out is to be changed, resulting in solid walls getting a better rating but filled cavities becoming worse.
RETALIATORY EVICTIONS If a Local Authority issues an Improvement Notice (or an Emergency Remedial Notice) on a tenancy commenced after February 1st 2015 it stops a Section 21 being served for 6 months. There is however a legitimate way around this. If you receive such a notice lodge an appeal immediately, and do the work required by the notice. The Tribunal looks at the state of the property at that time of the hearing; if the requested work has been fully completed they will give the property a clean bill of health and a Section 21 can be served if required.
The main way this matters is if the Government keep the Minimum Energy Efficiency Standard (MEES). Under MEES any property having an F or G rating cannot have a new agreement raised after April 2018; and no F or G property can be let after April 2020 (exemptions apply). So if you have a low rated property with solid walls it might be worth getting them re-cast when the new EPC’s come in. However, I am going to stick my neck out and prophesise that MEES will be abandoned – because it is an EU directive, and the vast numbers of property will have to be taken out of the PRS giving the Government, and Local Authorities a massive headache. I might have to eat my words of course! ⌂
November 2016
LANDLORD INVESTOR
EXPERT ADVICE
•
In order to be able to serve a new style Section 21 (form 6a) it is required to serve the booklet ‘How To Rent’. Whilst it is desirable to have served it at the commencement of the agreement, it can be served just before the Section 21. However, due to an anomaly in the law you have to serve the version which was in force at the date of the commencement of the agreement.
14
TAX ADVICE
LANDLORD INCORPORATION: DOES IT MAKE SENSE? Tony Gimple - Less Tax 4 Landlords
THERE'S LOTS OF TALK THESE DAYS ABOUT LANDLORDS INCORPORATING... But it’s not just a question of going to the Companies House website; there are both advantages and disadvantages to consider, not least of which maybe having to remortgage at higher rates, albeit more tax deductable ones, and whether your advisory team (if you have one that is) has the experience to make it strategically effective and tax efficient. We’ll look at both sides, but before even thinking about incorporation, you’ll first need to work out what it is you’re trying to achieve: • • • • •
Do you just want to pay less tax? Are you looking to expand? Is property development on the cards? Are you happy with the portfolio as it stands? Is it for the kids, but do they actually want the properties or just the cash?
Incorporation may well help you, but it’s not the be all and end all it’s made out to be; that said, it can certainly play a large role in tax mitigation in general, and inheritance tax (IHT) in particular, although neither are simple to achieve and will need specialist advice.
November 2016
LANDLORD INVESTOR
SO WHY MIGHT YOU WANT TO INCORPORATE? •
As companies only pay corporation tax (currently 20% (2016/17 tax year), falling to 17% in the next few years, and probably to 15% or even less as Brexit takes effect), it’s easier and more tax efficient to retain profits for reinvestment.
•
If you’re refinancing, then there’s no cap on what you can claim in cost relief; but in the early days you may have to give personal guarantees and pay higher interest rates. A word of warning here though, borrowing through a limited company can be very restrictive and make it even more difficult to take money out of the business, further leverage your portfolio, or dispose of individual properties, all of which may require the lender’s consent.
15
Companies are immortal as long as they remain solvent, and careful use of minority holdings can reduce or even sometimes remove IHT completely, meaning that complicated trust arrangements may not be necessary.
•
The potential for multiple and ongoing tax planning, including legally restructuring mortgage lending and base cost in order to generate tax-free income.
•
It may also be possible to make pension contributions, but it’s not simple and you will need expert advice from a financial planner to do it. Some types of pension can be highly tax efficient when used to buy commercial property, and are often extremely IHT friendly.
•
Lending to companies is getting easier, cheaper, and is even now being offered by high-street banks, but be aware that traditional banks can all too easily be fair-weather friends.
THE TAX POSITION Let’s say that you need to incorporate as part of your goals-based strategic plan, and probably working with a specialist mortgage/finance broker if you’re expanding/refinancing etc., then what you do will make a huge difference as to how much unnecessary tax and stamp duty you pay on top of the remortgage costs and the like, and could even impact on how much capital is available, could be borrowed, or on what terms.
If, for example, you move directly to incorporation, then unless you can prove your entitlement to S162 relief (the mechanism by which you can incorporate without crystallising capital gains tax (CGT) and Stamp Duty (SDLT)), you’ll be liable to pay CGT at 18% or 28% (2016/17 tax year), and whatever the SDLT happens to be. So what does ‘proof’ actually mean? The objective and most often accepted test for whether a landlord is running a business or not is, whether they in their own right or as or a direct employee of the business they own spend at least 20-hours per week running the ‘property’ business. You can’t fudge it and expect HMRC to demand proof, and its best not to submit a claim until you know it will pass the test. Once you’re working as a limited company, income will be taxed at your highest rate, and extracting proceeds from a property sale via a dividend say would result in high earners potentially incurring income tax on the net dividend received of up to 30.6%, giving an overall tax rate of over 50% (2016/17 tax year). Moreover, should you in turn sell or transfer any of your shares in the company and make a profit, even though tax has already been paid by the company on any gains it makes, you will be liable to pay CGT in your own right. There is, thus, a potential for a double CGT charge, albeit holdover and other CGT reliefs may be available.
ALTERNATIVES TO OUTRIGHT INCORPORATION You could simply stay as you are. Not every landlord will suffer; those on basic-rate tax with small loan to values should be ok, albeit IHT and CGT will most likely remain a problem.
November 2016
LANDLORD INVESTOR
TAX ADVICE
•
TAX ADVICE
16
If, like almost everyone we see, your goals are to at least maintain if not to grow the property business, mitigate the effects of the soon to be here reduction in mortgage interest relief, reduce tax leakage to the legal minimum, and to pass the portfolio or its value on as intact as possible to your children etc., and preferably without having to pay IHT, then an alternative solution is to hold current or future investment properties through a Personal / Limited Liability Partnership (LLP) / Limited Company hybrid. The advantage of a hybrid is that there are far fewer HMRC hoops to jump through, there are no remortgage or other transactional costs to worry out other than the cost of setting it up in the first place which you’ll have to pay regardless of which way you go (staying as you are notwithstanding), and you’ll find it easier to raise finance and take your money out with less controls and the least amount tax. To be sure though, you’ll need to take an objective look at where you actually are, whether a hybrid or other structure makes financial sense, and whether any tax currently due could be reduced or even be refunded; so it’ll be worth your while to spend a modest amount now to put yourself in an immediate positive knowledge-based position and leaving you more solidly placed for the future. There are always other options, and some have nothing behind them other than ‘counsel’s opinion’; but legal opinion is not legal fact, so be very wary of anything that isn’t proven, indemnified, or guaranteed. Please be aware that just because certain types of arrangement appear to have ‘slipped’ through without HMRC looking at them, that doesn’t make them legal or effective.
COSTS AND PRACTICALITIES Whether you’re thinking of incorporating or not, and contrary to popular belief, most high-street/GP accountants don’t do this kind of work every day, they rarely know when to refer you to a specialist, and they don’t like to give advice. In other words, it will pay to seek advice from a specialist property accountant; and, like all professional advice, the cost is tax deductible and some of the time counts towards your 20-hours. If incorporation is though the right thing to do, both strategically and financially, then you’ll need to go the whole nine-yards and put in place uprated mems & arts/shareholders’ agreement, personal estate and IHT planning, lasting powers of attorney for your property & financial affairs, and maybe a general one for the company. If there is an interim limited liability partnership (LLP), then you’ll also need a partnership agreement and supporting declarations of trust. Lastly, you’ll have to bear all the remortgage costs, brokers/lenders fees, conveyancing charges, rewriting/renegotiating tenancy and management agreements, and getting relicensed. None of those are DIY jobs, and you’ll need to engage a specialist property accountant, estate planner, and financial planner to get it right; and, if you have to remortgage, a mortgage/finance broker. Of course, any professional fees are tax deductible etc. One other thing, they’ll all have to talk with each other, else you’ll never get to where you want to be. If you’d like support in better understanding your options, please email lis@lesstaxforlandlords.co.uk, call 0203 303 0157, tweet @lesslandlordtax or visit lesstaxforlandlords.co.uk ⌂
Meet Less Tax for Landlords at our London Olympia show on Tuesday 8th November Free tickets: www.landlordinvestmentshow.co.uk November 2016
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FINANCIAL
18
A REVIEW OF BUY-TO-LET MARKET CONDITIONS IN 2016 Shawbrook Commercial Mortgages There have been some significant developments across the year - the shift in interest rates, the falling pound and the changes in the buy-to-let (BTL) market, including more recently the announcement from the Prudential Regulation Authority (PRA) on underwriting standards in BTL. Looking to the end of 2016 and beyond, it is clear that both investors and lenders now face a series of challenges and it will be interesting to see if the new Chancellor addresses these issues in the Autumn Statement. In 2016 the BTL market has been hard to analyse, mainly due to investors searching to secure properties ahead of the stamp duty changes earlier in the year, followed by a quieter second quarter. Last year was successful, exceeding many commentators’ expectations with £37.5bn in BTL lending and at this point during 2015, around £31bn – so it will be interesting to see how the total lending figures for the year compare as the fourth quarter of 2016 plays out. It could be argued that Brexit, although having contributed to negativity, is perhaps the least impactful of the major changes throughout the year. Yield is likely to be the binding constraint moving forward and following the PRA supervisory statement aspiring landlords are going to have to get used to increasing their own level of investment. We also have a new government, and there is potential for a significant shift in policy and tone as we are already seeing. Any pessimism should be softened by the many reasons to be positive when looking at this space – on a relative basis, yields look to be more attractive than they did before the change in interest rate expectations. Long term investors will, generally speaking, carry on seeing property values grow.
November 2016
LANDLORD INVESTOR
There is a current 64% owner occupier rate in housing – the same level as in 1986. This lends weight to the projected lowering of home ownership levels and the importance of the Private Rental Sector (PRS) in UK housing provision. The challenges we have seen in 2016 will lead to an adjustment for investors, without doubt. But there are many reasons to be positive about the future and the fundamentals of the PRS remain strong. This will also be supported by further price competition as recent Bank of England liquidity filters through to customers. The rollercoaster is by no means over but after the initial post-Brexit low, customers can afford to look optimistically to the future. What can be said with some confidence is that Shawbrook retains a prudent appetite to lend in our various specialist segments of the property market. We apply a pragmatic, “good sense” based approach across our entire offering. We are not a tick-box lender and pride ourselves on assessing each individual case on its merits. There will be opportunities and challenges to face, and Shawbrook Bank looks forward to supporting landlords and property investors in adapting to the shifting landscape as we move into the new year. ⌂
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INDUSTRY SPOTLIGHT
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Magna Group, one of the UK's most dynamic and forward thinking home builders, debuts at The Landlord & Investment Show this month, showcasing their portfolio of luxury homes at affordable prices. Founded by two entrepreneurial and highly ambitious friends, Chris Madelin and Oliver Mason, both of whom started off their working lives at the cutting edge of the building industry, Magna Group is shaking up the residential market and is also offering a unique and strategic investment vehicle for aspirational investors. As any savvy investor knows, buying BMV is a key investment strategy. Magna has adapted this approach and introduced it to their buying strategy. All sites, currently based in Surrey and the M25 commuter belt, are acquired Below Market Value (BMV) so investment is secure and realistic. No guesswork is required within the Magna Group formula.
MAGNA GROUP DEBUTS AT THE LANDLORD & INVESTMENT SHOW OFFERING LUXURY HOMES AT AFFORDABLE PRICES Magna Group From a buyer’s perspective, the Magna Group offering is extremely attractive, particularly for First Time Buyers, with Help To Buy options in place (subject to status). Price points are extremely reasonable, with one bedroom luxury spec apartments starting at £180,000. All fixtures and fittings are of the highest design and quality, adding value to the buyer/developer working relationship. Magna Group is committed to building long-term relationships with both investors and homebuyers alike. For more information, please visit www.magnagroup.co.uk and come and see us on our stand at The Landlord & Investment Show. ⌂ Advertorial feature
November 2016
LANDLORD INVESTOR
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INDUSTRY UPDATE
TPO AND CTSI LAUNCH JOINT LETTING FEES CAMPAIGN
Gerry Fitzjohn The Property Ombudsman
NATIONAL CAMPAIGN KICKS OFF IN SWANSEA AND DORSET TO IMPROVE INDUSTRY COMPLIANCE... ...and raise awareness among consumers so more landlords and tenants ask about fees when they shop for an agent. The Property Ombudsman Scheme (TPO) has launched a new national campaign with the Chartered Trading Standards Institute (CTSI) to tackle lettings agents that are breaking the law by not displaying their fees. The joint campaign will initially target agents operating in Swansea and Dorset, who will be required to provide TPO with photographic evidence to demonstrate they are complying with the law by displaying their fees in both the branch and on their company website. Any agent that fails to submit evidence will be referred to Trading Standards for further investigation. The campaign was originally announced at this month’s TPO’s Conference, where Katrine Sporle,
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LANDLORD INVESTOR
Property Ombudsman, revealed the scheme would be working closely with Trading Standards Officers, who have the powers to impose fines of up to £5,000 on any letting agent that fails to display its fees. More than 85% of all UK letting agents are signed up with TPO and following the industry’s only CTSI-approved Lettings Code of Practice, which clearly states that agents must display their fees in accordance with the 2015 Consumer Rights Act. Gerry Fitzjohn, TPO’s Board Chairman, said: “We want our agents to lead from the front. There can be no excuses. We’re zero tolerant on this issue. Letting fees are under the spotlight and firms would be well advised to get their house in order to ensure they comply with the law. Our joint aim with this campaign is to improve compliance within the industry and raise awareness among consumers so more landlords and tenants ask about fees before they choose their letting agent.”
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Adrian Simpson, the CTSI’s business education and consumer codes expert, said: “Agents signed up with The Property Ombudsman scheme have shown that they are willing to commit to the highest levels of consumer protection by following the scheme’s CTSI-approved Code of Practice. We fully support TPO’s efforts to improve industry compliance and any agent that has failed to display their fees up until now must act. We are aware of Trading Standards Officers taking serious action against those that fail to comply.” The campaign will publicise the growing number of cases where Trading Standards Officers have successfully imposed the maximum penalty of £5,000 on lettings agents for failing to display their fees.
INDUSTRY UPDATE
The CTSI represents Trading Standards professionals across the UK, and runs the Consumer Codes Approval Scheme, which has approved TPO’s Sales and Lettings Codes of Practice.
Katrine Sporle, Property Ombudsman, said: “As Ombudsman, my primary focus is that agents should be clear and transparent in their dealings with consumers. Agents that display their letting fees demonstrate to consumers that they are operating to a high standard, complying with the law and TPO’s Code, and are open in their communication. As highlighted in TPO’s Annual Report, poor communication is one of the key root causes of consumer complaints. Displaying fees can only help reduce complaints and raise standards.” ⌂
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If it matters to you, it matters to us We are committed to supporting our clients with all leasehold property matters and are proud of the outstanding reputation and knowledge of our team of legal professionals.
We can assist you with a full range of legal services including:
Please contact Mark Chick’s team for an initial discussion:
• Landlord and Tenant • Extending your lease • Buying your freehold • Right to Manage • Commercial Property • Residential Property
T: (+44) 020 7631 4141 E: leasehold@bishopandsewell.co.uk Mark Chick Partner and ALEP Director
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November 2016
LANDLORD INVESTOR
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L.I.S UPDATES
MIDLANDS AND MANCHESTER SHOWS ARE A HUGH SUCCESS! National Landlord Investment Show
NATIONAL LANDLORD INVESTMENT SHOW HELD TWO MAJOR SHOWS WITHIN 3 WEEKS OF EACH OTHER AT WEST BROMWICH ALBION FOOTBALL CLUB AND MANCHESTER UNITED FOOTBALL CLUB. The "Fastest growing property Show" held its first show ever in the Midlands on Wednesday 21st September and what a massive success it was. The event saw over 40 companies exhibiting, seminars delivered by Industry Experts and saw over 500 Landlords and Investors through the door! A date has already been set to return in 2017 - check website below for more details. Then the show went to Manchester for a 3rd year running on Thursday 13th October 2016 The event again proved to be a big hit at the Theatre of Dreams which there were over 60 exhibitors within buy-to-let and over 10 seminars by experts on a wide range of subjects include Landlord Tax Advice, Investment Opportunities, Legal plus much more…
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LANDLORD INVESTOR
Our 14th and final show of the year will be held at London Olympia on Tuesday 8th November, this sees a massive milestone in where we have come as it will be our 44th National Landlord Investment Show since our inception in May 2013. 2017 dates and locations have been released and we are delighted to announce we are heading to Cardiff, Berkshire, Sussex, London plus may other areas. For a full listing of our shows in 2017 and more information please go to www.landlordinvestmentshow. co.uk or call a member of our team today on 0208 656 5075. ⌂
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YOUR PROPERTY PARTNER
TENANT REFERENCING: WHAT EVERY LANDLORD SHOULD KNOW Marie Parris George Ellis Property Services Tenant referencing agencies, how they can miss vital points that leave the landlord exposed and 10 reasons why they are failing landlords.
WHEN YOU ENGAGE THE SERVICES OF A TENANT REFERENCING PROVIDER (OR THE LETTING AGENCY) YOU EXPECT THEM TO PROVIDE THE TYPE OF SERVICE THEY SAY. So if they say their checks/procedures are comprehensive, thorough, in depth etc., you would expect that – wouldn’t you? Unfortunately there are far too many operators in this industry that offer a sub-standard service that is failing a lot of landlords. Below I share some of the main reasons tenant referencing agencies are failing landlords.
1) YOU CANNOT RELY ON JUST A CREDIT CHECK. Landlords should not confuse a credit check as a tenant reference. Especially over the internet, you will see many companies referring to this as a tenant reference. It is not! It will only show if one has any CCJ, (county court judgements) defaults, on the
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LANDLORD INVESTOR
electoral roll etc. Do not accept this as tenant referencing it should be an element of the overall tenant referencing procedure.
2) YOU NEED TO HAVE AN IDENTITY CHECK. Any tenant referencing provider should offer you an ID check and ideally an AML (anti-money laundering) check as standard. Without this you cannot possibly know whether your prospective tenant is who they say they are. Without taking a copy of Passport or Drivers Licence, you cannot do a proper ID. Also with the introduction of the Immigration Act landlords are required to see original documents and make copies to do a statutory declaration. See government website for more details.
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All prospective tenants must submit a completed application form and supply standard supporting documents. Additional supporting documents must be taken depending on tenant category. So for example if you have a prospective tenant who is a current homeowner, they may be looking to rent for legitimate reasons, but you should request a copy of their recent annual mortgage statement. There will be no tenancy confirmation to source - so how else will you be able to satisfy yourself that they have been paying this commitment and that their property was not subject of a repossession order?
4) A PROPER AFFORDABILITY CHECK. Without supporting documents you cannot possibly do a proper affordability. It is an absolute myth to even consider that two separate people earning £30k per annum have the same disposable income - they don’t! You cannot therefore use these absolutely silly calculations of 20 OR 30 times rent multiples and give it a green light. It does not work and surely anyone with some reasonable common sense can see how this type of approach can put a landlord at risk of accepting a tenant who really cannot afford the rent. Work out how much surplus they have on average each month and what is the new rent they will be paying. It is impossible to get blood out of a stone so multiples have never worked.
5) ASK THE RIGHT QUESTIONS TO CURRENT OR PREVIOUS LANDLORDS. To ask if a tenant has paid on time and there is no rent arrears history is not enough. Having knowledge of a tenant’s attitude during the tenancy is important too – after all, you do need to manage them. **There is a golden nugget question you must have in every confirmation of tenancy letter – Depending on that answer you will also need to do a further check to verify information. A word of warning: Landlords please do not knowingly pass on your rogue tenants to other unsuspecting landlords – it only allows them back into the private rented sector (PRS). We each have a moral and ethical obligation to each fellow landlord to root out this poisonous practice. It only when we can do so, that we stop the rogue tenants (and by this I mean the types who never have any intention of paying us) to enter the PRS. The possession process is long and getting longer with finalising eviction dates. No government is helping on this very serious matter. If you or I stole groceries from one of the big six supermarkets there would be severe repercussions. If we do not pass on rogue tenants where will they go? There is little social housing to choose from. The only alternative they will have, is to shape up or frankly live on the streets, unless the kind home of Mum and Dad will put them up. Remember do not pass on your rogue tenants – see point 9.
6) BE PREPARED TO DIG DEEPER. You cannot just rely on the information that is presented on the application form. ** You have to satisfy yourself that what the tenant is declaring is true. Look out for any abnormalities on the application form and or supporting documents.
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YOUR PROPERTY PARTNER
3) SUPPORTING DOCUMENTATION IS A MUST.
YOUR PROPERTY PARTNER
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7) MAKE SURE YOU HAVE A 'FIT' GUARANTOR. There is very little point in taking a guarantor if they are not a UK homeowner. If your tenant defaults on the rent and you then take legal action against the Guarantor, if successful in gaining judgement you want to enforce it, where it will make the biggest impact. Whilst you could get a County Court Order (CCJ) against them, better if the guarantor is a UK homeowner and place a charging order on their property. No point in suing a “man of straw”. Guarantors need to be vetted as well.
8) YOU MUST COMMUNICATE WITH YOUR PROSPECTIVE TENANTS. All referencing must have a human element to it, purely relying on the computer to deal with all conversations can never be a good thing. Always follow up on what you have discussed in written form but you need to speak to your prospective tenants, (just think of all the disaster stories around internet dating). Besides an application is like a CV, it does not have all the answers and so clarification needed.
9) ADDITIONAL SAFE-GUARDING. Make sure you are a member of a website like Tenants History (www.tenantshistory.co.uk) as this gives landlords an added advantage to be able to record details about their existing tenants, their conduct and rate them at the end of the tenancy. It allows other landlords who are also members to access this information too. It also ensures that rogue tenants do not enter the private rented sector.
10) DATA PROTECTION. Does your tenant referencing agency allow you to review their findings of their referencing? (I do not just mean their reports). By informing the subject (the tenant) of what will happen to their data and documents and providing you get their signed consent (make it part of their declaration), there really should be no issue in sending information to the third party (landlord). This also gives extra trust and transparency to the landlord. The importance of getting your prospective tenants referenced checked comprehensively is very important, regardless of what type of property. The consequences of getting it wrong can be harsh. This could result in loss of rent and eventually your mortgage lender deciding to call in the LPA Receivers to manage your property and you never given back control. It is so disappointing to know that at the moment in the UK we have no industry standard for referencing tenants and it is a highly vital component when letting property to get right. If you sign on that tenancy agreement without the proper due diligence of your prospective tenants you will be heading for what I call the “tumble down effect”. ⌂
** Certain information deliberately omitted as fraudsters do not need to know exactly what we are doing. Marie Parris is CEO & founder of George Ellis Property Services, the company operates across six disciplines to include lettings & management across London, an independent tenant referencing service, inventories and sales. Marie provides personal landlord tuition courses – see website for more details. George Ellis Property Services 261 Beckenham Road Beckenham Kent BR3 4RP Telephone: 020 8778 9686 Email: info@georgeellis.london Web: www.georgeellis.london
Meet George Ellis at our London Olympia show on Tuesday 8th November Free tickets: www.landlordinvestmentshow.co.uk November 2016
LANDLORD INVESTOR
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ARE VACANT COMMERCIAL PROPERTIES UNMORTGAGEABLE? Kevin Wright - Ninja Investor Programme Bridgers are happy to lend on vacant commercial MANY INVESTORS DO NOT properties as long as you have a robust plan for how REALISE THAT A COMMERCIAL you want to bring the property back into use. PROPERTY WITHOUT A TENANT IN SITU IS NOT MORTGAGEABLE. THERE ARE SOLUTIONS! Commercial lenders main concern when considering whether to grant a mortgage or not is serviceability of the loan. Their view is that no tenant equals no income. No income equals no ability to service the loan, which means they won’t lend. That means that, if you have an empty commercial property in your sights to convert to residential units you need cash – or do you? Many vacant commercial properties remain for sale for a considerable time. This is simply because would-be buyers lack sufficient cash reserves to make a purchase. We also know that current owner will have a degree of pain. At the very least they will need to continue paying business rates on their vacant property. In addition, it’s possible that they still have a mortgage on the property and ongoing payments will be gradually eroding their capital. Selling a commercial property with a mortgage requires the owner to achieve a balance between getting an acceptable price for their property and completely depleting their capital. They need to sell it before they run out of cash. A bonus for the savvy property investor is that, often would-be buyers fail to spot uses that the property could be put to. If you’re interested in commercialto-residential conversions this can be a gold mine. For example: local investors may not be able to spot a disused pub or care home as having any other use beyond what it has been in the past.
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LANDLORD INVESTOR
In some cases the simple answer is just to put a tenant in. For example, a tenant in a vacant shop on a commercial lease makes the property mortgageable. Another solution would be to convert unwanted difficult-to-tenant commercial buildings for residential use. Better still there is government support to do this in recognition of the imbalance between an oversupply of commercial buildings and an under-supply of homes for people to live in. In 2012 the government relaxed planning regulations on certain classifications of commercial building. Using Permitted Development Rights it’s possible to convert commercial premises to residential use without the need to submit a full planning application. This means, with the right commercial property, you can begin the conversion process the same week as you buy it.
SO DO YOU NEED CASH? No – you need the right bridging lender who will look at your plan and see the potential. Clearly that means you need to have carried out – and provide evidence – of your due diligence and a robust plan of action with costs. You’ll find that the current owner will be open to negotiation on the price and if you’re smart you can negotiate the asking price down to as little as 50% BMV. With a bridging lender who will lend on the actual value rather than the purchase price – your personal investment will be much smaller. ⌂
Property Mastery : Recycle Your Cash
Is your property investment giving you the results you want? If you’re finding: • The best deals slip through your fingers to cash buyers • You want to recycle your cash but your portfolio is growing too slowly because all your cash is tied up • Financial freedom is still not within your reach
Your Ninja Trainer Kevin Wright
The Ninja Investor Programme Programme will will reveal: howhow to buy like a cash The Fast Fast Funding Funding Formula Formula™™Discover Discover toproperty buy property buyer without a 6 figure bank account a 6 figure bank account like a–cash buyer – without not what you say, it’s the way that The Negotiation NegotiationTransformer Transformer™™It’sFind out how to make you say it! Get smart, get respect and get ’yes’ to even outrageously ridiculously low offers – and get accepted low offers
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And Ninja Investor Strategies™ Transform your mind-set to ™ And Ninja Strategies Transforminvestment. your mind-set to transform enable youInvestor to transform your property
your property investment and shrink deposits to way below 25%
DOUBLE GUARANTEE • If you’re not happy with the course and tell us by lunchtime on day 1 - you’ll get a FULL REFUND; no quibbles. • When you bring your first deal to our bridging brokerage; - you’ll get the FULL COST OF YOUR COURSE REFUNDED at completion.
NEW for 2016 - 2 day format with even more hot tips and smart strategies. Join a Ninja Investor Programme in: London 16/17 January Bristol 6/719/20 February 20162016 London 16/17 April 2016Birmingham London 16/17 April 2016 Bristol 14/15 MayMarch 2016 Leeds 27/28 February 2016 Birmingham 26/27 November London 21/22 January Leeds (new) 27/28 February 2016 Birmingham 19/20 March 2016 Birmingham 18/19 2016 Leeds 2/3May July2016 2016 London 16/17 AprilJune 2016 Bristol 14/15 Leeds 4/5 February Bristol 18/19 February Find out more – and book your place
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INVESTMENT
HOW TO SUCCESSFULLY JOINT VENTURE WITH OTHER PEOPLE Simon Zutshi property investors network To achieve more in Joint Ventures, you really need to understand how to do them properly to avoid the many pitfalls associated with them. This month, experienced Investor Simon Zutshi has written an article to share some of his extensive experience in this area.
I LOVE THE POSSIBILITIES CREATED BY WORKING WITH OTHERS IN JOINT VENTURES. They can be a powerful way of moving forward on your property journey much quicker than if you try to do everything on your own. We all have a limited amount of personal resources of money, time, experience and so by working with other people you can pool your collective resources for mutual benefit. The most common type of Joint Venture (or JV) is where one person, who might have money but they lack the time or experience to find good deals, joins forces with another person who does not have money, but might have the time and ability to find great deals. In most instances you find that one person puts the money in, and the other brings the deal and does all the work, with the result that they share the cashflow and equity growth in the property. This is usually (but does not have to be) a 50/50 split.
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One very important point to mention here, is that when you invest in a property with someone else in this way, it is advisable not to put the property in joint names. This is because if something negative were to happen to either person in a financial way, such as bankruptcy, this would have an adverse effect on all parties because you would be financially linked together through the mortgage. I would suggest that you only ever put the property in one person’s name, ideally the person who has the best credit rating and so the ability to get the best mortgages. You would then have a Deed of Trust in place put together by a solicitor to recognise the actual % interest of all concerned. Please note that I am not qualified to give you any legal advice and so you need to get relevant professional advice before entering into any financial arrangements with other people.
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If you both have a good credit rating and can both get mortgages, then it can be wise to build your portfolio whereby you alternate whose name each property is registered in. This means that if you have half of the portfolio in your name, and the other half in your JV partner’s name, it makes it far easier when you eventually want to end the JV and go your own separate ways, as there is no need to unnecessarily sell property as you will both have half of the portfolio in your own names. You also need to have a written agreement between you and your joint venture partner so that you are completely clear on, who is responsible for what, when things should be done by, what is the exit strategy, and what happens if things go wrong, which does happen occasionally. You would be amazed at how many people do not have a written agreement only to discover later that you and your joint venture partner have a different understanding of what has been agreed. I have made this mistake myself and it is easy to do especially when you know the joint venture partner really well and 100% trust them. Don’t make this mistake. Make sure you have an agreement in writing to avoid any confusion or misunderstanding.
Would you be comfortable with your JV partner coming to your home for dinner one night? I am sure most people would be fine with this. But how about if they came to dinner and stayed the night in your home so they could have breakfast with you as well? You might also be fine with that. But what about if they came and stayed the whole weekend in your home? How comfortable would you feel about that? If you are not comfortable with it then do you really think that you should go into a business venture with them which could potentially last many years? I guess the point here is that you really should get to know people and build the relationship before you decide to do a deal together. It can seem very exciting when you first meet someone and realise that you get on and could help each other out. Sometimes people get carried away with the excitement of doing the deal and don’t bother to sort out all of the details properly. Another mistake I see investors make all the time is giving too much of the deal away. There is value to finding the deal and also value to being able to fund it, but that does not mean that there should always be a 50/50 split. Let’s say you find a property which you can purchase below market value, and by adding value to it though renovation, you should be able to refinance it after 6 to 9 months and take out all of the original capital invested. We call this momentum investing. So if you can get all of the money out in this way, do you really want to give your JV partner half of the equity and cash flow?
I also believe if you are investing with your personal relationship partner, you should still have a written contract because unfortunately sometimes the best relationships break up and so having a written agreement can help avoid some of the inevitable pain of a relationship breakup.
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INVESTMENT
One of the problems I see happen with JVs is that sometimes people rush into them without truly getting to know the people they are going into business with. Let’s be clear here. Going into business is exactly what you are doing and so it is important to make sure that you want the same thing and your values are aligned. You need to get to know your potential business partners and make sure you are comfortable with them. A good test of this is as follows.
INVESTMENT
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Would it not be better for you to just borrow the deposit money from another investor in return for a fixed interest rate? Even if this is a high interest rate, surely that would be better than giving away half of the profits which is a very expensive way of funding the deal. I think the challenge is that sometimes investors get lazy and if they have a JV partner who will put in all the money in exchange for a share of the profits that feels easier than having to find an investor who will just be happy with a fixed return on their money. That is a shame because there are plenty of people out there who have money in the bank right now which is doing nothing for them. It is all about learning how to find and approach these people such that they want to lend money to you and they feel confident in your ability to return their money with a high rate of interest as promised. This is something that many people struggle with which is why it was one of the main topics I covered at my Property Magic Live 2016 event in October. At some point you will run out of your own funds, so you need to learn how to find people with money and what to say to them so that they want to lend their money to you. Once you know how to do this it is not actually that hard. Very often I hear people say that they don’t think anyone will lend them money because they have no track record. Whilst I understand this might seem the case, in reality many of my students have been able to borrow funds and secure joint venture investments despite not having any previous experience because they have learnt how to find really great deals. Once you have a good deal the numbers speak for themselves. For example, two of my Property Mastermind Graduates, Carly Houston and Kirstin Adam, Sisters originally from Scotland
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LANDLORD INVESTOR
but living in Brighton, funded their first property with their neighbour who was already an experienced investor with 3 Buy to Let properties. When Carly and Kirstin showed their neighbour their first HMO deal that they needed financing on, she was not only impressed with the Sisters’ knowledge, but she could not believe what a great deal it was. The neighbour realised that she would make more money doing a JV with Carly and Kirstin getting half profits, than she would if she was to use her money buying another property like the ones she already owned. She also like the idea of Carly and Kirstin doing all of the work. So their first of many Joint ventures deals was agreed. If you don’t know what makes a really good deal and how to find them, then it is going to be very difficult to find someone who will lend you the money. If, however, you build relationships with people, demonstrate your knowledge (even if you don’t have the experience) and then find great deals that you present in the correct way, there is more than enough funding available for all the deals you will want to do. Good luck in your property joint venture projects.
RECOMMENDED BY LANDLORD INVESTOR A great way to find people who might be interested in working with you in Joint Venture, is to regularly attend your local property investor network meetings. This is a great way to build your knowledge and personal contacts. There are 50+ meetings all over the UK every month (apart from August and December) so there is bound to be a meeting close to where you live, work or invest. Why not attend your local meeting this month and make it a regular commitment as part of your property journey. You can find your closest meeting here. www.pinmeeting.co.uk ⌂
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LANDLORD INSURANCE
ARE YOUR TENANTS SUBLETTING? Steve Cox - Alan Boswell Group Alan Boswell Group’s Steve Cox takes a look at recent research that shows subletting is occurring at far higher levels than expected – and what you can do to protect your investment.
FINDINGS PUBLISHED BY THE NATIONAL LANDLORDS' ASSOCIATION (NLA) AT THE CLOSE OF 2015 SUGGESTED... that 11% of private tenants sublet their house or flat and only five percent do so with their landlord’s permission. This statistic means that more than half of those tenants subletting are doing so behind their landlord’s back. Not only are they doing it without consent, but without their knowledge. The main problem is that subtenants haven’t been vetted. Their names are not known. The landlord doesn’t know how many of them there are living in a property and they certainly haven’t paid a deposit
November 2016
LANDLORD INVESTOR
or signed a tenancy agreement. Plus, if they’re only staying a short while and aren’t ‘on the books’, there’s nothing to stop them engaging in irresponsible or even illegal activity. Moreover, even though the landlord knows nothing about this, they could be held responsible for anything that occurs on their property.
LEGAL IMPLICATIONS Even if subtenants are well behaved, their presence can put the landlord in a difficult legal situation. Subletting can break the terms of the landlord’s mortgage agreement and can invalidate his or her property insurance. It could also breach laws concerning overcrowding of a property or conflict with other health and safety standards.
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Subletting is a situation that can easily get out of control and you need to be fully aware of what is going on in your property. Don’t leave yourself open to unnecessary risks; feel free to speak to us if you have any concerns. Talk to us today, to discuss insurance implications of subletting, by calling 01603 216399 or visit www.alanboswell.com ⌂
TAKING ACTION If you discover that your tenants have been illegally subletting your property, then you may need to take action against them; this may include giving them notice to quit. That is exactly the kind of situation where legal expenses insurance cover is invaluable. A policy will cover you for most costs incurred through pursuing tenants via the courts, including for non-payment of rent; however, to make sure that you are receiving the equivalent of rent payments during the process you will also need to take out rent guarantee insurance.
Landlord insurance you can trust, at a price you can’t beat. Five-star rated products Award-winning service Dedicated claims support
We guarantee to beat your existing premium*
01603 216399 www.alanboswell.com
*Terms apply - see www.alanboswell.com/terms or call us for full details. Price guarantee only applies where existing cover is held.
November 2016
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LANDLORD INSURANCE
The NLA advises landlords to insert a clause into their tenancy agreements specifically stating that subletting is only allowed with their permission, which will not be unreasonably withheld. Subletting needn’t be a problem so long as all parties are fully aware that it is happening and established rules and boundaries are respected. If that is not the case then landlords are left open to a wide range of risks, up to and including criminal prosecution.
LANDLORD ASSOCIATIONS
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440,000 LANDLORDS TO BE FORCED UP TAX BRACKET FROM APRIL 2017 National Landlords Association More than four hundred-thousand landlords (22 per cent)* who pay the basic rate of tax will be forced into a higher tax bracket from April next year (2017) as planned changes to landlord taxation come in to force. The changes, once fully phased in by 2021, will mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income. Currently, mortgage interest payments are one of a number of expenses that landlords can deduct as a business cost, including insurance premiums, letting agent fees, and maintenance and property repair costs. However, while 440,000 basic-rate tax payers will be forced into a higher bracket, all landlords could be at risk of seeing their tax liability increase regardless of their existing rate of tax, with landlords in Central London (31 per cent), the East of England (30 per cent), and the West Midlands (28 per cent) particularly hit. The amount by which landlords will be affected will depend on their personal circumstances, including whether or not they generate income from any other sources. However, landlords’ tax liability will increase depending on their existing annual mortgage interest payments, which are broken down by portfolio size below**. Average annual mortgage interest payment by portfolio size • • • • • •
November 2016
Single property - £3,600 2-3 properties - £8,600 4-5 properties- £16,300 5-10 properties - £18,200 11-19 properties - £24,900 20+ properties - £38,000
LANDLORD INVESTOR
The National Landlord Association (NLA) has met with Housing and Planning Minister Gavin Barwell to discuss the matter and will be meeting the Financial Secretary to the Treasury, Jane Ellison, at the beginning of December after Chancellor Phillip Hammond responded to the association’s request to discuss the forthcoming changes, and last year’s stamp duty surcharge on additional property purchases. The Financial Secretary is responsible for strategic oversight of the UK tax system including direct, indirect, business, property and personal taxation. Richard Lambert, Chief Executive Officer at the NLA, said: “When the Government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers. We now know that is complete tosh. “The Government must look to amend these tax changes and minimise the impact on landlords and their tenants - something that could easily be achieved by applying the rules to only new loans written after April 2017. “Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home”. ⌂ *NLA Quarterly Landlord Panel – Q2 2016 (777 respondents) **Average existing mortgage interest payments by portfolio size (NLA Quarterly Landlord Panel)
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