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LANDLORD INVESTOR MAGAZINE 26TH EDITION | 2017
White Paper or White Wash? The government’s action plan for property
WRITTEN BY INDUSTRY EXPERTS COVERING ALL ASPECTS OF BUY-TO-LET
NO BUDGET CONCESSIONS FOR LANDLORDS / ESSENTIAL ADVICE FOR NEW LANDLORDS / THE IMPORTANCE OF THE ‘POWER TEAM’ / CHANGES TO STAMP DUTY, TAXATION AND LENDER’S REGULATION / PROFESSIONAL ADVISORS LITIGATION CLAIMS / LANDLORD INFORMATION OF WATER COMPANIES ONLINE / ASK TDS / AUCTIONS: AN OLD IDEA BUT A NEW WAY OF THINKING
3 MAY 2017 SURREY
UK’s leading property investment event 3 May | Croydon Park Hotel | Croydon CR9 5AA | 09:00 – 15:30
Meet 50+ exhibitors covering all aspects of buy-to-let. Attend up to 10 seminars including: David Whittaker
Mortgages for Business & Keystone Property Finance
Martin Skinner
Inspired Homes and Inspired Asset Management
MARKET OVERVIEW
Tony Gimple
Marie Parris
TAX PLANNING AND OWNERSHIP STRUCTURES FOR INVESTMENT PROPERTY OWNERS
LEARN HOW TO MANAGE YOUR PROPERTY LIKE A PRO
Less Tax for Landlords
George Ellis Property Services
Visit the website for the full seminar programme
Book your tickets at landlordinvestmentshow.co.uk Follow us :
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3 May 2017, Croydon Park Hotel, 7 Altyre Road, Croydon CR9 5AA | FREE PARKING
Welcome LANDLORD INVESTOR MAGAZINE
Welcome to the 26th edition of Landlord Investor Magazine!
In this issue we cover a wide range of topics from, How the Housing White Paper Plans will affect Landlords, Key Advice for New Investors, Budget Review, Finance updates, Tax Advice for Landlords to Buying at Auction.
Relaunch Issue 2017
National Landlord Investment Show Editor Tracey Hanbury editor@landlordinvestmentshow.co.uk
Our one day events are free to attend, come along and meet leading service providers from the private rented sector and attend seminars on tax advice, finance, legal, tenancy deposit advice, plus much more.
Editorial Contributors Tom Entwistle - LandlordZone Karen Bennett - Shawbrook Ben Beadle - Tenancy Deposit Scheme Peter Littlewood - Southern Landlord Association James Emson - Clive Emson Auctioneers Robin Fawke - Hawke Financial Services Bill Lorryman - The Bailey Group Paul Mahoney - Nova Financial Thames Water Design Marc Riley Advertising Beverley Meliniotis Marketing Anna Jackson Contact Telephone: 020 8656 5075 Website: landlordinvestmentshow.co.uk Facebook: /LandlordInvestmentShow Twitter: @LandlordINShow
Dates for your diary National Landlord Investment Show will be in 10 locations throughout 2017. Our show schedule is: Midlands 19 April - Aston Villa FC Surrey 3 May - Croydon Park Hotel Berkshire 24 May - Reading Crown Plaza London 15 June - Olympia East London 6 September - Docklands Crown Plaza Sussex 13 September - Brighton Racecourse Kent 26 September - Kent Show Ground Manchester 12 October - Manchester United FC Cardiff 25 October - Carfiff City FC London 7 November - Olympia You can book your free show tickets, view the exhibitor lists and plan which seminars you would like to attend by visiting the show website www.landlordinvestmentshow.co.uk If you would like any further information regarding Landlord Investor Magazine or our National Landlord Investment Shows please call our office on 020 8656 5075
Tenants History Ltd 27 Stafford Road Croydon CR0 4HA
Contents
4 9 12 18 24 26 28 30 34 38 Expert Advice
Expert Advice
New investor
White Paper or White Wash?
No Budget Concessions for Landlords
Essential Advice for New Landlords
Finance The Importance of the ‘Power Team’…
Finance
Finance
Changes to Professional Stamp Duty, Advisors Taxation and Face a Lender’s Flood of Regulation Litigation Claims
Finance Is buy to let on its way out?
Landlord Tap
Ask TDS
Auctions
Landlord An Old Idea Questions But a New Landlord Way of Information Answered by Deposit Thinking of Water Companies Protection Professionals Online Service
Statements and opinions expressed in articles, reviews and other materials herein are those of the authors; the editors and publishers. While every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. Tenants History Limited and our contributors will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through the promoted links.
LANDLORD INVESTOR 26TH EDITION
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Meet the team TRACEY HANBURY
RYAN DENNINGTON
T: 0208 656 5075 M: 07931 308 875 tracey@landlordinvestmentshow.co.uk
T: 0208 656 5075 M: 07931 308 856 ryan@landlordinvestmentshow.co.uk
STEVE HANBURY
BEVERLEY MELINIOTIS
T: 0208 656 5075 M: 07429 683 046 steve@landlordinvestmentshow.co.uk
T: 0208 656 5075 beverley@landlordinvestmentshow.co.uk
EDITOR & SALES DIRECTOR
SALES & EVENTS MANAGER
DIRECTOR
ADVERTISING SALES MANAGER
ANNA JACKSON
MARKETING MANAGER
LES HANBURY DIRECTOR
T: 0208 656 5075 anna@landlordinvestmentshow.co.uk
FRAN ROBINS
MARC RILEY
SALES & EVENTS MANAGER
DESIGN MANAGER
T: 0208 656 5075 M: 07950 284 615 fran@landlordinvestmentshow.co.uk
T: 0208 656 5075 marc@landlordinvestmentshow.co.uk
ALICIA CELA
CHARLOTTE DYE
ACCOUNTS
SALES SUPPORT
T: 0208 656 5075 accounts@landlordinvestmentshow.co.uk
T: 0208 656 5075 info@landlordinvestmentshow.co.uk
Subscribe to LI Magazine Landlord Investor Magazine gives property professionals, landlords and investors monthly advice and information on the topics, news and legislation that matter to the industry. Your subscription gives you the latest industry information in 11 issues per year. Subscribe today for just £65.00 per year to get news, advice and comment on all areas of buy-to-let: • legal services & tax • insurance • investments • deposit schemes & landlord associations • property hotspots Call the subscription hotline on 020 8656 5075 today or visit landlordinvestormagazine/subscribe Published by LI Media, organisers of National Landlord Investment Show
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26TH EDITION LANDLORD INVESTOR
EXPERT ADVICE
TOM ENTWISTLE LANDLORDZONE
White Paper or The government’s action plan for property looks as though it was watered down so much that even former Tory housing minister Grant Shapps has admitted it will make barely any difference at all. With the government under pressure on many fronts this month, its failure to grasp the housing agenda, which the Housing White Paper clearly shows, particularly with respect to renting, is on display again this week as the government is bounced into promising help for high street firms hit by its controversial revaluation of business rates, in the face of a major Tory rebellion. The Housing White Paper published early February sets out the direction of the government’s policy on the housing market. Whether you see the UK housing market as “broken” or not, or the proposed new direction the correct one, the paper does not mince its words on the matter: “The housing market in this country is broken, and the cause is very simple: for too long, we haven’t built enough homes.” Nothing new here as it’s been common knowledge that government after
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government, of whichever colour you choose, has missed its set housing targets by miles. This study however, sees the problem as threefold: Not enough local authorities planning for the homes they need; House building that is simply too slow; And a construction industry that is too reliant on a small number of big players. The laws of supply and demand dictate that in any market, where supply is short, prices rise, it’s just a fact of life in a free market economy. This, coupled with asset price inflation resulting from pumping credit into the system (quantitative easing and ultra-low interest rates) means that the result is quite predictable: since 1998, the ratio of average house prices to average earnings has more than doubled – from under 4:1 to almost 8:1. The shortage of supply in housing is compounded by demographic changes that have increased demand: Migration / immigration, where net migration has reached unprecedented levels in recent years. More single living, coupled to divorce and longer living Worker migration from the poorer regions of the country to regions where job creation has brought more opportunities, but consequently expensive living. An economy that has grown faster than any other in Europe, resulting in record employment, especially in the south-east.
These changes, which have accelerated over the last 20 years, and have resulted in a situation where owning a home has become a distant dream for millions of people, and that dream, it would seem, is getting further out of reach for many. “Generation Rent” has become a familiar term in the UK media, though we should bear in mind that Britain is not alone, the problem is far from unique to us, though in Britain it is perhaps more acute on a relatively small land space: nearly every western country, from North America to New South Wales, has an almost identical housing problem. However, public opinion started to move against the private landlord in the UK when some of the more extreme and unsavoury antics came to light: media stories of instant riches and paper “millionaire” buyto-let landlords, many of whom were not really landlords but speculators and chancers, and another cohort of “slumlords”, housing illegals and no-income tenants in squalor. This all produced a plethora of media stories which turned the public right off. According to the White Paper, 28% of homes are now non-decent, though the situation has improved compared to the 37% figure from 2010. It claims that “an increasing number of private tenants (65%) are happy with their tenure, compared to 48% in 2004”, but what it does not say is that private tenants have almost always returned higher levels of satisfaction that council (social) tenants in cross sector surveys undertaken.
26TH EDITION LANDLORD INVESTOR
White Wash? There is no doubt that, as the paper says: “in areas where the housing shortage is most acute, high demand and low supply is creating opportunities for exploitation and abuse: unreasonable letting agents’ fees, unfair terms in leases, landlords letting out dangerous, overcrowded properties.” The Council of Mortgage Lenders has predicted that by 2020 only a quarter of 30-year-olds will own their own home, whereas, again according to the White Paper, in contrast, more than half the generation currently approaching retirement were homeowners by their 30th birthday. With most young people needing help from the “Bank of Mum and Dad”, it’s perhaps not surprising, that a large section of the community resented the possibility that buy-to-let landlords were pushing up prices for first-timebuyers. The government, as governments do, took up the popular mantle, introducing several measures to tackle the rogues in the industry, exactly what was needed, but more worryingly, to “cool down” the buy-to-let market.
The housing market in this country is broken, and the cause is very simple: for too long, we haven’t built enough homes.
Prompted by all of the above, and a large overhang of buy-to-let lending debt, the Bank of England warning the then Chancellor, George Osborne, of the growing risk, he acted by restricting mortgage availability and increased taxes on rental property income, severely hitting profitability for some.
LANDLORD INVESTOR 26TH EDITION
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EXPERT ADVICE
The White Paper indicates a radical shift away from the traditional Conservative policy of home ownership, to one of recognising that renting is going to be a major sector in the future, needed to house those unlikely to be able to afford to buy. But they see this housing to be supplied more and more, not by small-scale landlords but by institutional investment and large block management. Under the last Chancellor the PRS became a scapegoat; it has suffered since because of this and all the indications are that his actions will discourage smallscale landlords from investing in buy-tolet, a trend that many feel will create an even bigger crisis in the housing market. The Royal Institution of Chartered Surveyors (RICS) says it had warned the Housing Minister at the time that “unless urgent action was taken there would be a 1.8 million shortfall of rental homes by 2025.” With increasingly unaffordable house prices, says RICS, the majority of British households will be relying on the rental sector in the future. “The number of UK households renting property doubled from 2.3 million in 2001 to 5.4 million in 2014. Yet the previous Prime Minister took measures to dampen the demand for buy-to-let investments by introducing taxation policies that unfairly penalised landlords. This further reduced supply, arguably makes a 2025 rental supply crisis more likely.” The focus on encouraging more and more build-to-rent would, on the face of it seems a good strategy to quickly solve the problem of shortages, particularly in the bigger cities. But building new housing alone is unlikely to solve the crisis. Not everyone will be able to afford the rents in a new apartment, so existing properties run by smallscale private landlords will still vastly outnumber the new provision, even if the institutionalisation project takes off as the government hopes. A radical proposal in the White Paper is the “family-friendly” three-year tenancy for those tenants who want them. These it would seem are aimed specifically at the Build-to-Rent institutional investment market, though I would question whether these investors would all be looking... to rent to families, over the more profitable and less troublesome single and couple professionals’ market. The Paper says: “While we focus our long-term strategy on increasing overall
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supply, there is clearly also a need to intervene to help households now who are struggling as a result of the immediate symptoms of our broken market which are causing anxiety, hardship and unfairness for many households and communities.”
would support them. However, a lot determination will be needed to apply these principles in practice, some of which have been tried before, if any impact is to be made to tackle the housing deficit that has built-up over decades.
There will be help, the Paper says, for the over 4 million households who now rent their home from a private landlord, the around 4 million people with leasehold homes in England, and upfront costs including fees charged by letting agents to tenants. It is very likely that letting fees charged to tenants will be banned in the near future.
It still leaves a void as far as the average private (buy-to-let) landlord is concerned. It is unlikely that institutional investment, which today represents less than around 3 percent of the private rental market, will provide the whole solution, so where is the encouragement and support for the small-scale landlord, why is the focus of the Paper purely on the negatives for them?
Protection is on the cards for a growing number of those who buy leaseholds. New houses sold on a leasehold basis are marketed at a reduced price, which looks attractive compared to freehold, but naïve purchasers are often not aware at the point of sale of the associated costs of buying a new leasehold house. Though solicitors should point this out to them, this is not always the case, and it results in the leaseholder facing higher longterm payments and a greater loss of value than anticipated. The Law Commission has been asked to identify opportunities to incorporate additional leasehold reforms as part of their 13th Programme of Law Reform. The government is to continue its efforts to bring up safety standards in the private rented sector, and to drive out the rogue landlords. The measures introduced in the Housing and Planning Act 2016 will bring in banning orders to remove the worst landlords or agents from operating, and enable local councils to issue, in effect, on-the-spot fines, as well as prosecute. The new energy efficiency regulations setting out minimum energy efficiency standards (MEES) for England and Wales will apply to buy-to-lets from April next year (2018), meaning a property cannot be let with an EPC rating below E. There are plans to extend mandatory licensing of Houses in Multiple Occupation from the current 5 unrelated occupiers over 3 stories, to all HMOs, and there are also ongoing consultations regarding the introduction of mandatory electrical safety checks for rented properties and client money protection for letting agents. All very laudable aims, many of which have been said before, but nevertheless, creditworthy and most industry experts in the private rented sector
What I find most surprising about the White Paper is that, apart from the negative comments, there is no mention of the massive contribution smallscale private landlords make to the UK housing sector. When challenged, housing ministers always emphasis how valued the private landlords’ contribution is, but when it comes to policy statements and action, they seem to do the exact opposite – it just seems so hypocritical. Right now the whole government emphasis appears to be away from helping the smallscale buy-to-let landlord and towards encouraging the institutional investor. The Paper also indicates that local authorities are to be encouraged to become private landlords, to invest in private rented housing to let at commercial rates, in direct competition with the private rented sector (PRS). A London School of Economics report (https://goo.gl/NI4IV8) has warned that: “even if institutional investors enthusiastically enter the market, individual landlords will remain dominant – as they are across Europe.” So far there is little evidence that the government’s drive for institutional build-to-rent has been a roaring success, as a recent House of Lords committee report (https://goo.gl/0qp3PP) says, previous attempts to encourage such efforts have “achieved little”. Instead the Residential Landlords Association (RLA) has called on the government to ensure that incentives are provided to all of the private rental sector, including encouraging smaller private landlords and supporting them to expand their investment to provide the extra housing urgently required.
26TH EDITION LANDLORD INVESTOR
EXPERT ADVICE
Ministers have been saying for some time that they want to encourage longer tenancies in the rental market, presumably to encourage more family tenancies, yet official government data shows that the average length of time a tenant spends in the private rented sector (PRS) in the same home is now four years.
“The very fact that a renewed push is being made for such investment is a sign that previous efforts have failed.
Responsible landlords will always encourage longer tenancies, regardless of the wording of the agreement, providing (1) rent is paid on time and (2) the property is being treated with respect. The only motivation I see for the desire for a longer term commitment is to get landlords to be tied in regardless of the performance of the tenancy. I find it hard to believe that small landlords or institutional landlords would see that as desirable.
“Instead the Government should look again at the tax rises imposed by the previous Chancellor on landlords which will only act as a disincentive for the hundreds of thousands of smaller landlords to get more properties on the rental market.”
RLA Chairman, Alan Ward commenting on the White Paper, said: “Whilst we welcome efforts to boost the supply of homes to rent, this will not be achieved through a single minded focus on corporate investment.
LANDLORD INVESTOR 26TH EDITION
“Any plan for the rental sector that does not provide equal support and encouragement for the vast majority of individuals making up the country’s landlord population is doomed to failure.
Apart from the negative comments, there is no mention of the massive contribution smallscale private landlords make to the UK housing sector.
Small-scale private landlords face tough challenges ahead, especially relating to the tax changes, and also the other coming legislation mentioned above. Because of this rents are likely to rise and landlords leaving the sector will increase rented housing shortages. Surprisingly, the White Paper has little to say in their support and almost denies the reality when it “aims to deliver more affordable homes to rent.” Tom Entwistle, Editor of LandlordZONE®
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EXPERT ADVICE
TOM ENTWISTLE LANDLORDZONE
No Budget Concessions for Landlords Viewpoint What little hope landlords had of the Chancellor reversing some of the recently introduced rental property tax measures were dashed in the last Spring Budget. Mr Hammond failed to take the opportunity to reverse George Osborne’s punitive tax regime aimed at buy-to-let landlords, and he further compounded the issue by striking out at the land lording class, many of whom are likely to be self-employed or company directors and savers, with his NIC increase and reduced dividend tax allowances. All this despite spirited lobbying from the property industry, including all the landlord associations, letting agents and housebuilders. And despite calls from all quarters in the industry to reverse the additional 3% stamp duty surcharge on second homes, which includes all buy-tolet properties, or to reinstate mortgage interest tax relief for property investors, there was not even a mention of these in the Budget.
Many in the industry feel that these tax policies will not only deter more investment in properties to rent, by typically small-scale investors, but that it will result in many leaving the industry altogether, both reducing supply and therefore increasing rents. It seems the government is pinning its hopes on big institutional investors entering a growing rental sector to take up the slack, but so far this has been slow to get going. In the meantime not only are landlords suffering as a result, so are their tenants, many of whom are paying up to half their salaries in rent in some inner city locations. From next month, landlords will start to lose the right to deduct their mortgage interest costs from income at the rate they pay income tax – currently up to 45%. Instead, they will see this fall over the next three years and will be replaced with a 20% tax credit.
One bit of relief for many, the Chancellor said he is providing an extra year, until April 2019, before the “Making Tax Digital” regime becomes compulsory for unincorporated businesses and landlords with turnovers below the VAT threshold. This will provide them with more time to prepare for having to keep digital records and provide quarterly updates to HMRC. Businesses, self-employed people and landlords with turnovers under £10,000 will be exempt from these new rules. Other businesses, self-employed people and landlords will be required to start using the new digital service, quarterly reporting using specific software, from April 2018. See our Budget Review here: www. landlordzone.co.uk/comment/springbudget-2017-tax-changes Tom Entwistle, Editor, LandlordZONE®
Mr Hammond failed to take the opportunity to reverse George Osborne’s punitive tax regime aimed at buy-to-let landlords.
LANDLORD INVESTOR 26TH EDITION
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OLYMPIA SHOW NEWSFLASH
Speakers include Iain Duncan Smith, Former Secretary of State for Work and Pensions 2010 -2016 and David Smith, award-winning Economics Editor of The Sunday Times.
New Expert Property Panel Just Announced for Olympia Show, 15 June Rt Hon Iain Duncan Smith Former Secretary of State for Work and Pensions 2010 -2016
Carolyn Uphill
David Smith
Marie Parris
Chairman - National Landlords Association
Award-winning Economics Editor of The Sunday Times since 1989
Managing Director - George Ellis Property Services
As part of the seminar programme, the show will now offer an Expert Property Panel to discuss current issues that landlords face, including Brexit, licensing, tax, finance, immigration. This expert panel will take place in the Auditorium Theatre and seat over 400 delegates. Chaired by Peter Littlewood from Southern Landlords Association, speakers include Iain Duncan Smith, Former Secretary of State for Work and Pensions 2010 -2016 and David Smith, Award-winning Economics Editor of The Sunday Times since 1989. Also speaking as part of the panel are Carolyn Uphill, Chairman, National Landlords Association, Richard Bowser, Editor of Property Investor News and Marie Parris Managing Director, George Ellis Property Services. The panel is free to attend for visitors and on a first-come, first-served basis, complementing the 35+ free seminars on all aspects of buy to let.
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The exhibition also offers to portfolio landlords and high net property investors a host of leading suppliers of property investment, tax, legal, insurance and mortgage services. ‘It’s going to be a very stimulating day, with many features, suppliers and seminars for property professionals, explains Tracey Hanbury, Event Director from LI Media, who have successfully developed and run these events throughout the UK. ‘We are delighted to have secured this panel of expert speakers to discuss and debate the current issues in the buy-to-let market and add value to the event through high quality and free content. All of our shows offer advice to help seasoned
landlords and investors, as well as those considering entering the buy-to-let market. Visitors also will be able to source the latest property investment services from renowned brands such as Clive Emson Auctioneers, Shawbrook Bank, Royal Bank of Scotland, Tenancy Deposit Scheme, Thames Water & Total Landlord Insurance who offer buy-to-let services in areas from tax, to mortgages to legal.’ To book your complimentary show tickets for our London Olympia show please visit our website: www.landlordinvestmentshow.co.uk or for further information call 0208 656 5075.
26TH EDITION LANDLORD INVESTOR
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LANDLORD INVESTOR 26TH EDITION
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NEW INVESTOR
PETER LITTLEWOOD SOUTHERN LANDLORDS ASSOCIATION
Part 5 of the series
Essential Advice for New Landlords So far we have looked at what you need to do to get the property ready to let, followed by the Housing Health and Safety Rating System. In this part we will concentrate on a specialist subject of HMOs
Houses in Multiple Occupation (HMO) The first thing to be sure of is to be aware of what an HMO is. Definition of an HMO Since April 2006, the definition of a House in Multiple Occupation (HMO) is: •
An entire house or flat which is let to 3 or more occupiers who form 2 or more households and who share basic amenities – e.g. a kitchen, bathroom or toilet;
Or to put that in English – more than 2 people; not related; sharing vital facilities. Note: • rents must be payable or other consideration are to be provided; • it is the occupiers only, or main residence; • A resident landlord is allowed to rent to two extra sharers before it becomes an HMO. Or:
A resident landlord is allowed to rent to two extra sharers before it becomes an HMO.
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•
A building which is converted entirely into self-contained flats if the conversion does not meet the appropriate building standards (generally the 1991 Building Regulations) and more than one-third of the flats are let on short-term tenancies (Section 257 HMO’s).
Trying to put that into plain English:• the property has been converted into self-contained flats, but does not meet the 1991 Building Regulations, and •
1/3 of the flats are rented out (on AST’s). It has never been explained how the freeholder of the ‘block’ knows the status of the occupiers of every flat.
Don’t worry too much about the latter (Section 257 HMO’s), many Local Authorities get confused about them. It only tends to be important if you are in an area which is subject to licensing (see below), you need to know if Section 257’s have been included or not. The important one is the first definition more than 2 people; not related; sharing vital facilities. This is where people might have an HMO without realising it. An example I always use is if you let to a couple who have a child you don’t have an HMO. If however the couple break up, but continue living together – you will have an HMO, as they are not related and because the child counts as soon as it is born. Or you might have a ‘traditional’ let to a family. If you allow them to take in a lodger who is not related, you will have created an HMO. Note that it would be acceptable for Granny to come to live, as she is related. Or, you might 3 siblings; again acceptable because they are related. But if one of them decides to let their boyfriend/girlfriend come to stay again it will have created an HMO.
26TH EDITION LANDLORD INVESTOR
NEW INVESTOR
Note the significance of ‘vital’ facilities. This covers things you can’t live without – kitchen; bathroom; toilet, etc. If you have individual bedsits containing all vital facilities you won’t have an HMO. And even if you decided to add a communal television room, or the like, it won’t be considered vital so you still won’t have an HMO. This new definition of an HMO which came in with the 2004 Housing Act (HA04). Note that there was an anomaly in the law prior to that which excluded a property as an HMO when letting to students. This anomaly has been closed, even though some people believe it still it to be the case. Does this matter? How does this affect you? The extra matters that you require for an HMO, which are not normally required for traditional lets are: • you will need a designated HMO manager; • the Managers contact details need to be on display in the HMO; • the property needs a 5 year electrical safety certificate; • all tenancies must be in writing – for licensed properties only.
LANDLORD INVESTOR 26TH EDITION
So if you:
Fit and Proper Person
• ensure your contact details are on display, assuming you are the manager. Note that the owner/landlord does not have to be the manager, it can be anyone with their permission – but see the separate notes about a ‘fit and proper person’ below;
As mentioned, anyone carrying out the duties of an HMO Manager must be deemed to be a fit and proper person. They cannot have:
• get a valid electrical certificate – note that the Government are consulting on making it mandatory for all rental properties to have a valid electrical safety certificate. This is likely to happen, but even if it doesn’t it is a sensible move to have your property inspected by an electrical expert. An early heads up – if, as expected, mandatory electrical safety certificates come in for all rental property it will prove very difficult to get one done because of the volume of work ensuing; • ensure all your tenancies are in writing. Quite frankly they should be anyway; it is more or less impossible to prove things agreed verbally. A verbal agreement with a tenant can come back to haunt you. Do all these things and it won’t matter whether you have an HMO or not – you’re covered.
• any unspent convictions relating to violence, sexual offences, drugs and fraud; • any breach of any housing or landlord and tenant law • to have been found guilty of unlawful discrimination • has been banned under Housing Act 2016 (HA16) - not yet enacted; • has not lost their Right to Remain in England; • has not been declared insolvent or bankrupt. Additionally, as already mentioned, anyone can be the manager - with their permission. I am aware of a colleague who had their lead tenant as the manager.
Ensure all your tenancies are in writing. A verbal agreement with a tenant can come back to haunt you.
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NEW INVESTOR
It is worth mentioning the potential problem with Banning Orders introduced in the HA16. When this legislation is enacted it is being proposed to keep a record of the banned people on a central database, however only the Local Authorities will have access to that database. Consequently a landlord might ask someone to manage their property and they could be a banned person. Currently there is no way to check, and you could be asking a banned person to manage your HMO. I trust that the Government will sort this out. The managers stated duties are to ensure:
Licensing
Additional Licensing
Up to now I have been outlining the definition of an HMO. Additionally there is the possibility of some of these properties will have to be licensed.
Local Authorities have the ability to designate the requirement for nonmandatory licensable HMO’s to have a license, under the Additional Licensing scheme.
There are two types of licensing for HMO’s:
They have a certain procedure to follow before designating a property as requiring an Additional License. Again assuming the Local Authority has followed the correct procedure they can designate non-HMO’s as having the requirement for a license – this would be Selective Licensing.
Mandatory The current requirement is for a property to fall within mandatory licensing it must be: – an HMO, comprising of 5 or more stories, and – occupied by 5 or more sharers.
• all parts are kept in good repair;
Note:
• there are adequate facilities for the tenants;
– storeys include basements and attics if occupied or converted for occupation.
• fire equipment is regularly checked;
– The Government are consulting on dispensing with the stories rule, so that all HMO’s with 5 or more sharers would be mandatory licensable.
• all means of escape are kept clear; • annual gas cert (normal requirement), plus 5 yearly electric cert; • adequate waste disposal facilities.
– Additionally the Government are consulting on the requirement for an HMO flat to be licensed if there is commercial in the same block, whether above or below the HMO flat.
Note that the Government are also consulting on bringing in mandatory minimum room sizes for a licensed property. Being proposed are: – 6.52 sq m for one person; – 10.23 for two persons. Penalties The penalties for not licensing • no section 21 court proceedings allowed; • unlimited fine; • your tenants can claim back the rent paid to you (max 2 years) .
Useful documents Two useful documents to find on the web and download are: The Lacors Fire Guide. All Local Authorities use this as their bible;
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Fire Guidance for Purpose Built Block of Flats, issued by the LGA (Local Government Association).
The Government are consulting on dispensing with the stories rule, so that all HMO’s with 5 or more sharers would be mandatory licensable.
26TH EDITION LANDLORD INVESTOR
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KEVIN WRIGHT NINJA INVESTOR PROGRAMME
Property education courses teach that HMOs are commercial properties, but that isn’t always the case. If your HMO is a conversion from an ordinary residential property it doesn’t qualify as a commercial property.
HMO Valuation The Truth Beyond the Hype From the lenders’ viewpoint there are many differences between a commercial property and an HMO:
Most lenders are driven by consideration of the worst case scenario based on having to repossess the property. They won’t sell an HMO as a going concern, but with vacant possession.
Commercial
HMO
1. Leases are long, up to 20 years
Leases are rarely longer than 12 month ASTs
HMOs that are valued on a commercial multiple of the rental income have undergone a far more significant conversion or transformation. This conversion would need to include:
2. Lenders take comfort from the lease providing an increased likelihood that the loan will continue to be serviced
Sometimes licenses are used, rather than a lease
• Ensuites in every bedroom.
3. Leases are often fully repairing, meaning the tenant is responsible for the upkeep
ASTs give lenders less comfort in continued serviceability of the loan
4. Leases have built-in break clauses and rent reviews
• ‘Kitchenettes’ in every bedroom
The landlord is always responsible for the upkeep
5. The value of the property reduces considerably when vacant, in some cases by 50%
The value of the property remains largely stable whether tenanted or vacant
6. The property has a designated commercial usage with the local council i.e. A1, C1
The property has domestic dwelling status with the local council
7. The property cannot be used for a domestic dwelling if not occupied by a commercial tenant
The property can always revert to a single AST or a main res home
8. Commercial tenants run a business of whatever sort and can therefore be viewed as generally more financially aware
HMO’s tenants can often be quite financially naive
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• In the communal kitchen, two range cookers and often two separate sinks • Wired-in smoke, fire and CO2 alarms • Emergency exit lighting • Sprinkler system. If you’re thinking of using HMOs as a strategy, be clear about what level of facilities you plan to offer – and be realistic about the valuation you expect. Kevin Wright is always happy to discuss how best to finance your property deal. Call him on 07889 526979. Kevin runs the Ninja Investor programme teaching these strategies www.ninjainvestorprogramme.co.uk.
26TH EDITION LANDLORD INVESTOR
The dates for the upcoming Ninja Networking Blitz meetings are: Newcastle 19/4 Leeds 20/4 Bristol 25/4 Basingstoke 27/4 Birmingham 03/5 Cambridge 04/5 Manchester 08/5 London 11/5
FINANCE
KAREN BENNETT SHAWBROOK
The Importance of the ‘Power Team’… Property lending and its associated complexities are often overlooked by the new landlord or prospective investor. The lure of yield and capital growth can overshadow the challenges presented, particularly given the much publicised long term investment benefits of property as an asset class compared to many other investment vehicles. There are numerous examples of where this has resulted in a negative customer outcome which in many circumstances could have been avoided had the right advice been available at the right time. In light of such a turbulent 2016 for the professional investor and landlord community that began in April with the radical shift in the tax regime (mortgage interest tax relief would be a particular ‘lowlight’*), and culminated in the Prudential Regulation Authority (PRA)’s changes to underwriting standards, it is now more important than ever to evaluate one’s strategy. This is particularly relevant for those investors who have perhaps not given enough focus to the sustainability of their investment strategy and the level of gearing within their portfolio. Research carried out by Shawbrook in 2016 to our portfolio of seasoned investors revealed that of all the changes, mortgage interest tax relief was the biggest concern moving forward (Figure 1).
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Figure 1:
Which of these buy-to-let changes has affected you more?
27%
51%
22%
The 3% extra stamp duty levy
The reduction on the tax relief for buy-to-let mortgages (20% cap)
Neither of these changes has affected me
This comes as no surprise given the penal nature of this change for landlords and investors and we have started to see the knock on effects of this over the subsequent 12 months, with many opting to transfer into Ltd company structures to mitigate the impact. In the same piece of research this move was cited as a likely strategy even though, as mentioned within this forum last month, it is not as simple as just making this jump. There are considerations that all investors must take into account such as the costs associated with the process (finance costs and associated fees are generally higher), not to mention any near term disposal aspirations or future wealth and inheritance planning for the family. *Worked example: MORTGAGE INTEREST TAX RELIEF (for illustrative purposes only)
BTL
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LANDLORD INVESTOR 26TH EDITION
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FINANCE
Simply put, it is a good move to surround yourself with people who are experts in their field.
Private Landlord
Limited Company
To better illustrate the effects of the change in tax relief for mortgage interest payments, we can imagine a buy-to-let (BTL) investor collecting a rental income of £5,000 per month and mortgage interest payments of £4,000 per month. This leaves the investor with a profit of £1,000. According to the old tax regime, the landlord would pay tax on the profit from his BTL investment, i.e. after deducting the mortgage interest payment. If we assume that the landlord pays 40% income tax, the bill would amount to £400, leaving £600 of after-tax profit.
For limited companies, the changes to the mortgage interest tax relief do not apply. If we assume, for simplicity, that a company had the same rental income of £5,000 per month and the same mortgage interest payments of £4,000 per month, this would leave £1,000 as pre-tax profit.
After the changes in the tax code will be fully phased in, BTL landlords can no longer claim the cost of their mortgage interest payments, apart from a 20% rebate. In our example, the landlord would need to pay 40% tax on the entire rental income of £5,000, i.e. £2000, less £800 (20% of the £4,000 mortgage interest paid). The final tax bill stands at £1,200 - three times the amount paid before the changes and higher than the initial profits from the BTL.
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As the tax changes do not affect companies, they will still pay tax only on their profit rather than the rental income. Sticking with the example and in the absence of any other profits or expenses claimed, this means the company would need to pay 20% tax on the £1,000 profit, or £200, leaving £800 as aftertax profit. Additionally, the Treasury has implied that the corporation tax could fall even further in the next years, further increasing the profitability of companies. This serves as a useful comparison but while Ltd company structures do seem more efficient, how useful are they in comparison to minimising the impact by making rental increases? To weigh up the various pros and cons it seems that one’s first phone call should be to a specialist tax advisor that can help navigate this journey, minimising its impact on your bottom line.
Another member of the “Power Team” that should very much be on the radar is the professional mortgage broker. Shawbrook’s distribution network is built in this manner with a panel of experienced, professional brokers working diligently to deliver the right outcome for borrowers across the UK. The process of sourcing a funding package suited to your needs is no easy task and having a broker on hand takes a lot of the pain out of the process by delivering time and cost savings, and allowing you to focus on sourcing new opportunities to grow your business. Over time, this relationship develops to a point where each holds an intimate understanding as to how the other operates, and the complimentary benefits this brings is invaluable. Brokers understand the market and have access to a whole range of lenders and products all of which are competing for your attention. Cutting through this noise and sourcing a bespoke solution sits at the heart of a broker’s remit and a strong relationship built on trust and understanding to help shape a sustainable strategy is key.
26TH EDITION LANDLORD INVESTOR
An FCA authorised intermediary has a duty of care to recommend the most suitable mortgages.
Tim Bennett, Head of Originations at master broker Charleston Financial explains as follows: “Having an experienced broker on board who is reliable and that you can trust is vitally important to your property investing business. “An FCA authorised intermediary has a duty of care to recommend the most suitable mortgages and also justify the reasons for that recommendation. A broker can help provide you with access to funds using the most appropriate products based on your individual circumstances and within the timescales required. “Brokers are in constant contact with a wide variety of lenders, some of which you may not have heard about or be able to access directly. And as lenders’ criteria are constantly evolving, it’s the experience and expertise of the broker which is able to help clients overcome the many challenges they may be faced with when applying for finance and help guide them through to a successful completion.” Finally, we should mention the importance of having a good legal team in your corner - one that
LANDLORD INVESTOR 26TH EDITION
combines expertise with commerciality, and that can work within your power team to provide the right outcome. Getting this wrong can cause serious problems across a range of areas and has potentially disastrous consequences where time is of the essence. Tim Bennett also adds: “One of the most common areas we see for delays in the application process is when cases get to the legal stage. It’s so important for clients to have a proactive legal representative acting for them with the right type of experience. “Particularly in time sensitive transactions, delays can cost money or even mean that a client misses out on an opportunity altogether. “Having a solicitor with the experience of satisfying lenders’ legal requisitions quickly and efficiently, especially in relation to commercial transactions is paramount to the success of your property investing business.” Simply put, it is a good move to surround yourself with people who are experts in their field, whether that is specialist tax advice, a professional broker, an experienced commercial
conveyancer, and also a lender that understands the importance of flexibility and taking a common sense approach to property transactions. Having a general idea across these areas is of course hugely useful, but it is perhaps unrealistic to gain a deep enough understanding of all of these complex areas as well as managing a successful property business that will withstand the test of time and the pressures of the current financial landscape. This is particularly relevant in today’s world of time constraints, family commitments and a whole raft of other - no less important - areas where one must spend time. For today’s landlord and professional investor the time saved by seeking out specialist advice is better deployed networking, sourcing new opportunities and prospecting to grow your portfolio in a sustainable manner. We are all in this for the long term and engaging with a team that holds this same belief is a sensible step in any investment journey. Karen Bennett, Managing Director of Shawbrook Commercial Mortgages
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Investing in Property? Talk to us about Buy to Let mortgages
A REPUTATION FOR EXCELLENCE Fitzwilliam Capital Partners is an advisory & principle investment Firm based in prestigious offices in South Cheshire. Specialising in the sourcing and promotion of below market value residential UK property, Fitzwilliam Capital Partners assists both first time investors through to portfolio advice.
CONTACT US Fitzwilliam Capital Partners Ltd Westgate House, 44 Hale Road, Hale, Cheshire, WA14 2EX Tel 0161 641 3100 Email hello@fitzwilliam-cp.com
• Purchase a new property or remortgage an existing Buy to Let • Borrow up to £3 million • Borrow up to 75% of the properties’ value • Please contact your local branch for full terms and conditions Your property may be re-possessed if you do not keep up with your mortgage repayments. You are responsible for making monthly repayments even if your property does not have a tenant. SBI UK Buy to Let products are not regulated by the FCA or PRA.
0800 532 532 www.sbiuk.com Authorised and regulated by Reserve Bank of India and Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority and Financial Conduct Authority are available from us on request. FCA registered number is 139156. For more information and clarification, visit us at our website www.sbiuk.com or visit your local branch. The contact centre is open Monday, Tuesday, Wednesday and Friday 9:00 am to 6:00 pm, Thursday 9:00am to 5:00pm (effective from 02 March 2017), Saturday 9:00am to 3:00pm and closed on Sunday.
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SBIUK/C252/February17
Maintaining a Reputation for Excellence, investors can rest assured when purchasing developer owned projects, many with proven yields in excess of 8%. Unique to the industry is our no upfront investor fees policy.
26TH EDITION LANDLORD INVESTOR
P RO P E RT Y D I V I S I O N | CO M M E RC I A L | S P E C I A L I S T BT L | CO M M E RC I A L I N V E S T M E N T | S T L & R E F U R B | T R A D I N G B U S I N E S S
SPECIALISTS IN GOOD SENSE
REGULAR SHAWB ROOK B ANK LIMITED SHAWB ROOK GROUP PLC
Our business is built on relationships, and we are proud to support the professional investor and landlord community with pragmatic, flexible lending solutions. Dedicated to good customer outcomes: n
Lending available for Ltd companies, LLPs & individuals
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Standard residential, HMOs, multi-units & commercial property
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Personal, case-by-case approach to suit your circumstances
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Award winning short term loan offering
S TA C K E D ( S M A L L U S E ) SHAWB ROOK B ANK LIMITED SHAWB ROOK GROUP PLC
TA L K TO O U R E X P E RT T E A M
0330 123 4522 or email cm.client@shawbrook.co.uk
www.shawbrook.co.uk ANY PROPERTY USED AS SECURITY, INCLUDING YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. EARLY REPAYMENT CHARGES MAY APPLY. A BROKER FEE MAY APPLY
FINANCE
ROBIN FAWKE HAWKE FINANCIALSERVICES
Over the last 12 months the buy-to let market has experienced dramatic changes to stamp duty, taxation and lender’s regulation. The most recent significant changes commenced on 1st January 2017 when the Prudential Regulation Authority (PRA (part of the Bank of England responsible for the prudential regulation and supervision of around 1700 banks, building societies, credit unions, insurers and major investment firms)) announced an expectation of firms’ underwriting standards applicable to the buy to let market. What does this mean to a landlord? The facts are that the PRA has set a minimum standard that banks governed by the regulator should meet in underwriting buy to let mortgages. Affordability assessments should now take into account borrower’s costs including tax liabilities and expectations of future interest increases. As such, the rental calculation has been stressed so that landlords will require higher levels of rent relative to their mortgage costs. Using a small sample of high street lenders, table 1 below details how the PRA ruling has affected the borrowing capacity for main stream buy to let.
Pre PRA Changes
Post PRA Changes
TSB
£225,000 (75%)
£187,012 (62%)
Santander
£209,454 (70%)
£180,564 (60%)
TMW
£209,836 (70%)
£180,564 (60%)
NatWest
£209,454 (70%)
£180,564 (60%)
Coventry
£209,454 (70%)
£187,012 (62%)
Alternative options for enhanced borrowing amounts are accessible if using 5 year fixed rates or banks not regulated by the PRA. In addition, banks are slowly innovating the rental underwrite with the use of surplus disposable personal income which can be used to supplement the market rent (top slicing).
Table 1:
A further alternative would be to purchase as a limited company where stress rates are reduced but this will not help Landlords who are looking to remortgage existing stock owned in personal names.
Based on purchasing a buy to let property with a value of £300,000 and receiving a market rental of £1,200 per month, assuming a 2 year fixed rate and the individual borrower s circumstances are suited to the relevant bank’s buy to let criteria.
Accessing the most appropriate buy to let mortgage for a purchase or remortgage has become more complex, increasing the need for a mortgage intermediary and other related professions to help landlords in achieving there property investment goals.
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26TH EDITION LANDLORD INVESTOR
Affordability assessments should now take into account borrower’s costs including tax liabilities and expectations of future interest increases.
FINANCE
BILL LORYMAN THE BAILEY GROUP
Professional Advisors Face a Flood of Litigation Claims Many landlords looking to expand their portfolios are starting to acquire commercial properties to convert to residential use. They often don’t realise the substantial tax savings that could be available to them if only their professional advisors knew what to do.
The reason is that the new law on Property Capital Allowances that came into full effect April 2014 is now starting to cause them serious problems. These tax allowances are little known and very poorly understood by accountants and Solicitors. They present a serious tax savings benefit to owners of commercial properties, such as hotels, pubs, restaurants, care homes, doctors/dentists practices, factories, warehouses, retail units, HMOs and student lets. The savings are different for every industry, starting at 10/15% for the letting industry, with up to 45% for care homes & hotels. A hotel valued at £500,000 could attract property capital allowances of over £200,000. That would equate to £80,000 tax refund for the owner!
Historically these tax savings were not accounted for when buying or selling a property, so accountants, solicitors and clients did not understand what they were missing. But now the new law states that the allowances MUST be identified correctly or both parties will lose them forever. Imagine if you sold your hotel or bought one to develop and then discovered months later that you had lost £80,000 in tax savings because either your solicitor or accountant hadn’t helped you put the right information into the sales contract? What would you do? Who would you go after to put things right, to compensate for your losses?
There is a worrying level of confusion among solicitors in their approach towards Capital Allowances.
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26TH EDITION LANDLORD INVESTOR
There will be wave upon wave of litigation as disappointed tax payers seek retribution from their advisors.
Well, the professional advisors are starting to wake up to the problems. There are a number of articles on line and in their professional magazines. Here are a few: Taxation.co.uk “There will be wave upon wave of litigation as disappointed tax payers seek retribution from their advisors (solicitors, accountants or surveyors) whom they hold responsible for their loss of Capital Allowance tax relief on their commercial property purchases.” Today’s Conveyancer “Legal profession in denial of Capital Allowances. There is a worrying level of confusion among solicitors in their approach towards Capital Allowances, which could leave them open to risks ranging from loss of income to client complaints and litigation.”
LANDLORD INVESTOR 26TH EDITION
The Law Society
Legal Lease Law Journal
“Many in the profession are not fully up to speed with their new obligations and are exposing themselves to risks and loss of fee income and litigation.”
“In many cases Capital Allowances will be lost, this means the importance of solicitors investing sufficient clauses into the sale and purchase agreement to protect their clients’ financial interests is significantly higher. Not doing this effectively could result in a loss and could even amount to a breach of contract.”
The Law Society Gazette “Commercial property lawyers warned over Capital Allowance changes.” “They could face further action for negligence if they fail to properly advise clients on the tax relief changes.” Accounting Web “When accountants are being sued successfully for amounts as much as £1.4 million, such as in the recent Mehjoo v Harben Barker case, for not bringing in a specialist at the right time, a full review of your clients’ buildings may not only benefit them but save your practice further down the line.
The Bailey Group, chartered accountants and property capital allowance specialists are now regularly receiving requests to be expert witnesses in helping buyers and sellers value their properties to identify the losses. They have prepared their Best Practice Guidelines for Professional Advisors to help clients (and themselves) ensure they receive the maximum tax savings available in any transaction. www.thebaileygroup.co.uk
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FINANCE
PAUL MAHONEY NOVA FINANCIAL
Is buy to let on its way out? The landlords’ landscape might be changing but property can still be a valuable investment, explains Paul Mahoney, managing director at Nova Financial.
Buy-to-let has long provided bumper returns for investors, but a number of clouds on the horizon have prompted some concern as to the sector’s future. When considering the tax changes and higher rental coverage rates for lending, there are certainly some areas where buy-to-let property investment is becoming less viable. London and the South-East represent standouts, given lower rental yields that average around 3.5 per cent that restrict the maximum borrowings in most cases to less than 60 per cent, so a lot more
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cash needs to be applied. Given that the average property price in the capital is now in excess of £500,000 the average cash investment is well over £200,000 including costs. Due to the low yields available in these parts of the country, properties that are leveraged at 60 per cent, loan to value, are barely breaking even. Thus, landlords are exposed to interest rates and the potential negative cash flow situations. Add to this tax changes which will reduce the tax efficiency of an investment for anyone earning
more than £50,000 per annum if the investment is in their name, and you have quite a few reasons to avoid investing now. Within the context of the capital, then, investment appears laced with risk. Many of our clients, however, have been investing in other major UK cities like Birmingham, Manchester and Liverpool. The most interesting trend affecting the property market currently is ‘North Shoring’ which is the movement of employment from London to the North-West.
26TH EDITION LANDLORD INVESTOR
THE METALWORKS, LIVERPOOL
B5, BIRMINGHAM
BMV price per square foot
Deposit payment plan available
High Spec
City Centre
7% rental guarantee
High Spec
Deposit protection
BMV price per square foot
1 & 2 bed as well as and 2 bed duplexes
6% Yields
available 10%
FROM £99,000
Net migration is strongly positive from London to the Midlands and the NorthWest which is being driven by strong growth in employment. Manchester alone has benefitted from over 60,000 new jobs since 2011 and major companies such as Ernst & Young, PWC and Deutsche Bank, to name but a few, are contributing. The question that emerges, then, is: can the North-West match London for stability and growth? If we look at the changes that have occurred in Liverpool over the past 12 months, there is certainly a case. Job growth year-onyear to June 2016 was 38.1 per cent and the economy grew by 15 per cent. Each of the North-West cities on average have outperformed London over the past year for capital growth and are providing roughly double the yields. So, how do the tax and lending changes affect cities like Birmingham, Manchester and Liverpool? Given that yields generally range from 6-8 per cent or more, there is no issue with rental coverage at all, and
FROM £149,995
The majority of our clients have been investing in the Liverpool and Manchester city centres renting to young professionals. With the ability to borrow up to a 75 per cent loan to value at interest rates of circa 2.5 per cent and generate yields of 7 per cent or more, the net return on investment is mostly 10 per cent or more excluding growth. A fairly average growth rate of 5 per cent per annum offers a 20 per cent return on your deposit as you’ve leveraged four times, so when you add that to cash flow that is 30 per cent per annum. This may seem too high to be true but it is due to the borrowings which accelerate returns on your cash deposit four times.
Many of our clients have been investing in other major UK cities like Birmingham, Manchester and Liverpool.
Buy-to-let isn’t dead, but it’s changing. A London location has become less of a necessity and the fault lines of the UK property market have been redrawn. www.Nova.Financial
although the tax changes may slightly impact upon some investors’ cash flow, there is a stronger buffer given the difference between interest rates and the yield is greater.
LANDLORD INVESTOR 26TH EDITION
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LANDLORD TAP 2 YEARS ON
THAMES WATER
Landlord Information of Water Companies Online Service In excess of 80% of the outstanding debt for water and sewerage charges across the industry is due from the occupiers of tenanted properties; largely because the tenant’s details are not known to the water companies. The OFWAT website stated that the cost to customers who do pay their bills is an additional £21 per year. In 2011 the Coalition Government in England consulted on whether to introduce regulations that would make landlords jointly liable for the payment of water and sewerage bills if they failed to provide the water companies with details about their tenants for companies wholly or mainly in England. In response to the consultation, the majority of landlords organisations called for a voluntary rather than a regulatory approach, arguing that their members would be very willing to work with the water sector to agree a proportionate approach to information sharing, making further regulation unnecessary. The Coalition Government agreed that trying a voluntary approach would be preferable in the first instance. In response, the water industry committed to the government to provide a single, easy to use and secure, national website for landlords
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and their managing agents to provide information as to those tenants responsible for charges wherever they or their properties were located and the then Secretary of State for Environment, Food and Rural Affairs wrote to landlord representative bodies welcoming the water industry’s proactive response and requested landlords and housing bodies demonstrate that a voluntary approach can be effective and that further regulation is not needed: “I would encourage you and your members to collaborate with their local water companies and with Water UK to ensure that the implementation of this database is a success”. In Wales, a different approach was taken. As a result of the introduction of Regulations in January 2015, it is now a legal requirement for landlords to advise water companies of those responsible for water charges.
Despite efforts to promote the use of the national website (Landlord Tap), and the provision of an interface which enables property owners and their agents to export a file to the portal thus avoiding the need for landlords and letting agents to re-key data which already exists within their own systems, take up of the service is relatively low and growth in the use of the service is very slow. The water industry are encouraging Landlords to make greater use of the Landlord Tap portal. The desired reduction in the amount currently added to the bills of those who do pay is unlikely to be achieved without the provision of such information. To use the water industry’s national website visit your local water companies website and follow the link or go directly to www.landlordtap.co.uk.
26TH EDITION LANDLORD INVESTOR
The Water Industry are encouraging Landlords to make greater use of the Landlord Tap portal
LANDLORD INVESTOR 26TH EDITION
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TENANCY DEPOSIT SCHEME
AskTDS
#
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26TH EDITION LANDLORD INVESTOR
TENANCY DEPOSIT SCHEME
BEN BEADLE TENANCY DEPOSIT SCHEME
The Tenancy Deposit Scheme (TDS) has recently launched a blog series called #AskTDS. In this series landlords, agents, and tenants are welcome to ask questions which TDS will answer with a blog. Over the last few weeks there have been some great questions* which we will share with you today.
Landlord Questions Answered by the Deposit Protection Professionals Q. Can I hold my tenant’s deposit?
Q. My tradesmen left a mess. Who is liable?
With the protection of deposits being a legal obligation since 2007, it is still worth reminding landlords of the various options available to them, particularly those who are renting out a property for the first time. If you take a deposit from your tenant, there are two different methods of deposit protection available to landlords: custodial and insured.
When a tradesman is called out, usually someone will be in attendance to ensure that the work is completed to a satisfactory level – whether this is the landlord, tenant or agent it doesn’t matter. When the tradesmen have finished, it is the responsibility of the person supervising to ensure that the tradesmen have cleaned up after themselves.
If using the insured method of deposit protection, the landlord is allowed to hold the tenant’s deposit in an account of their choosing. The landlord pays a fee per tenancy to insure the deposit, allowing them to retain the full amount of the deposit for the length of the tenancy. The landlord is responsible for returning the deposit to the tenant at the end of the tenancy, less any agreed deductions. In cases where the tenant disputes one or all of the deductions, the landlord must pass the disputed amount to TDS to hold during the adjudication process.
LANDLORD INVESTOR 26TH EDITION
If the tenant returns to the property to find damaged tiles, or paint dust in the carpet – they must report it to the landlord. The landlord should ensure that the mess is cleaned up, either by insisting the tradesmen returns and cleans the property or sending someone else to clean up. If the problem is damage, such as a broken tile or chipped paint, the landlord may choose not to fix the damage but must not attempt to charge the tenant for these damages at the end of the tenancy. Essentially, it is the responsibility of the person hiring the tradesmen to ensure
they do a good job and clean up after themselves. If this does not happen, the tenant must report any mess or damage to the landlord in a timely manner otherwise they could find themselves liable.
Q. What should my tenancy agreement say about cleaning? Your tenancy agreement is the starting point in terms of important documents relating to leasing your property out to tenants. With cleaning one of the main reasons for a dispute being raised, it’s clear to see that your tenancy agreement should contain information about your cleaning expectations, and the tenant’s responsibilities. Clearly explain that if the property has not been cleaned to the expected standard then the landlord may use part or all of the deposit to rectify this. It is incredibly important that this is stipulated in the tenancy agreement as should a dispute arise this will be the first port of call for an adjudicator.
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TENANCY DEPOSIT SCHEME
When it comes to making a claim on the tenant’s deposit, the burden of proof will always lie with the landlord as stakeholder.
A breach of an obligation in the tenancy agreement should always be supported with evidence, and you should always have a clear and comprehensive inventory and schedule of condition in place. At the end of the tenancy, you should have a similar document to show the condition of the property when the tenant moves out. There may be situations where you wish to put an additional obligation on the tenant. For example, you may give the tenant permission to keep a pet on the condition that the property is cleaned to a professional standard, with carpets cleaned, at the end of the tenancy. Perhaps the property was given to the tenant cleaned to a domestic standard and the carpets had not been freshly cleaned. Ordinarily, requiring the tenant to return the property in a better condition than they received it in would be classed as betterment. On a case-by-case basis, you may wish to add a specially negotiated clause to your tenancy agreement. This should be separate from your standard clauses, and signed separately by you and the tenant. This obligation is then absolute and while the claim must still be reasonable, the evidentiary requirement is not as high.
Q. What can/can’t I use my tenant’s deposit for?
that were agreed by both parties in the tenancy agreement at the start of the tenancy. Adjudication is not needed in most tenancies, TDS finds that only 1% of deposits protected by TDS require our alternative dispute resolution (ADR) services. If open communications are maintained throughout a tenancy, landlords will find it easier to ensure the property is returned in the same standard as it was at the start of the tenancy. Equally, tenants are more likely to agree to costs being recovered from their deposit, without ADR, if they can see the claim is reasonable and reasoned.
Q. How do I protect against damage/negligence from a tenant? While you cannot dictate lifestyle in your tenancy agreement (such as banning parties), you can require the tenant to maintain the property in the same condition as at the start of the tenancy (wear and tear excepted) and to repair any damage made during the tenancy. The best policy to protect your property is to encourage open communication with your tenants throughout the tenancy, and having a very thorough check-in/out and inventory report.
It is essential that you think about what you may want to use the deposit for at the end of the tenancy before the tenancy even starts, as you should put a deposit clause into your tenancy agreement. A good deposit clause will include that the deposit can be used at the end of the tenancy for cleaning, damage, missing items, gardening, redecoration, outstanding rent or to remedy any other breach of the tenant’s obligations under the tenancy agreement.
When it comes to making a claim on the tenant’s deposit, the burden of proof will always lie with the landlord as stakeholder; the money belongs to the tenant and is held in security by the landlord against the tenant’s obligations under the tenancy agreement. The starting point to your claim therefore, is to show that the tenant had a contractual obligation, and that they breached that obligation.
Most deposit deductions are agreed by the tenant and landlord without recourse to TDS’ adjudication service. Where a deposit return does result in a dispute, the starting point for the adjudicator will be the deposit clause in the tenancy agreement. Unfortunately, if the tenancy agreement is silent about what the deposit can be used for, it is unlikely that the adjudicator will make an award to the landlord. Therefore the use of the tenant’s deposit is restricted to purposes
Being prepared from before the start of the tenancy will put you in a good stead with future disputes, and not just for adjudication purposes. Most disputes can be resolved by the parties themselves, so having clear information about the condition of the property at the start and end of the tenancy, and sharing that information with the tenant(s), will go a long way to getting the tenant’s agreement and avoiding the disputes process.
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Custodial and Insured Deposit Protection Explained Insured deposit protection allows the landlord to hold the tenancy deposit in an account of their own choosing. On the other hand Custodial is a completely free deposit protection service that holds the money on your behalf. The Tenancy Deposit Scheme (TDS) is able to offer both of these services without a joining fee. Our customer service is award winning, and we have a dedicated team to helping you switch deposits from another deposit protection scheme to us, so the process is completely hassle free. Custodial Deposit Protection • Fast, free, secure • We hold the deposit • Quick repayment process at the end of the tenancy Insured Deposit Protection • Market leading rates and free to join • You hold the deposit • You repay directly at the end of the tenancy
Insured fee per tenancy
DepositGuard TDS for RLA members)
TDS
DPS
MY Deposits
Joining fee
No fee
No fee
No fee
£20.00
Deposits £13.20 up to £500
£14.70
£15.00
£20.00
Deposits £17.95 over £500
£21.95
£22.20 £26.00
Prices correct as of February 2017
*These questions have previously been answered on the TDS blog, for more detail on each question please visit: www.tenancydepositscheme.com/ latest-news.html
26TH EDITION LANDLORD INVESTOR
AUCTIONS
JAMES EMSON CLIVE EMSON AUCTIONEERS
Auctions an old idea but a new way of thinking in a changing market! The idea of buying or selling by public auction may appear complex but, in fact, it can be an easy and transparent means of doing both.
We live in a world where we expect everything to be done yesterday. Yet as the old saying goes ‘all good things come to those who wait’, and that is exactly what property is all about. Bricks and mortar have traditionally been a medium to long term investment, not something bought today and sold tomorrow, making thousands of pounds in the process although, of course, in recent years that’s exactly what has happened. It is generally recognised that if the property/land is sold ‘under the hammer’ on the auction day it has achieved the ‘best possible price’ and is often the reason why lots are offered on behalf of executors, trustees, power of attorney, beneficiaries, receivers, companies, authorities and such like who need to show an arm’s length and transparent sale. But selling and buying at auction is open to everyone!
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Auctions are in fact one of the oldest forms of trade with records dating back to 500BC, primarily with sales of women of marriageable age or Roman soldiers holding auctions of bankrupt goods, auctioneering their loot sub hasta (under the spear) to meet state deficits! Thankfully auctions today are more civilised than those earlier sales. At Clive Emson Auctioneers there are many benefits of buying or selling by auction, the following being just a few! Speed, the process can take as little as four weeks from instructions to exchange of contracts. Chance of success, we consistently achieve a success rate in excess of 80%. High profile marketing and competitive bidding, our aim is to create a level playing field for everyone. Bidding in an auction room gives everyone an equal opportunity to bid. If it’s sold in the room the seller has the knowledge the sale has been made openly and publicly.
26TH EDITION LANDLORD INVESTOR
Auctions may in the past have held a reputation as a place to buy or sell problematic property, however in today’s market this could not be any further from the truth! While we do indeed sell property that is subject to either legal or structural uncertainties (one man’s junk is another man’s treasure) many of the lots sold have clean titles and are structurally sound. What makes a lot suitable for auction? All properties can be sold by auction, but some are more suitable than others. Houses, flats, bungalows and cottages for improvement, renovation, restoration, refurbishment and/or repair are some of the most popular lots with buyers keen to capitalise on the potential added value, vacant land and commercial investments also remain popular in an environment where the most profitable place to keep your money is in bricks and mortar and not the bank.
LANDLORD INVESTOR 26TH EDITION
One of our many strengths at Clive Emson Auctioneers is the ability to provide buyers and sellers with local knowledge, from our strategically placed offices across the South of England, while still having the ability of offering national coverage. The auction process is of course founded on competitive bidding and therefore high profile marketing is essential to the success of an auction house.
Auctions are in fact one of the oldest forms of trade with records dating back to 500BC.
Along with our traditional ballroom auctions Clive Emson Auctioneers now offer nationwide Online auctions. For more information please go to our website cliveemson.co.uk by phone 01622608400 or by email auctions@cliveemson.co.uk
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