In the UK, the tenants appear to be much better protected legally than the landlord is by the tenancy agreement. Most of the UK legislation that has been put in place has been to increase the protection of the tenant against so-called ‘unscrupulous landlords’. Although such landlords do exist in the UK, the buy-to-let market really does have a great deal of well-intentioned people as buy-to-let property owners. The Press however, and the tenant-biased protection groups, would however have you think differently. To this end there is a great deal of bad press around about examples of bad landlords, but how many examples of good landlords do you see publicised? I bet not many!
We should however not be surprised at this; after all, stories about bad things sell more papers and make better news reporting ‘entertainment’, it would appear, than stories about the good. What is disappointing is that such opinions find their way through to supporting legislation that is making the landlords activities more burdensome and increasingly protects the tenants, some of which take advantage of the legislation and use it to ‘hurt’ well-meaning landlords.
So understanding the rights of the tenants (however the legislation may have been arrived at) is a necessary part of UK buy-to-let deal investing. You will see what all this is about when you eventually get a bad tenant, and especially if it is one who knows about their rights as tenants. I remember my first situation with a bad tenant who was not paying and when I took some professional advice, the words I first heard regarding my legal position on the matter was along the lines of: ‘Remember, the cards as stacked against you, if you remember that it will help you see everything in context’. I was then advised on my options, none of which excited me and actually left me feeling quite frustrated. Frustrated because I had to carry on paying the mortgage throughout this ordeal and this had to come out of my own pocket.
One way to protect yourself (as best you can) is to become more knowledgeable about this subject so as to minimise the chances of any major problems with tenants. There are some organisations and companies offering detailed training in this area and anyone dealing with the UK buy-to-let market should at least attend one of these, say the one run by the Residential Landlords Association for example. I have been on that course and it takes you though the issues step by step showing you what action to take at each stage in the lifecycle of a tenancy.
However, as a basic appreciation of this subject, I have put together the following information that at least should highlight the main areas you need to be aware of in the UK buy-to-let market. It does not however claim to be comprehensive as this would not be possible to present in just an article-length document. You should not be dealing in the UK buy-to-let market unless you have a good appreciation of the issues outlined below, unless of course you have more money than sense. At the end of the day, most investors in buy-to-let need the rent money to pay for the mortgage and any non-payment of rent or damage to the property (or both!) will therefore seriously affect your short-term wealth.
Tenancy Types
The vast majority of people who rent properties in the UK are on an Assured Short-hold Tenancy (AST). There are however other agreements that exist which afford different rights. We are only going to discuss the details of the AST here as it is this agreement that forms the basis of most of the UK’s private rental market.
Just for your information however, examples of tenants who are not on ASTs are:
- tenants in council or housing association accommodation,
- tenants who have lived in the property a long time from before when ASTs existed and come under the Rent Act,
- tenants living in the same house as that which is occupied by their landlord,
- tenants living in property rented from the Crown
- students living in halls of residence,
- and anyone staying in a hostel or bed and breakfast accommodation.
With the exception of the first two items on the list, where a tenant as ever more rights including the passing on of tenancies, all the other situations give rise to reduced protection for the tenant as compared to the tenant on an AST.
Property Possession With Assured Short-hold Tenants
An AST gives people a legal right to live in a rented home, either for a fixed-duration or on a rolling contract known as a periodic tenancy. Normally, an agreed duration is stated on the agreement and this is at least six months. After the six months then, if both tenant and landlord agree, the AST becomes a periodic tenancy that means the tenant just has to give at least one months notice to leave with the notice ending on the date that rent is due.
There can be fixed periods agreed of more than six months but it is not in the interest of the landlord to do this for it is only after the end of the fixed period that the landlord can ask for their property back by using what is known as a Section 21 Notice. This is merely a notice that states that the landlord requires the return of the property, there is no need for the landlord to give a reason for this. This notice requires to the landlord to give the tenant at least two months notice.
If there is some breech of the agreement before the end of the initial fixed period, or even during a periodic tenancy, then the landlord can use what is known as a Section 8 Notice. Usually the breech of the agreement will be for non-payment of rent but there are many other reasons.
Depending up on the reason there will be an associated duration for the notice. This period is from when the notice was served on the tenant to the time when the required action, ie leaving the property, is required. For a Section 8 Notice being served for rent arrears this is 14 days. However, it is not so straight forward because the tenant does not after leave until the bailiffs are sent in and this requires a court order. To get a court order this requires a court hearing and this takes time to arrange (possibly even a few months). In addition, the tenant can appeal against the notice. For example, if it was for non-payment of rent then the tenant may claim that the landlord did not maintain the property properly. So I think you can see how messy and drawn out getting possession of your property back can be when you have an awkward tenant!
A tenant has the right to live in their home without being bothered by the landlord. The landlord and other people such as tradesmen cannot just enter when they wish and must ask permission to visit. This permission would typically be requested at least 24 hours before and at a mutually convenient time. At this time it would be OK for the landlord or appointed person to take keys with them but it is best to go when the tenant is there and knock on the door to request access.
If the above rules are not followed then a tenant could claim harassment. This becomes a particular problem if you are ever in a situation where you are chasing rent payment as you can well imagine. If the tenant does not want to pay you and you are persistent in requesting payment then they can easily call the police and claim harassment! In the meantime your UK buy-to-let mortgage deal will still be requiring that you make regular payments of the buy-to-let property may be repossessed!
Tenant Responsibilities
With rights come responsibilities and so tenants should keep within the detailed terms of their rental agreement. Typical main conditions include: rent should be paid in full and on-time, bills paid for utilities and council tax, reasonable care taken of the property, tenants and their visitors must behave in a socially responsible way, allow access when needed for any repairs or extraordinary events, and not leave their home empty beyond a fortnight without first informing the landlord.
However, as you may well imagine, the Law does not make it so easy for these responsibilities to be enforced by the landlord. And bad tenants, of which there are a significant number, don’t fulfil many of these responsibilities. The best you can do is to make sure the people you are letting the property to will be good tenants and that means a lot of checks need to be done before signing on the dotted line. But that is another story and a subject in its own right. The main focus of this article was to highlight that the tenant has a major claim on your property when you let it out to them, and removing them from your property is not easy. So be careful who you decide to take on as your tenants, it is one of the most important decisions you will make in any given year!
The Buy-to-Let Blogger
Advice on UK Buy-to-Let, Buy-to-Let Deals, and Buy-to-Let Mortgages
(Our only true advice is that you should always take professional advice before investing, treat any 'advice' on this Blog purely as information and not a substitute for professional advice.)
Wednesday, 11 July 2007
Monday, 9 July 2007
ARTICLE: Investing in a Buy-to-Let Deal Means Taking on the Duties and Responsibilities of a UK Landlord
I have always been quite good at finding of buy-to-let deals and arranging suitable mortgages quite quickly. Although there is work to be done in this, and you need to know what you are doing or take good advice, it has to be said that the buying of property and the mortgaging of that deal is quite easy in the UK.
After having done this and taken ownership of the property, you then have to let it out in order to pay the mortgage and this means taking on the responsibilities of a buy-to-let landlord. There is far more involved in this than just making the purchase and with it come some legal duties and responsibilities. An outline of the main duties and responsibilities of a UK landlord are outlined and discussed below.
This is not meant to put you off and really these duties and responsibilities are not too onerous, however you should realise that for each buy-to-let deal you get into you have to take on these responsibilities for that property in order to let it out and get the rental income to pay for the mortgage. You could of course buy the buy-to-let property and keep it empty and wait for capital appreciation before selling, but this would cost you a lot of money and limit how many properties you could buy. If you did decide to do this then take my advice and make sure you tell your insurance company (most insurance policies put a limit on how long the property should remain empty before you need to notify them as empty properties attract premium rates due to the increase risks of damage).
You cannot even escape the duties and responsibilities by employing a rental agency as before your letting agent will begin to act on your behalf, they will normally establish a legally binding contract with you that places most of the responsibilities ultimately back on you. In reality however they will do a lot of the associated admin work and checks required on your behalf, so you can off-load the workload but not the ultimate responsibility.
Making the Property Fit for Letting
First and foremost you should focus on providing a safe property for people to live in. A good first step is to have the property surveyed with what is called a Homebuyers Survey carried out by a RICS registered surveyor. That survey will detail what is wrong with the property. These surveys will tell you what work needs doing urgently and what work can be left to a later date. This survey is more expensive than a property valuation survey but less expensive than a full structural survey. In most cases the Homebuyers Survey is quite adequate for buy-to-let deal investing and will ensure that the property can be mortgaged once any urgent items have been addressed.
Whether or not you supply the property furnished, part-furnished, or unfurnished is a decision you need to make with the advice of a letting agency for the rental market in that area of the UK where you are investing in buy-to-let deals. My advice would be the fewer furnishings you can get away with in your buy-to-let property the better! This is because it is less expensive in upkeep on wear and tear or damage, and less hassle to deal with.
Your buy-to-let property should also then be tidied up to make it suitable for letting as well as removing any articles that are not form part of the lettings agreement.
The condition of the buy-to-let property at the time of letting should be recorded in an inventory that lists all the items forming part of the let and includes a description of their condition at the time of the let. It is my strong advice to take photos and include these in the inventory document in case there are any disagreements at the end of the let and a court has to get involved. This is when your inventory will protect you in the UK courts if it is good, or let you down if it is too basic and is open to interpretation and criticism. The tenant will have to sign this document to declare their agreement that it is a true and accurate description of the property and its contents at the time of the let. If you are not confident about doing this then you should either get a professional to do one for you or take some advice on what to do.
Providing Insurance
The extent of insurance cover for each buy-to-let deal will depend on whether you are providing a reasonable investment in contents or not. If you are not providing a significant amount of contents then just basic buildings insurance is sufficient, be aware however that this will not protect some of your basic contents such as carpets.
The mortgage deal arranged on your UK buy-to-let property will also require buildings insurance to be put in place and they will also tell you what it should be insured for. This will not be insurance advice, it will be an instruction as without that level of insurance cover for the building the mortgage company will not give you the mortgage deal. You will also need to tell the insurance company to record the name of the company offering the mortgage deal as an interested party on the insurance certificate.
For fully furnished lets then you need to be insuring for contents as well as buildings insurance. Bear in mind though that the deposit money should cover any damage to contents caused by the tenants and you are really just insuring for the larger degrees of damage, not small accidents resulting in damage to certain items of furnishings.
Another insurance that is in your best interest as a landlord is liability insurance. This will provide cover if you are taken to court by a tenant for damages for personal injury. This liability insurance often forms part of the buildings insurance, however with some insurance companies it is an optional extra and my advice is pay for it and take it! It is usually only a small cost in comparison to the main insurance premium but can cover you for several million in damages.
Providing maintenance for the fabric of the property
This is a cost that is often left out of buy-to-let deal calculations and my advice would be always include something significant for it. I have seen many books and courses give the advice that 10% of the annual rental income is about the right level. I think over the long term this is probably correct but do bear in mind that it can be much more than this.
As an example I just had a tenant let me know her roof was leaking and when I sent someone out to patch it up he rang me back with the news that really it needs a new roof covering (this will cost much more than 10% of the annual rent). So just make sure you have the cash flow to cover such high maintenance costs that you will incur from time to time.
This 10% is assigned not only to cover repairs to the fabric of the building but also maintenance of the services to the property (see below).
Maintenance of Appliances
One of the most common and expensive failures in my experience is the gas-fired boiler. Not only is it expensive it is often hard to get someone to come out at short notice to fix the problem. This is one area where I have considered service contracts but often such contracts carry an even heavier charge than paying on a breakdown situation basis.
Another common failure for me has been the washing machine. I think tenants don’t treat my appliances as they would there own so like everything else left at the properties the wear and tear (as well as abuse) on these items is much greater than it would be if it were the tenants own property. Most of my properties are let unfurnished but with some appliances, however due to problems with washing machine breakdowns I now try to let without supplying these items. In fact many tenants want to bring their own washing machines with them so this tends to work out OK. As well as less maintenance expense it is less hassle so it is my advice that you minimise any appliances you think you need to supply in order to attract a let.
Maintenance of Services
The services of electricity, water and gas all need to be maintained. These services can develop faults and fail from time to time. In my experience the most common time of year for a failure is winter time when these services are needed most! The colder weather puts strain on these services due to the cold temperatures (sometimes freezing) as well as wet and damp weather.
Problems you will have may include water leaking from pipes damaging plastering to ceilings for example and electrics tripping out (especially if you have sensitive RCD protection installed). I have also had situations where tenants have rung saying there is a major leak only to find out later that they had been messing around with some valves at the back of the boiler in at attempt to get the boiler working.
There are also annual checks to be done. A copy of the landlord's gas safety check certificate for the property needs to be left with the tenants or the lettings agency. The gas check, which must be done by a registered CORGI gas fitter, is a legal requirement and should any of your tenants suffer from a gas installation without the check being in place, this would be dealt with as a criminal offence! I once did not leave a copy of the certificate with the tenant and when a problem developed on their gas meter the gas service provide came and fixed the fault but then duly disconnected the supply to the house because they could not provide a copy of the certificate! This obviously cost me money as I had to get the reconnection made by a registered CORGI gas fitter. This is therefore another good reason to leave the certificate with the tenant (and tell them to keep it somewhere safe!).
There is no such annual checks as regards electrical testing but it would be advisable to get a qualified electrician to check your property say once every 5 years and my advice would be certainly before you let out your buy-to-let property. Any appliances in the property should also be checked, again there is currently no specified testing requirement but a portable appliance type test done on an annual basis would be more than adequate.
Again all this work is supposed to be covered by the estimate of 10% of annual rent. So you can see that we have not exactly been generous here in coming to this amount!
Ensuring any Contents Comply with Appropriate Health and Safety Regulations
The three main areas for legislative compliance in buy-to-let property deals are gas, electric and furniture.
The main requirement regarding gas is the landlords gas safety certificate mentioned above. This needs to be renewed annually. It is better to minimise the amount of gas appliances in my experience as this must be one of the most potentially dangerous areas (hence the fact it is a criminal offence not to have the check in place). A gas combi boiler however is often an essential part of the heating system for a property so we will therefore need the annual checks just for this appliance.
Electric has also been mentioned above and for this there is no current strict regulations to which the landlord must comply but it would be prudent to ensure that the electrical installation complies with all relevant electrical installation regulations. For this it is necessary that an appropriately qualified electrician carries out a test on the property and places a certificate on it. Often there will be some minor remedial works to do and occasionally you will find that it requires a virtual re-wire!
Any furniture in the house needs to comply with the Furniture and Furnishings (Fire)(Safety) Regulations 1988. This is not a problem if you are supplying new furniture as these need to comply when sold. However, for any older furnishings you may buy second hand you have to be careful on this one. There should be a label to state that it complies with the regulations.
If you are not providing such furnishings then you need to have a clause in your tenancy agreement to state that any non-compliant furniture is not allowed in the property.
The Buy-to-Let Blogger
Advice on UK Buy-to-Let, Buy-to-Let Deals, and Buy-to-Let Mortgages
(Our only true advice is that you should always take professional advice before investing, treat any 'advice' on this Blog purely as information and not a substitute for professional advice.)
After having done this and taken ownership of the property, you then have to let it out in order to pay the mortgage and this means taking on the responsibilities of a buy-to-let landlord. There is far more involved in this than just making the purchase and with it come some legal duties and responsibilities. An outline of the main duties and responsibilities of a UK landlord are outlined and discussed below.
This is not meant to put you off and really these duties and responsibilities are not too onerous, however you should realise that for each buy-to-let deal you get into you have to take on these responsibilities for that property in order to let it out and get the rental income to pay for the mortgage. You could of course buy the buy-to-let property and keep it empty and wait for capital appreciation before selling, but this would cost you a lot of money and limit how many properties you could buy. If you did decide to do this then take my advice and make sure you tell your insurance company (most insurance policies put a limit on how long the property should remain empty before you need to notify them as empty properties attract premium rates due to the increase risks of damage).
You cannot even escape the duties and responsibilities by employing a rental agency as before your letting agent will begin to act on your behalf, they will normally establish a legally binding contract with you that places most of the responsibilities ultimately back on you. In reality however they will do a lot of the associated admin work and checks required on your behalf, so you can off-load the workload but not the ultimate responsibility.
Making the Property Fit for Letting
First and foremost you should focus on providing a safe property for people to live in. A good first step is to have the property surveyed with what is called a Homebuyers Survey carried out by a RICS registered surveyor. That survey will detail what is wrong with the property. These surveys will tell you what work needs doing urgently and what work can be left to a later date. This survey is more expensive than a property valuation survey but less expensive than a full structural survey. In most cases the Homebuyers Survey is quite adequate for buy-to-let deal investing and will ensure that the property can be mortgaged once any urgent items have been addressed.
Whether or not you supply the property furnished, part-furnished, or unfurnished is a decision you need to make with the advice of a letting agency for the rental market in that area of the UK where you are investing in buy-to-let deals. My advice would be the fewer furnishings you can get away with in your buy-to-let property the better! This is because it is less expensive in upkeep on wear and tear or damage, and less hassle to deal with.
Your buy-to-let property should also then be tidied up to make it suitable for letting as well as removing any articles that are not form part of the lettings agreement.
The condition of the buy-to-let property at the time of letting should be recorded in an inventory that lists all the items forming part of the let and includes a description of their condition at the time of the let. It is my strong advice to take photos and include these in the inventory document in case there are any disagreements at the end of the let and a court has to get involved. This is when your inventory will protect you in the UK courts if it is good, or let you down if it is too basic and is open to interpretation and criticism. The tenant will have to sign this document to declare their agreement that it is a true and accurate description of the property and its contents at the time of the let. If you are not confident about doing this then you should either get a professional to do one for you or take some advice on what to do.
Providing Insurance
The extent of insurance cover for each buy-to-let deal will depend on whether you are providing a reasonable investment in contents or not. If you are not providing a significant amount of contents then just basic buildings insurance is sufficient, be aware however that this will not protect some of your basic contents such as carpets.
The mortgage deal arranged on your UK buy-to-let property will also require buildings insurance to be put in place and they will also tell you what it should be insured for. This will not be insurance advice, it will be an instruction as without that level of insurance cover for the building the mortgage company will not give you the mortgage deal. You will also need to tell the insurance company to record the name of the company offering the mortgage deal as an interested party on the insurance certificate.
For fully furnished lets then you need to be insuring for contents as well as buildings insurance. Bear in mind though that the deposit money should cover any damage to contents caused by the tenants and you are really just insuring for the larger degrees of damage, not small accidents resulting in damage to certain items of furnishings.
Another insurance that is in your best interest as a landlord is liability insurance. This will provide cover if you are taken to court by a tenant for damages for personal injury. This liability insurance often forms part of the buildings insurance, however with some insurance companies it is an optional extra and my advice is pay for it and take it! It is usually only a small cost in comparison to the main insurance premium but can cover you for several million in damages.
Providing maintenance for the fabric of the property
This is a cost that is often left out of buy-to-let deal calculations and my advice would be always include something significant for it. I have seen many books and courses give the advice that 10% of the annual rental income is about the right level. I think over the long term this is probably correct but do bear in mind that it can be much more than this.
As an example I just had a tenant let me know her roof was leaking and when I sent someone out to patch it up he rang me back with the news that really it needs a new roof covering (this will cost much more than 10% of the annual rent). So just make sure you have the cash flow to cover such high maintenance costs that you will incur from time to time.
This 10% is assigned not only to cover repairs to the fabric of the building but also maintenance of the services to the property (see below).
Maintenance of Appliances
One of the most common and expensive failures in my experience is the gas-fired boiler. Not only is it expensive it is often hard to get someone to come out at short notice to fix the problem. This is one area where I have considered service contracts but often such contracts carry an even heavier charge than paying on a breakdown situation basis.
Another common failure for me has been the washing machine. I think tenants don’t treat my appliances as they would there own so like everything else left at the properties the wear and tear (as well as abuse) on these items is much greater than it would be if it were the tenants own property. Most of my properties are let unfurnished but with some appliances, however due to problems with washing machine breakdowns I now try to let without supplying these items. In fact many tenants want to bring their own washing machines with them so this tends to work out OK. As well as less maintenance expense it is less hassle so it is my advice that you minimise any appliances you think you need to supply in order to attract a let.
Maintenance of Services
The services of electricity, water and gas all need to be maintained. These services can develop faults and fail from time to time. In my experience the most common time of year for a failure is winter time when these services are needed most! The colder weather puts strain on these services due to the cold temperatures (sometimes freezing) as well as wet and damp weather.
Problems you will have may include water leaking from pipes damaging plastering to ceilings for example and electrics tripping out (especially if you have sensitive RCD protection installed). I have also had situations where tenants have rung saying there is a major leak only to find out later that they had been messing around with some valves at the back of the boiler in at attempt to get the boiler working.
There are also annual checks to be done. A copy of the landlord's gas safety check certificate for the property needs to be left with the tenants or the lettings agency. The gas check, which must be done by a registered CORGI gas fitter, is a legal requirement and should any of your tenants suffer from a gas installation without the check being in place, this would be dealt with as a criminal offence! I once did not leave a copy of the certificate with the tenant and when a problem developed on their gas meter the gas service provide came and fixed the fault but then duly disconnected the supply to the house because they could not provide a copy of the certificate! This obviously cost me money as I had to get the reconnection made by a registered CORGI gas fitter. This is therefore another good reason to leave the certificate with the tenant (and tell them to keep it somewhere safe!).
There is no such annual checks as regards electrical testing but it would be advisable to get a qualified electrician to check your property say once every 5 years and my advice would be certainly before you let out your buy-to-let property. Any appliances in the property should also be checked, again there is currently no specified testing requirement but a portable appliance type test done on an annual basis would be more than adequate.
Again all this work is supposed to be covered by the estimate of 10% of annual rent. So you can see that we have not exactly been generous here in coming to this amount!
Ensuring any Contents Comply with Appropriate Health and Safety Regulations
The three main areas for legislative compliance in buy-to-let property deals are gas, electric and furniture.
The main requirement regarding gas is the landlords gas safety certificate mentioned above. This needs to be renewed annually. It is better to minimise the amount of gas appliances in my experience as this must be one of the most potentially dangerous areas (hence the fact it is a criminal offence not to have the check in place). A gas combi boiler however is often an essential part of the heating system for a property so we will therefore need the annual checks just for this appliance.
Electric has also been mentioned above and for this there is no current strict regulations to which the landlord must comply but it would be prudent to ensure that the electrical installation complies with all relevant electrical installation regulations. For this it is necessary that an appropriately qualified electrician carries out a test on the property and places a certificate on it. Often there will be some minor remedial works to do and occasionally you will find that it requires a virtual re-wire!
Any furniture in the house needs to comply with the Furniture and Furnishings (Fire)(Safety) Regulations 1988. This is not a problem if you are supplying new furniture as these need to comply when sold. However, for any older furnishings you may buy second hand you have to be careful on this one. There should be a label to state that it complies with the regulations.
If you are not providing such furnishings then you need to have a clause in your tenancy agreement to state that any non-compliant furniture is not allowed in the property.
The Buy-to-Let Blogger
Advice on UK Buy-to-Let, Buy-to-Let Deals, and Buy-to-Let Mortgages
(Our only true advice is that you should always take professional advice before investing, treat any 'advice' on this Blog purely as information and not a substitute for professional advice.)
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