Landlords: get your house in order

Posted: 23/11/2017

According to Knight Frank’s UK Tenant Survey 2017, the ’proportion of households living in the private rented sector (PRS) has doubled in the past 10 years or so, and it is expected to continue to grow – by the end of 2021, nearly one in four households will be living in the PRS’.

The same report identifies that only 12% of PRS accommodation is run by large-scale corporate landlords, with the majority of accommodation being managed by private landlords. It is not surprising then that there are large numbers of landlords/managing agents in the PRS who do not fully understand the regulatory landscape governing it.

The law in this area has changed dramatically within a relatively short space of time. There is now a much heavier regulatory burden on landlords who let properties on an assured shorthold tenancy (AST) and non-compliance with the rules can have far reaching consequences.

We will not delve into how we arrived at this point as that would be an entire article on its own, but instead we will focus on:

• the pitfalls of non-compliance with the tenancy deposit rules and current legislation; and
• how to avoid the traps that still seem to trouble numerous landlords and managing agents involved in the PRS. 

A quick refresher

There are several legal requirements imposed on landlords who want to grant an AST, all of which must be complied with to avoid issues further down the line.

• Right to reside: Before the commencement of a new tenancy, the landlord must check that any tenant aged 18 or over has a right to live in the UK.
• Protect the deposit: If a landlord is taking a deposit, it must be protected with an authorised scheme. The landlord must also serve prescribed information within 30 days of receiving the deposit.
• Government booklet: The landlord must provide the tenant with a copy of the Government booklet How to rent: the checklist for renting in England.
• HMO licence: If the property is a house in multiple occupation, the landlord must have a licence from the local council and provide a copy of it to the tenant.
• Gas safety certificate: There must be a current (within the past 12 months) gas safety certificate.
• EPC: There must be a valid Energy Performance Certificate for the premises being let.
• Smoke alarms: These must be installed on every floor of the property and they must be working when the tenant moves in.
• Carbon monoxide alarms: These must be installed in any room used as living accommodation where there is an appliance which burns, or is capable of burning, solid fuel.

In our experience, both landlords and managing agents often fail to fully understand that these obligations must be complied with at the outset.

Non-compliance with the tenancy deposit rules is still the biggest mistake landlords and managing agents make. This can leave landlords thousands of pounds out of pocket, even where the errors appear to result from a simple lack of knowledge. Unfortunately, the courts have no sympathy with such an excuse.

Changing tenants

Perhaps more excusable is a lack of understanding around premises let to more than one tenant and the consequences of an additional or replacement tenant moving in after the expiry of the initial fixed term (where either the tenancy continues as a periodic tenancy or a replacement tenancy is entered into).

It is not uncommon for tenants to find strangers to live with them when friends move out. However, in our experience, this can cause problems. Managing agents and landlords often neglect to revisit the legal requirements highlighted above and simply allow tenant changes so long as the new tenant passes the required financial checks (and the income from the premises remains constant).

This is a costly error. Failure to reprotect the deposit and to provide the prescribed information along with the How to rent… booklet to all of the tenants (existing and new) within 30 days, will put the landlord in breach of the tenancy deposit rules. As we know, the consequences are serious:

• financial penalties – the landlord must return the deposit in full and the tenant(s) can bring a claim for between one and three times the value of the deposit; and
• the landlord cannot recover possession via a section 21 notice – any section 21 notice that might have been served will be invalid.

Landlords looking to purchase a portfolio of ASTs should be particularly alert to this issue. They should pay special attention to premises with two or more tenants as these are often the ones where mistakes occur.

Get organised

This is an area which need not cause landlords and managing agents difficulties. The key is to be organised. Put processes in place to ensure all obligations are complied with both:

• at the commencement of any new tenancy; and
• when there is a change of occupants within an existing tenancy.

Existing landlords should carry out periodic reviews of their portfolios to ensure they are compliant and seek legal advice if they are unsure about how best to deal with any non-compliance.

Purchasers considering buying property subject to existing ASTs should request all relevant documentation and check it carefully to minimise any unwelcome surprises.

Five top tips

• Generally, if there is a change of landlord, tenant or scheme, the deposit must be reprotected and the prescribed information reserved (check the scheme where the deposit is protected as the rules differ).
• When purchasing a property with an existing AST, never assume the seller has complied with their obligations. As an example, we frequently see ASTs granted in error to corporate entities (this is not permitted by the Housing Act 1988 and will need to be regularised). Ask to see all documentation listed under 'A quick refresher' above, copies of the original tenancy agreement and any replacement agreements, as well as full details of the people actually occupying the property.
• When purchasing a property with an existing AST, where a deposit has been protected, check what scheme it is under. Different schemes have different rules.
• Ensure that you have a checklist of your obligations for both new tenancies and any change of tenancies.
• Monitor any changes to the government booklet How to rent: the checklist for renting in England as it is the current version that needs to be served when renewing any AST.

This article was published in Estates Gazette in November 2017.

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