We created this update for our Landlords to detail the latest compliance and legal obligations our industry has seen implemented by the Government, which will affect you as a landlord and Winkworth as your agent.
The last three years has seen an unprecedented imposition of government regulation on our sector which we have been required to manage. We, as a business have ensured that we have kept abreast of compliance requirements, and where they have been in our control, have safeguarded our landlord clients as necessary. This note outlines some of the changes, how they will affect you as a landlord and what Winkworth as your agent is doing to protect your interests.
Over the past three years legislation has, perhaps unwittingly, tried to restrict Private Landlord’s entry into the market whilst trying to make is easier for homeowners and in particular first time buyers to own their own homes. In 2015 it was announced that second home owners (which landlords generally are) would pay an additional 3% stamp duty when purchasing a property. It was also announced that Section 24 was to be phased in over a 4 year period from 2017 stopping landlord offsetting their mortgage interest against their rental income. Effectively, Section 24 restricts landlords owning a property in their own name (rather than through company ownership where the rules are different) from offsetting their mortgage interest as a running cost against their rental income. Since 2015 there has been a further raft of changes many of which are in the process of being implemented and others that we deal with daily. I have highlighted some of these below:
Right to Rent Checks – These were introduced as part of the Immigration Act 2014 and came into force in April 2016. Landlord’s must legally check that a tenant or lodger can legally rent a residential property in England. Landlords are obliged to carry checks on all new adult tenants to make sure they have the right to rent property in the country. Failure to comply can lead to prosecution and fines of up to £3,000 per tenant. The good news is that Winkworth, as your agent, take care of these checks for you when your property is let and ensure you are compliant.
Deregulation Act – The Deregulation Act was passed on 26 March 2015 and is effective on all Assured Shorthold Tenancies from April 2018. In short, the Act was overreaching and covered a broad spectrum of legislation which no longer had practical use. The main points covering the residential lettings market and you as a landlord are:
- - Retaliatory eviction
- - Tenancy Deposit Protection
- - Additional Information Relating to Prescribed Information
- - The Energy Performance Certificate (EPC)
- - The Section 21 Notice
- - The condition of dwelling houses or their common parts
- - The health and safety of occupiers of dwelling-houses
- - The energy performance of dwelling-houses
The most prudent point to be aware of is that the act contains provisions suspending the operation of Section 21 in order to protect a tenant against retaliatory eviction.
Retaliatory eviction occurs where a landlord takes steps to evict a tenant because the tenant has complained about the condition of the property, rather than carry out repairs. The new process means that the tenant must put in writing to the landlord his/her complaints about disrepair. The landlord has 14 days to respond to the tenant, setting out when they will access the property, look at the remedies and carry out repairs.
If the tenant isn't satisfied and the landlord hasn’t carried out the repairs, the tenant can make a complaint to the local housing authority. Local councils have been given the power to serve an enforcement notice on the landlord, setting out “a reasonable timescale” for improvement works to be carried out. Landlords served with an Improvement Notice cannot issue a Section 21 within six months of an enforcement notice being served.
As part of our lettings process, we ensure that the relevant and necessary documentation is given to tenants at the start of their tenancy and that you as a landlord are compliant. We will also deal with any maintenance in a timely manner on all properties that we manage (on landlord approval) to ensure compliance with the act and protect your possession rights under section 21.
Minimum Energy Efficiency Standards – From 1 April 2018 there is a requirement for residential rental properties to have a minimum energy performance rating of E on an Energy Performance Certificate (EPC). The regulations are applicable on all new lets and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies from 1st April 2020. It is unlawful to rent a property which breaches the requirement for a minimum E rating, unless there is an applicable exemption. A civil penalty of up to £4,000 will be imposed for breaches. We have reviewed the properties that we manage and will update our landlord clients as and when properties come up for renewal or re-let. You will need to be aware that if your property falls below an E rating you will be required to make improvements to bring the property into line with the legislation and continue lawfully letting the property.
The Home (Fitness for Human Habitation) Act 2018 – Became effective March 2019. All landlords (or agents acting on their behalf) in England must ensure their rental properties are fit for human habitation at the beginning and throughout the tenancy. If they are not, the new act gives tenants powers to take landlords to court for breach of contract, force them to carry out improvement works and claim compensation. Landlords can potentially be sued for damages for the entire length of the contract. Essentially, it is imperative that any necessary repairs to a property are taken care of and that properties do not suffer with damp, have adequate ventilation, water supply, drainage and facilities for the preparation and cooking of food.
When we manage a property, we as your agent, will inspect the property to ensure compliance during the term of the contract and will also ensure that when we market the property to let anything which could be deemed to breach the legislation is picked up.
Electrical Safety Regulations – Currently in consultation stage with the government making recommendations for compulsory electrical safety checks to become a requirement (like gas safety checks). The recommendation is suggesting safety checks are conducted every five years and it is also being touted that landlords who do not comply will face penalties of up to £30,000. We recommend that electrical checks are conducted every five years or at change of tenancy, and we can arrange such. We will keep you updated as this legislation develops.
Anti-Money Laundering Regulations – Estate agency businesses are regulated by the Money Laundering Regulations of 2017 and as such there are numerous statutory obligations estate agents must comply with. On the sales side of our business Winkworth is obliged to check buyers and sellers’ identity, confirm ownership of properties being sold and check funds for purchase have not been appropriated by illegal means. Lettings businesses are being forced to meet the same obligations as sales agents, even though they do not have a statutory duty to do so yet. Essentially, we as an agent are obliged to check property ownership details and be aware of where funds used to pay rent on a tenancy are coming from. As a landlord, you may have been asked to provide proof of property ownership and identification, this is why. We take full identification, including proof of address from our tenants at the start of the tenancy and our referencing process establishes where funds for rent are coming from.
Tenant Fees Act 2019 – In February 2019 the Tenant Fees Bill gained royal assent and becomes law 1 June 2019. This act prohibits letting agents from charging tenants’ fees, including; inventory check ins and check outs, referencing fees and tenancy renewal fees. Tenant deposits will also be capped at 5 weeks rent (previously we have been taking 1.5 months’ rent as deposit). By charging tenant fees, we have been able to limit our landlords fee liability, particularly at the start of a new tenancy, the end of a tenancy and on renewal by levying inventory check-in, check-out and renewal fees to tenants. From the 1 of June we will not be able to continue to do so and therefore some of these fees will have to be passed on to our landlord clients.
From 1 June 2019 the Act allows for landlords and letting agents to charge for the following:
- - Rent
- - Utilities and council tax (if included within the tenancy)
- - A refundable security deposit, capped at five rent
- - A capped refundable holding deposit (at no more than one week’s rent)
- - Fees for changes to the tenancy requested by the tenant, capped at £50 (or “reasonable costs”).
- - Fees for early termination of the tenancy requested by the tenant.
- - Tenant default fees, such as fines for late rent payments or lost keys (capped at “reasonable costs”)
Failure of landlords and letting agents to comply with legislation creates a civil offence. The fine for the first offence is a civil penalty of £5,000 with penalties up to £30,000 and even criminal penalties for any further breach.
I hope this explains the challenges we, as your agent, face daily and the increased importance of our ensuring compliance to protect you as the landlord. Whilst the tenant fee ban will affect our revenue and will force us to review our fee structure, we will ensure that all our landlords continue to receive an exceptional service offering good value for money. At the start of a new tenancy and at renewal there will be additional fees to be levied, but to negate these as much as possible for our landlords we are in the process of negotiating better rates with our inventory clerks for check in/check out services which are a necessity to comply with Deposit Protection legislation.
Just to remind you that whilst, Section 24 is prohibiting the offset of mortgage interest against your rental income you can still offset agency fees, inventory costs, any repairs to your property and cleaning against your tax bill as legitimate running costs.
Also, with the prohibitive costs of entry for new landlords and Section 24 making being a landlord less attractive there are fewer new rental properties available which we believe may well lead to rent increases which will hopefully negate any additional fees you may incur. The reduced moving costs for tenants, including the reduced deposit may potentially lead to more tenant movement, so this along with the various changes in legislation outlined above mean that it is more important than ever to ensure that your property remains excellent.
Rest assured Winkworth will continue to manage your interests as a landlord, will keep you abreast of any changes that affect you and ensure compliance wherever possible. Please do not hesitate to contact us should you wish to discuss any of the information outlines above, your property and our management of your interests.
Michael Foldvari - Director
James Hathaway - Director
Jon Hallett - Director