Guest post by Paul James, Founder of Property Road
There's no doubt that in recent years, many private landlords have probably felt overwhelmed with all of the new regulations and laws that have come into force - and there are more to come.
And this is despite the erosion on profitability with increased stamp duty, the phasing out of tax relief and the abolition of the wear and tear allowance. Times have certainly got harder.
However, one of the big issues is that it is becoming more difficult for landlords to run a rental property or a portfolio, and failing to comply with legislation can prove expensive. It could even result in their receiving a criminal record.
Here, I take a look at some of the laws that are coming into effect in 2019 and reflect on those that have recently affected landlords in the UK.
The Homes (Fitness for Human Habitation) Act 2018
The first law to look at - and one of the most important laws taking effect this year - is the Homes Act which will make landlords accountable for the condition of their properties.
The new law takes effect from 20 March which could see a landlord being sued by a tenant if they are living in substandard conditions.
All good landlords will be working hard to ensure that their properties are nice and secure homes for their tenants at the beginning and throughout the tenancy.
However, not every landlord is as committed to delivering quality homes so it’s right that a landlord should be held accountable if a tenant is suffering from mould and damp, for example.
The Tenant Fees ban
This particular law has recently completed its passage through the Commons and will become law in June. The legislation is aimed at making renting more affordable and fairer for tenants by reducing the costs that many have to pay at the beginning of their tenancy.
The law will also improve competition and transparency in the private rental sector in England which will see letting fees being banned.
The downside to the fees ban is that letting agents will need to pass on their costs to the landlord which they will have to meet and this could mean rents increasing to cover these rising outgoings.
Also, the amount a landlord can demand as a deposit will be capped to a maximum of five weeks’ rent under the law. For some landlords, this may not cover the potential damage and repair bill a tenant may leave behind.
Minimum Energy Efficiency Standards
Since April last year, it's been illegal for a landlord to let a privately rented home that is rated as F or G for energy efficiency. The property must be brought up to at least an E rating on the Energy Performance Certificate before the landlord can rent the property out again.
That's the regulation for new tenancies but all existing tenancies will be affected from 1 April 2020, after which the landlord will then be breaking the law for renting a property that breaches the requirement for having a minimum EPC rating - unless the landlord has an applicable exception.
Right to Rent
For landlords renting out a property in England, they will need to comply with the Right to Rent regulations, since failing to do so could lead to a fine.
Essentially, landlords will need to check that a potential lodger or tenant can legally rent a residential property. This means a landlord will need to take a copy of the applicant’s passport or other legal documents to carry out a passport and immigration check before offering a tenancy contract.
The new rules were brought in from 1 February 2016 and they've been unpopular ever since with many critics arguing that non-British tenants are struggling to find homes to rent.
New House in Multiple Occupation (HMO) licenses
Running an HMO can be a financially rewarding experience and until 1 October 2018, a landlord only needed an HMO licence if their property was over three storeys high.
However, the rules changed last October so that a property with five or more occupants that comprise of two or more family units meant the landlord needed a licence to operate from their local authority.
The move saw an additional 160,000 rental homes needing these licences under the new rules.
The legislation also brought in a minimum standard for bedroom spaces in HMOs and there's a demand on a landlord now for providing enough receptacles for the disposing and storage of household waste that is produced at their property.
Landlord licensing schemes
One of the issues facing landlords in a growing number of towns and cities is that they might need to be authorised and monitored by their local authority – there has been a steep rise in the number of landlord licensing schemes being created.
The aim of the schemes is to cut down on the number of rogue landlords who are operating and while they are a small minority, they do damage the reputation of good landlords everywhere.
It's important that a landlord checks with their local council whether there is a licensing scheme in place before they buy a rental property and put tenants in it.
Laws are helpful to the private rental sector
While many of these laws are helpful to the private rental sector, it does mean that becoming a landlord today is more of a professional undertaking than it ever has been before.
The days of simply renting out a home and collecting rent to cover the mortgage appears to have come to an end, and many landlords who have just one property, usually ‘accidental landlords’ who are renting out their parents’ former home for example, are now leaving the sector because they can't make a profit from their rental property.
But the flurry of laws that came in during 2018 are not the end – there are more still to come.
The laws that may appear this year include a housing court that is being proposed by the government to help deal with all property related disputes, including substandard rental homes and property repossessions.
'How to Rent' booklet
Landlords must also hand their new tenant a 'How to Rent' booklet published by the Ministry of Housing; they also need to ensure their gas equipment is tested every year by a Gas Safe engineer and there are plans to tighten the electrical testing of equipment and wiring in rental properties due to be unveiled soon.
There's also new regulation covering client money protection from April for letting agents to have insurance in place to protect their client’s cash - so landlords will need to check this is the case.
And, finally, let's not forget that all landlords are legally obliged to place their tenant's deposit into a legally-recognised scheme or face hefty fines for not doing so. Not all landlords, surprisingly, do this for their tenants which is a shame since the protection schemes protect both the tenant and the landlord should there be a dispute and the landlord wants to claim for repairs.
Investing in a buy to let property
Investing in a buy to let property still offers a great financial opportunity but the investor will need to be aware of the laws affecting them and to run their property professionally.
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The Property Voice - Insight from Richard Brown
I had no hesitation when Paul James from Property Road offered to write this post, summarising many of the recent changes in legislation. This is because there have been several over recent years, which added to the 170+ different pieces of legislation that a landlord needs to be aware of is quite a lot of red tape to wade through!
The Homes (Fitness for Human Habitation) Act 2018 might see us landing in court if we are not too careful, as tenants are now able to sue us for inadequate care and repair of our properties. I imagine that none of us will want to make the front page of the Guardian as the first landlord sued by their tenant for not fixing a problem in our property will we?
The letting fee ban is going to make quite a big difference as well I think. I had a letting agent recently write to me to say that letting fees currently account for around a third of their total income, so that's a big chunk for them to lose! The default response seems to be that the agent passes these costs and fees on to the landlord and then the landlord puts the rent up to cover this additional costs. But, it isn't that simple unfortunately.
Firstly, not all landlords use an agent now and secondly market rents are not what the economists call 'inelastic' in terms of price...or in plain speak, a tenant won't pay any price for their property...they have a choice and also affordability constraints in may cases too.
So, the solution, as far as I am concerned at least, is to look at innovative ways to absorb these costs...starting with the agent! Technology has to play a part in this on the agent side and them just looking to pass this cost over to the landlord is simply lazy. If they do try that, then I suggest that self-management becomes a realistic proposition for landlords in some cases, again potentially utilising technology to reduce the friction of doing so, even if we are time-poor or remote.
However, the very fact that all these legislative changes are coming in thick and fast tells us one thing...the sector is on a trend to become more 'professionalised' and so that's the biggest single takeaway...for us to ensure that we are more professional too. So, stay clued up and consider landlord accreditation is what I would recommend...or perhaps pop over to Property Road now and again to stay in the loop!