Thinking of becoming a Landlord?
Changes to Stamp Duty earlier in the year requiring buyers of second properties to pay a higher rate of stamp duty seem to have settled and property investment continues. However, before considering becoming a landlord there are numerous obligations on the ‘would be landlord’ to be considered.
You should have a written tenancy agreement regulating the terms and conditions of your tenant’s occupation.
There is no prescribed form of Tenancy Agreement but it should contain certain essential information, namely:-
- Rental payments and payment dates.
- Term of tenancy.
- Security deposit.
- Restriction against assignment, subletting or sharing occupation with someone else.
- Obligation for repair.
- Obligation to pay outgoings (council tax, etc.).
Schedule of Condition
The tenant is responsible for maintaining and repairing the interior of the premises. However in determining whether or not the tenant has performed this obligation when the tenancy comes to an end you are advised to have a “Schedule of Condition”. It is advisable to have at least photographic evidence as to the condition of the property and where appropriate a formal Schedule of Condition prepared and agreed by both you and the tenant.
The tenant may claim at the end of the term that the property was not in good condition when the tenancy started and therefore has no obligation to carry out any repairs you want undertaken. You may have difficulty in proving the condition of the property at the start of the tenancy without a Schedule of Condition.
You agree to repair the house and service apparatus. This means that if the tenant reports to you any breakdown of the central heating or other services then there is an obligation on you to repair them.
There is also an obligation for you to comply with statutory obligations regarding any furnishings in the property, gas and electrical safety regulations
Failure to comply with these regulations may result in prosecution.
An Assured Shorthold Tenancy is subject to the provisions of a Tenancy Deposit Scheme. There are two main aims of the scheme:-
- To safeguard tenancy deposits paid, and
- To facilitate resolution of disputes arising in connection with such deposits.
If you take a deposit from your Tenant, you must safeguard this by using an approved ‘tenancy deposit scheme’. You may not contract out of the scheme and if you fail to use the scheme, you run the risk of:
- Failing to obtain possession of the property at the end of the contractual term; and
- Your Tenant can obtain compensation from you for a sum equal to three times the deposit paid.
Please consider carefully whether or not you are going to ask your future Tenant for a deposit. If you do intend to ask for one, you must comply with the above Regulations.
The ownership of rental property may have taxation implications for you with both income and capital gains tax. You are therefore advised to speak to your Accountant for further advice.
If you have a mortgage on the rental property (or acquire one subsequently) then the Lender will impose certain conditions on you. These conditions include:-
- Stating the type of tenant you may accept.
- Stating the restrictions and obligations you must include in your Tenancy Agreement.
If you act outside the Lender’s conditions without their permission then they may treat this as a breach of mortgage condition and take steps to repossess the house.
Any changes should only be undertaken after full consultation with your Lender and with your Lender’s full knowledge and consent.
Immigration Act 2014
As from 1st December 2014 legislation was introduced to impose on the Landlord a legal obligation to ensure that prospective tenants are in the UK legally.
The Immigration Act imposes penalties for Landlords who rent properties to immigrants without first carrying out satisfactory checks.
A Landlord (or their Agent) is responsible for carrying out these checks – and if the Agent is to be responsible the Landlord must state this in writing.
These checks must be performed annually to ensure the tenant’s status has not changed. Penalties are significant – and can be up to £3000 per breach and a further £3000 for a failure to re-check a person’s right to be in the UK.
Rental property drawbacks
Owning rental property is not easy. It takes time to manage the property effectively. If you find a good tenant then they are worth their weight in gold. If you are unlucky to find a bad tenant then any money that you make during the rental process may be lost in repairing damage caused to the property and reinstating it to a lettable standard.
You may consider employing an agent to manage your property. This will reduce the income you receive, but may take much of the management hassle out of it for you.
You must also bear in mind that there may be a lot of rental property on the market and whilst the property remains empty you must continue to meet the repairing, insurance and mortgage costs yourself even though there is no tenant in occupation.
I hope that this gives you some insight to becoming a landlord, however as only some of the issues have been highlighted here this should not be treated as an exhaustive list. For further advice you should contact your Accountant, Surveyor and Lender (if applicable) or contact Thursfields property team to discuss the purchase further.