Guide for Buy to Let Landlords – Avoiding the Pitfalls
Christopher Sykes – Solicitor and Director
Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. This is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.
Changes in the market and tax and regulatory environments have made life more challenging for buy to let landlords. However, by following a few simple steps a landlord can give themselves the best chance of avoiding problems and maximising your return. Here Sykes Anderson Perry give some key practical, commercial and legal guidance.
This guide only relates to properties to let on an assured shorthold tenancy (AST) in England and it does not for example extend to houses in multiple occupation (HMOs) or short lettings.
Choose the right tenant
It may seem obvious that a landlord would want to find a straightforward and reliable tenant who will pay their rent on time and not cause any problems for them or their property. However, it is surprising how many landlords do not check out prospective tenants properly leaving themselves exposed to potential trouble down the line.
Probably choosing the right tenant is the most important commercial and practical factor in the whole buy to let process. The key steps a landlord can take are:
- Do not rely solely on references or online checks obtained or undertaken by an agent. These are worthwhile and may be fine but do not always tell the whole picture and e.g. references can be forged and they do not help the landlord to “get to know” the prospective tenant.
Cross check the tenant’s references to the extent you can. For example, check that they do actually work for the employer who has given a reference and how long they have worked there.
See if there is any online information on the tenant.
If the tenant has previously rented a property elsewhere, check that there is a landlord’s reference and that the landlord verifies that rent was paid up to date and that the tenant otherwise complied with their obligations.
If possible meet the tenant or at least speak to them on the telephone to find out a bit more about them and to “get a feel for them”.
Following these steps may take a little time but if done properly will more than reap dividends in the long term
Note: It is unlawful to discriminate against the tenant on the basis of race, gender, disability, sexuality or religion. Check that tenants have the right to be in the UK.
Comply with all legal and procedural obligations
It is necessary to comply with the legal requirements relating to letting a property both to avoid potential fines and penalties and to make sure that possession of the property can be recovered should the tenant fail to vacate when they are required to do so.
A written tenancy agreement which complies with the legal requirements for an assured shorthold tenancy – see below.
The deposit needs to be protected correctly – see below.
Prior to the tenancy every tenant must be provided with a copy of a valid Energy Performance Certificate (EPC) and, where there is a gas, a gas safety certificate and the latest version of a booklet entitled “How to Rent: A Checklist for Renting in England”.
Hold a licence in areas which are subject to Selective Licencing.
There are other requirements such as compliance with electrical and fire and health and safety regulations which are important but these do not impact on the ability of the landlord to obtain possession.
You should ensure or make sure that your agent obtains a written receipt from the tenant for all documents which are given to them. The best place for this is in the tenancy agreement itself.
Regulations are changing so you should keep up to date, for example by joining the Residential Landlords Association.
Consents to sublet
If the property is subject to a mortgage the landlord may need the consent of the lender. This is sometimes the case even with a buy to let mortgage.
If the property is leasehold the lease should be checked to see if subletting is permitted and if so on what basis. Sometimes the freeholder’s consent is required or, if not, there is often a requirement to give formal notice of the tenancy and pay an admin fee.
In practice many landlords do not bother to check whether consents are required but the formal position should be checked and the landlord should have an understanding of the consequences of not obtaining any necessary consent.
The term must be for a minimum of 6 months. Most landlords want tenants to remain in the tenancy long time but it may be worth having an initial shorter term if the agreement is not with an existing tenant. Consider an initial 6-month term or a longer term with a break clause giving the landlord an earlier right to break the tenancy.
Rent should be payable by standing order. If the tenancy continues or potentially continues for more than say 1 year consider having an automatic annual rent increase either of a set amount or by reference to an established index.
Check the detailed wording of the document if you feel able to do so. This is not always easy but if you can make sure that you are happy with all the terms and that they correctly reflect the specifics of the property. An example of a term which is not helpful to a landlord but is often included on standard form agreements is one which says that the tenant cannot assign (transfer the tenancy) or sublet without the consent of the landlord. This contains a potential legal trap so it is recommended that the terms of the agreement should contain a complete prohibition on assignments, sublettings and parting with or sharing possession.
When the landlord or the agent takes a deposit, this must by law be protected through a recognised scheme within 30 days from receiving it. Failure to comply carries penalties including a potential liability to pay to the tenant up to three times the deposit and the inability to serve a section 21 possession notice (see below) prior to protection.
The tenant alleges disrepair
It is of course very common that during the course of the tenancy there will be the odd problem that requires fixing. If there is anything other than routine repairs a landlord should do the following:
Make sure the problem and any action taken to deal with it is recorded in writing which would generally be in email or similar correspondence between the tenant, the agent and sometimes with contractors.
Have the problem checked as soon as reasonably practicable and if there is disrepair for which the landlord is responsible have the problem remedied.
Have photographs taken of any areas damaged or alleged to be damaged particularly if it is thought there may be a potential dispute. In the event of a dispute try to avoid the matter getting to the stage where the tenant reports the matter to the local authority and they then serve an Improvement Notice.
If it is thought the tenant may use alleged disrepair as an excuse not to pay the rent take advice and get evidence to show that any fault or damage has been rectified.
Getting back possession of the property
In most cases this would be on an amicable or fairly amicable basis with the tenant when the tenancy ends or on the expiry of a break notice. Otherwise a formal way in which an AST is ended is by service on the tenant of what is called a section 21 notice.
If served correctly and the landlord has complied with all relevant legal requirements a court must grant possession of the property in the unlikely event that the landlord needs to take possession proceedings.
The section 21 notice must be in a standard form.
It must give at least 2 months’ notice and it cannot be given before 4 months into the tenancy and cannot expire any earlier than 6 months from the start of the tenancy.
It cannot expire before the end of the contractual term or any landlord’s earlier break date if there is one.
The section 21 notice may be invalid if there is failure to comply with certain procedural requirements – see above and also if the local authority serve an Improvement Notice (subject to certain exceptions and there are detailed rules for Improvement Notices which are beyond the scope of this guide).
Whilst section 21 notices are routinely served by an agent there are a number of pitfalls for the unwary relating to the service and expiry date of such notices. A landlord should take legal advice before serving one as an invalid notice is likely to delay the date possession is obtained and also likely to involve additional costs and aggravation.
If the tenant is in breach of the terms of the agreement, which is usually a failure to pay rent, it is possible to seek possession by using what is called a section 8 procedure. This is more complex then obtaining possession under the section 21 procedure and it is essential that a landlord seeks legal advice before doing so.
The key practical advice is to act as soon as it is realised there is a problem with the tenant and a landlord should not, for example, allow arrears of rent to mount or be fobbed off with excuses by the tenant.
Please note that under no circumstances should a landlord seek to forcibly evict the tenant or to do acts which otherwise might be seen as harassment of them as this will be a criminal offence.
At the end of a tenancy -
There should be a check out date appointment at which the landlord or their agent and the tenant should attend and where the property is checked against the original inventory and note if there are any required repairs. If the tenant does not agree with any outstanding bills or repair costs the matter would need to be dealt with under the relevant statutory deposit scheme and legal advice should be sought.
What does the future hold?
There are proposals to further tighten up regulation of the buy to let sector by both Conservatives and Labour (should the latter get into power). What we may expect to see is, for example, a longer minimum period for tenancies and, more likely if Labour gets into power, restrictions on rent increases and potentially the abolition or narrowing of the no fault section 21 possession procedure.