The government recently introduced a raft of changes to rental rules – and it’s essential for landlords to keep familiar with these. Below we discuss some of the major changes – and recommend Footnote 1 that any, would-be and existing, landlords seek independent advice to stay fully compliant.
Calling all landlords!
As you probably know, some new legislation has recently been introduced which has meant that things are changing in the rental market.
But knowledge is power - so let’s run through a few of the new rules and what they could mean for you. And how you may need to do things differently, going forwards.
One of the big pieces of recent legislation that has had a significant impact on landlords is the Tenant Fees Act.
In the case of most tenancies in England, this limits the type of payment that tenants have to make up-front, and means that, as a landlord, you’re now liable to pay the costs of things like tenant referencing, credit checks and inventory fees.
The Act also caps deposit amounts, so for the majority of tenancies, the maximum deposit is now the equivalent of five weeks’ rent.
However, if the annual rent you charge is more than £50,000 a year, then the maximum deposit is now equivalent to 6 week’s rent.
Also, you can now only request a maximum of the equivalent of one week’s rent as a returnable holding deposit.
The rules around issuing your Tenancy Deposit Prescribed Information notice haven’t changed though. So, you still need to make sure that your tenant gets this within 30 days from when you receive their deposit funds. If your letting agent is issuing this on your behalf, make sure they provide you with proof that it was received by the tenant within that 30 day deadline – not just issued.
Otherwise you may have to pay a penalty fee and run into difficulties later on if you have to serve an eviction notice.
Of course, tenants will still be liable to pay for household bills, including utilities and council tax, and will also still be charged administration fees if they want to amend their rental agreement or end their tenancy early, as well as penalties if they default on their rent or pay it late.
There are also new rules about the standards of the properties you offer to tenants.
For example, properties are now required to rate E or above on the Energy Performance Certificate scale for any new tenancies, and from 1st April 2020 this will also apply to existing tenancies too. So think about what improvements you could make to increase energy efficiency.
It’s also mandatory to serve a gas safety certificate before a new tenancy starts - and be aware that if you don’t do this, it could affect your ability to serve notice to end the tenancy.
And, under new legislation which came into force earlier this year, tenants have more rights if the property is deemed unfit for human habitation.
Which means now, more than ever, it’s important to make regular checks on your property and ensure that you’re up to date with any maintenance work.
Of course, as a landlord there is always the risk that a tenant might default on their rent, breach their tenancy agreement or damage your property.
Which is why making sure that you’ve got the right insurance in place is really important, so that, depending on your policy, you can relax knowing that your investment is covered should the worst happen.
So while there's been a lot for landlords to think about recently - keeping up with the latest legislation will help you make sure you stay on the right side of the law.
What I’ve told you today is just a snapshot of what you need to know based on English law, and it’s important to take professional advice as well as doing your own research so that you’re fully up to speed.
Energy performance and gas safety certificates
With the current drive to bring down energy waste and carbon footprints, all new tenancies or renewed contracts must now carry the minimum of an 'E' rating on their Energy Performance Certificate (EPC).
From 1 April 2020 this requirement is being rolled out across most domestic tenancies, with penalties of up to £5,000 Footnote 2 for non-compliance, although a warning is sent before any fine is issued.
EPC assessors need to be able to see evidence of energy-saving measures. If, for instance, walls have been insulated and skimmed over, this can't be counted, as the assessor won't be able to see the insulation.
It's also now mandatory to serve a gas safety certificate before a new tenancy starts. Be aware that if you don't do this, it could affect your ability to serve notice to end the tenancy.
Mortgage interest tax relief
Landlords used to be able to deduct mortgage interest and other allowable costs from their rental income but the government is now phasing this out.
The tax relief was reduced to 75% in 2017 and then to 50% for the tax year 2018/19. And, from April 2020, all rental income will be taxable – with landlords receiving a 20% tax credit for their mortgage interest.
Tenant Fees Act
The Tenant Fees Act came into force in June 2019. It was introduced to make fees and deposits clear so tenants are fully informed when taking on a new lease in England.
Essentially, all payments are prohibited unless explicitly allowed under the Act. Fees for services such as tenant references, credit checks and inventory aren't permitted.
Now, landlords and agents can only recover reasonable costs from tenants for lost keys or other security devices – and must provide evidence of these costs before imposing charges. They may also charge a default fee in relation to late rent.
Another development is that tenants who have been charged unfairly are entitled to claim their money back.
Please see the government's comprehensive landlords guidance for more information.
Also under the Act, tenancy deposits, which renters are routinely asked to pay before moving in, are now capped. This gives people the legal assurance that, where their total annual rent is less than £50,000, they won't be expected to pay more than the equivalent of five weeks' rent as a deposit. If the annual rent is equal to, or greater than, £50,000 the equivalent of up to six weeks' rent as a deposit is allowed.
At the end of a tenancy, the landlord must pay back a deposit within 10 days after both parties agree on the returnable amount.
Keep tenants informed
Any deposit must be protected by placing it in a government-backed tenancy deposit scheme. On receipt of a deposit, landlords have 30 days to tell a tenant:
- The address of the rented property
- How much deposit was paid
- How the deposit is protected
- The name and contact details of the tenancy deposit protection (TDP) scheme, which is authorised by the government, and its dispute resolution service
- Your (the landlords) or the letting agency's name and contact details
- The name and contact details of any third party who has paid the deposit
- Reasons why you (the landlord) might keep some or all of the deposit
- How the tenant can apply to get the deposit back
- What the tenant should do if they can't get hold of you at the end of the tenancy
- What the tenant can do if there's a dispute over the deposit
To minimise losses if things go wrong, it may be worth considering obtaining Landlords Insurance, which is available from companies such as Aviva. Such policies generally cover various elements of risk – including a default by the tenant.
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