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KEY LEGAL ISSUES EVERY LANDLORD NEEDS TO KNOW IF RENTING IN 2018

It really has been a massive period of legislative change for Landlords over the last few years and 2018 looks like it will be no different. With multi party support and huge pressure from the private rental sector, comprehensive reform of the housing market (and renting in particular) is a hot topic at Whitehall. It is without doubt that the curtain is about to close on rogue landlords and agents; simply pleading a lack of knowledge will no longer be acceptable.

With this continual flow of draft bills entering the parliamentary system it can be difficult to know where you stand and what is statute law. Like most new papers that enter into law they can be confusing, lack clarity and in most cases simply layer up on previous legislation. To make sure you are compliant and protected against unnecessary risk, we have summarised the key issues of which everyone should be aware.

1)      De-Regulation Act 2015 - Failure to comply with this new act can have dramatic effects on your ability to remove a tenant and regain possession. Changes introduced as a result of this Act include specific time limits to serve Section 21 notices, prescribed information in respect of deposit registration, and the prohibition  of ‘retaliatory eviction’ which prevent landlords simply serving notice rather than fix maintenance issues.

2)      New EPC Regulations (MEES) – The Energy Efficiency Regulations Act 2015 looks to consolidate the minimum energy efficiency standards expected across the private rental sector. From April 2018, landlords are subject to this act and must ensure their property meets the minimum rating of ‘E’ or above before starting a new tenancy or renewing an existing one. These requirements will apply to all properties unless set up on the exemptions register for certain listed status.  

3)      Mortgage Interest Tax Relief - Introduced in April 2017 on a ‘phased basis’, the changes will predominately affect landlords who privately own their property as opposed to those within a Limited Company. In basic terms, prior to April 2017, all mortgage interest could be used as a tax-relief. As of April 2017, only 75% will be eligible for tax relief and this will reduce by 25% each year until April 2020, at which point no mortgage interest will be eligible for tax relief. The government have introduced a 20% tax credit in light of the changes and I have added a table below to illustrate the changes for a higher rate (40%) tax payer.

Mortgage tax relief for property with £1,000 rent and £400 mortgage interest

Tax Year

Portion of mortgage interest deductible under previous system

Portion of mortgage interest qualifying for 20% tax credit under new system

Tax Credit

Tax Bill (Net Income + Tax Credit)

Prior to April 2017

100%

N/A

 

£2,880.00

2017 – 2018

75%

25%

£240.00

£3,120.00

2018 – 2019

50%

50%

£480.00

£3,360.00

2019 – 2020

25%

75%

£720.00

£3,600.00

2020 -

0%

100%

£960.00

£3,840.00

 

4)      Right to Rent – Under Section 22 of the Immigration Act 2014, landlords now have an important legal responsibility to restrict illegal immigrants across the private rented sector. Landlords are required by law to demonstrate they have checked their tenant’s right to rent, as well as their right to remain in the UK, by checking the tenant’s immigration status annually or on expiry. Certified copies of ID, to include passports and proof of residency, must be taken.  The maximum penalty a landlord can face for non-compliance is up to £3,000 per tenant and/or a custodial sentence.

5)      How to Rent Guide – This guide was introduced in October 2015, with a new version to be used from January 2018. Landlords have a statutory requirement to provide this to all new tenants and it must be issued prior to the commencement of the tenancy. Failure to comply could render a landlord unable to request possession of their property under the Section 21 notice.

6)      Tenancy Deposit Legislation - In April 2007, it became law (Housing Act 2004) that all deposits collected by Landlords or Agents need to be registered in either a custodial scheme or an insurance-based scheme. The legislation was further clarified in March 2015. If a Landlord fails to comply with the deposit legislation the courts can inforce fines up to three times the deposit value, while further penalties may include being unable to serve a Section 21 notice.

7)      Smoke Alarm Regulations – All rented properties are required to have a smoke alarm fitted on each floor of the living accommodation. Where there is a solid fuel appliance, the requirement is to include a carbon monoxide alarm. Landlords have an obligation to evidence that these alarms are tested and working on the day tenants move in. Failure to do so can affect the right to gain possession, and where negligence is proven criminal action can be taken with serious outcomes to all parties.

Further legislation which may come into effect that we should all be preparing for:

1)      Mandatory Electrical Safety Installation and Condition reports are currently being debated in parliament which is great news to further protect tenants. It looks very likely that this will be implemented into law in the near future. At Sowerbys, we will be proactive in rolling out a process to make sure all our clients are protected before the deadline is set.

2)      New laws that make all agents register to become part of a governing body, redress scheme and pass industry recognised qualifications. At Sowerbys we welcome this move with open arms. As members of ARLA, we feel it’s about time all agents conform to the high standards expected by customers.

3)      Banning orders- Housing and Planning Act 2016. The government has issued a database that documents rogue landlords and agents as another step to raise the minimum standards across the industry. Although this is not in the public domain at present there is strong lobbying to provide access across the sector.

4)      Changes to mandatory HMO licensing. Currently a property requires a mandatory HMO license if the property is occupied by five or more individuals (non-related) over three or more storeys. From 1st October 2018 the rules are changing, in particular the three storeys element. Therefore, any property occupied by five or more people will require a license. These need to be actioned and applied for well in advance of the deadline.

We understand the above can be daunting, so if you would like any further information please contact your local Sowerbys branch who will be more than happy to offer advice. At Sowerbys we believe the value of a professional and industry established letting agent should never be ignored. Our fully managed option makes sure you and your tenants operate in a fully compliant and safe manner. It also allows us to take care of an evolving market using brand new tenancy agreements, the latest technology and service offerings. This is all geared to make sure that whilst being compliant, the fundamental return on your investment is maximised with accurate and qualified advice.

If you would like to benefit from the above, now is a great time. We are offering current non-managed clients an exclusive opportunity to ‘try before you buy’, with two months free management and a special monthly management fee of just 6% plus vat. No other fees would be payable unless we need to find you tenants.

Ed Tyman, Group Lettings Manager

"I would like to pass my thanks on to Alison Rout in the Hunstanton Office for all her help and advice in looking for our perfect holiday retreat. Although we have not as yet made an offer on a property, I am sure she will find us our dream. We really hope that we can do business with your company. Alison is definitely an asset to you, her professionalism, friendliness, and can do attitude are second to none."
Hunstanton Office Applicant - January 2014