Landlord Guide Letting your property or portfolio can be a complicated business and here at Stuarts Residential we understand that making the right decisions at the right time will minimise stress and maximise return. Stuarts Residential are able to provide free and no obligation rental appraisals, which will provide you with an idea of a realistic rental income as well as providing an opportunity to discuss the ins and outs involved in residential property letting. If you are currently considering buying a property to let we will be more than happy to advise on the best places to buy and current rental demand for the properties you are considering. We offer a sensible and straightforward pricing structure and operate on a no let; no fee basis. We are registered with TPOS (The Property Ombudsman Scheme). We are licensed by NALS. NALS is a UK wide licensing scheme for lettings and management agents offering peace of mind to Landlords and Tenants in knowing that the firm meets defined standards of customer service as well as having in place insurance to protect clients money and offer independent redress. 1
Contents Page Page 3 Landlord Guide to Letting Property Page 8 Electrical Safety Regulations Page 9 Furniture and Furnishing Regulations Page 10 Gas Safety Regulations Page 13 Landlord Tax Guide Page 16 Tenant Deposits Page 17 Energy Performance Certificates Page 18 Inventory and Schedule of Condition 2
Landlord Guide to Letting Property This guide is designed to help you as a Landlord understand the various responsibilities that come with the decision to let out a residential property. Leasehold Property If your property is leasehold, instead of freehold, then you effectively have the right to occupy a portion of a building for the given duration of the lease, for example 65, 99 or 999 years. This form of ownership typically applies to buildings that comprise more than one unit, such as blocks of flats. If you are a leaseholder you should check the terms of your lease and obtain the necessary written consent to let from the freeholder or the management company before letting your property. Mortgage If your property is mortgaged or you have a loan secured on the property then you must obtain written consent from your lender prior to the tenancy commencing. Your lender may also require additional clauses in the tenancy agreement of which you must inform us and they may charge you a fee for giving their consent for the letting to take place. Council Tax Every property in the UK has a yearly council tax rate that is calculated from a formula based upon the value of the property, the number of occupants and the financial status of those occupants. It is the responsibility of the Tenant to pay the council tax due on a property. Failure of the Tenant to pay the council tax will mean that will be pursued for the outstanding debt, not the Landlord. 3
Landlord Guide to Letting Property Utilities It is standard in most tenancy agreements to stipulate that it is the responsibility of the Tenant to pay for the utility services such as gas, electricity, water, telephone, broadband and the television license. As your letting agent we can arrange for the transfer of utility accounts to the Tenant and between the Tenants if your property is let again. Meter readings will be taken at the start and end of each tenancy allowing for closing gas and electricity accounts to be drawn up. We will handle all these matters for you, but telecommunication providers will usually require instructions direct from both the Landlord and the Tenant. As a Landlord you are will be responsible for all charges whilst the property is vacant. Building and Structural Condition A well-maintained property in good decorative order will help towards a smooth-running tenancy. This will also have a positive impact in the form of a potentially higher rental figure. Moreover, in our experience we have found that Tenants are more inclined to treat a nicely presented property with greater respect. As a Landlord you are legally responsible to keep in repair the structure and exterior as well as making sure the water, gas, electricity and sanitation are all in working order. Repairs and maintenance are at the Landlord s expense unless misuse by the Tenants can be established. Interior decorations should be in good clean condition and preferably plain, light and neutral in presentation. 4
Landlord Guide to Letting Property Furnished or Unfurnished The majority of properties on the letting market are unfurnished. A good definition of this term is that it will usually include carpeting or flooring, curtains / blinds and a cooker. A partly furnished property will usually contain the usual white good kitchen appliances such as washing machine and a fridge/freezer. We recommend that you leave only minimum furnishings and that these should be of reasonable quality. Any items to be left should be in the property during viewings. Personal possessions such as ornaments, pictures and books should definitely be removed from the premises, especially those of financial or sentimental value. Some items may be boxed, sealed and stored in the loft at the Landlords risk. All cupboards and shelf space should be left clear for the Tenants own use. Gardens Gardens should be left neat, tidy and rubbish free, with any lawns cut. Tenants are required to maintain the gardens to a reasonable standard, provided they are left the necessary tools. However, if you have very high standards for your garden or if it is particularly large then you may wish for us to arrange visits by a regular gardener. Stuarts Residential has a gardener who is able to provide free and no obligation quotations, please contact us for further details. Provision of keys Landlords should provide one set of keys for each Tenant. 5
Cleaning Landlord Guide to Letting Property At the commencement of the tenancy the property must be in a clean condition and at the end of each tenancy it is the responsibility of the Tenant to leave the property in the same condition, minus wear and tear. Information for the Tenant It is helpful to the Tenant if the Landlord leaves a useful information folder at the property containing manuals and documentation for operating the central heating and hot water system, washing machine and any alarm system. References We employ a specialist agency to carry out detailed checks on potential Tenants. These checks include obtaining credit and financial references, previous Landlord references, employment references and a personal reference. If there were any question of doubt surrounding the ability of the prospective Tenant to pay the rent or job security we would only advise upon proceeding if a suitable guarantor can be provided. Insurance We always advise Landlords to make sure that the property and its contents are adequately insured. It is extremely important that you advise your insurance company that you are proposing to let your property. Failure to do so could result in you losing insurance cover. Some insurers impose letting conditions and we would require details as this may affect the choice of Tenant. 6
Payment of Rent Landlord Guide to Letting Property The rent is usually payable monthly in advance, however in some circumstances Tenants will pay several months in advance. We pay rent to Landlords within five working days of receipt. However, this can sometimes be delayed due to Bank Holidays and the Christmas period. We will use our best endeavours to collect the rent on time. Should a Tenant be late we will advise you and pay the due rent as soon as it is received. Stuarts Residential cannot be held liable for non-payment of rent. However, we are able to offer a rent guarantee scheme to Landlords for further peace of mind. Pets Our tenancy agreement does not allow for pets to be kept in rental properties. However, a Tenant is entitled to ask the Landlord for consent. If you decide to give consent, then we request payment of a larger deposit from the Tenant. 7
Electrical Safety Regulations It is important to ensure that all electrical appliances and fittings within the property are safe and in good working order. Unlike gas regulations, there is no law that says you must have a Landlord Electrical Safety Certificate. But, should any electrical fittings or appliances within your property cause harm to a Tenant you could be held liable. The Electrical Equipment (Safety) Regulations 1994 and Low Voltage Electrical Equipment Regulations 1989 require that all electrical equipment supplied to a Tenant is safe. The regulations cover all mains voltage household electric goods including cookers, fridge/freezers, washing machines, tumble dryers etc. But under the Consumer Protection Act 1987 the regulations exclude plugs, sockets, electricity supply meters and built in appliances. Therefore, all appliances should be checked by a qualified electrical engineer and a PAT (portable appliance test) certificate issued. This should be done prior to the commencement of the tenancy and on an annual basis thereafter. With regards to the plugs, sockets and electricity supply meters we would recommend that 5 yearly inspections are carried out by a qualified electrician to ensure safety and that the electrical system complies with current electrical regulations. In the event of an incident the defence of due diligence may be accepted, where it can be shown the Landlord or Letting Agent took all reasonable steps to avoid committing an offence. Documentary evidence will be required. The maximum fine for non-compliance is a fine of 5,000 or six months imprisonment, or both. For peace of mind, Stuarts Residential can arrange these checks on your behalf. 8
Furniture & Furnishings Safety Regulations The Furniture and Furnishings (Fire) (Safety) Regulations 1988 (amended 1989 & 1993) provide that specified items supplied in the course of letting property must meet minimum fire resistance standards. The regulations apply to beds, headboards, mattresses, sofa beds, futons, nursery furniture, garden furniture, scatter cushions, seat pads, pillows, loose and stretch covers for furniture. The regulations do not apply to antique furniture or furniture made before 1950, bed clothes (including duvets), loose covers for mattresses, pillowcases, curtains, carpets or sleeping bags. Items that comply will have a suitable permanent label or swing ticket attached. Non-compliant items must be removed before the tenancy commences. The maximum fine for non-compliance is a fine of 5,000 or six months imprisonment, or both. For peace of mind, Stuarts Residential can arrange these checks on your behalf. 9
Gas Safety Regulations This guide provides a more detailed explanation of the gas safety legislation and the responsibilities that it imposes on you as landlord. The health risks of poorly fitted or maintained gas appliances and flues cannot be underestimated and failure to fulfil your duties as landlord could result in fines of up to 5,000 for each offence. If a case is referred to the Crown Court then there is the possibility of receiving an unlimited fine and even a custodial sentence. Worst of all, failure to maintain appliances correctly could result in a tragic and unnecessary loss of life. The Gas Safety (Installation and Use) Regulations 1998 These deal specifically with the installation, maintenance and recommended use of gas appliances, flues and associated pipe work in domestic and some commercial premises. The Regulations require that such items, whether fixed or portable, that are provided for the Tenant must be safe to use. This includes appliances and flues serving relevant premises, such as a central heating boiler that although not installed in a property are used to heat it. Items not covered under the regulations safety check and maintenance requirements include appliances owned by the Tenant, flues or chimneys that are connected solely to an appliance owned by the Tenant and gas appliances used exclusively in an area of the premises designated and occupied for non-residential purposes. Relevant Premises The duties under the Regulations in relation to the appliances, flues and associated pipe work provided for the Tenants use apply to what is termed relevant premises. This means those that are occupied for residential purposes either under a licence, fixed term tenancy or a lease as defined by the regulations. In practice it covers any lease for a term of less than seven years. 10
Landlord Responsibilities Gas Safety Regulations As a Landlord you are required to Ensure that gas fittings and flues are maintained in a safe condition at all times. All gas appliances must be serviced in accordance with manufacturer s instructions and by a Gas Safe registered engineer. Safety check all gas appliances and flues in rented accommodation within 12 months of being installed and thereafter at least every 12 months by a Gas Safe registered gas installer. Ensure that an annual gas safety check is carried out and that certificate is issued to the Tenant for all gas appliances, flues and associated pipe work. Keep full records for at least 2 years of the inspections of each appliance and flue. These must include records of any defects found and of any remedial action taken. Give each new Tenant a copy of the safety certificate issued by the engineer before the tenancy commences or to each existing Tenant within 28 days of the check being carried out. As Landlord you are ultimately responsible for ensuring compliance with the requirements of the regulations. Where Stuarts Residential is managing your property then we have a joint legal responsibility with you to ensure that all checks, maintenance and repairs are completed. We will carry out this on your behalf. If you are managing the property yourself then it is entirely your responsibility to ensure compliance with the regulations. 11
Maintenance and Installations Gas Safety Regulations A current Gas Safe registered installer must complete flues and associated pipe work and carry out work on gas appliances at the property. They will carry on them a Gas Safe Photo identification card that shows their photograph, registration number, trading title and date when the card expires. On the reverse of the card it details the areas of gas work that the installer is qualified to carry out. If an appliance fails its safety check then the safety record must be updated with the exact nature of the defect and what remedial action was taken. You must ensure that a Gas Safe registered installer repairs the defect and that the equipment is safe before it is used again. You must never use or allow to be used any appliance that you have been told is unsafe until it is has been repaired in accordance with the requirements of the regulations. For further information please visit gassaferegister.co.uk For peace of mind, Stuarts Residential can arrange these checks on your behalf. 12
Landlord Tax Guide This guide is designed to assist you in understanding your liabilities and responsibilities as Landlord in relation to taxation. However, we are not accountants so we always recommend seeking professional advice in relation to all tax matters. Income Tax The HMRC, regardless of your employment status, generally regards the income that you receive from letting property, as unearned income. However, you are only liable to pay income tax on the profit generated from letting, after deductions made for allowable expenses. What are allowable expenses? The general rule as to whether an expense is an allowable deduction from income is to ask the following two questions: 1 Is it an expense of income? 2 Was it incurred wholly and exclusively for the purposes of renting the property? The first question generally rules out any capital expenditure. However, whether this applies to renovations depends on the extent of repair in each particular case. If a property is in a condition suitable for letting when it is acquired then renovations such as redecorating will usually qualify as allowable expenses. However, if a property is acquired at a low cost and requires a great of work before it can be let then it will usually be classed as a capital expenditure and not an allowable expense that can be set against rent received. As a general rule, where there is an element of improvement then such expenditure will be treated as capital. 13
Landlord Tax Guide The second question rules out any situation where a Landlord benefits personally from the expenditure. For example, decorating materials purchased and used at the Landlords private home are not an allowable expense. Whilst you cannot charge for your own time spent collecting rents and managing properties, payments made to others for this purpose are allowable expenses if actually performed and recorded. This includes the cost of employing a letting agent such as Stuarts Residential. Examples Interest paid on loans taken out to purchase the property. The costs of building and contents insurance. Maintenance expenses. Leasehold expenses (such as ground rent or management company charges). Furnished properties Special rules apply to furnished properties where, technically, the cost of providing furniture and fittings is a capital expenditure and therefore not an allowable expense. However, the Inland Revenue offers Landlords two options to offset such expenses for this type of property. The first and most popular option is permitting the Landlord to deduct a 10% wear-and-tear allowance, calculated on the rent net of any council tax or rates. Alternatively, you may deduct the full cost of replacing items on an as you go basis as and when it is necessary. It is important to remember that the original outlay for furniture and fittings is not allowable only replacements for damaged or worn-out items. Also, once you have chosen one option for offsetting this expenditure then you are not allowed to change to the other whenever it suits best. 14
Landlord Tax Guide Losses If expenses and capital allowances for any year are greater than the rental income received then you have suffered a loss on your investment for that year. You are not allowed to set this loss against other forms of income and instead you must carry it forward to set against the profits of future years. Non-Resident Landlords If you reside outside England and Wales during the tenancy then you will still remain subject to income tax on rents received. The Non-Resident Landlord Scheme requires us as your agent to deduct basic rate tax from any rent we collect on your behalf. However, you can apply to the HMRC for approval to receive your rental income without tax deductions. This is submitted on a NRL1 form that we can supply you with. If this application is successful we will be able to collect your rent and pay it to you gross. Although the rent may be paid with no tax deducted it will still remain liable to tax, so if you are a non-resident landlord then you must include it in any tax return that the HMRC provides you with. Capital Gains Tax Capital Gains Tax (CGT) is not usually payable on a private individual s own home, but is payable on most property that is let. As Landlord, your liability for CGT is on the profit made when the property is sold. You will be exempt from paying CGT if the let property is sold within 3 years of being purchased. If this exemption does not apply, then you will pay CGT for the amount of time that the property was not your principle residence (where you actually live). 15
Tenant Deposits The Tenancy Deposit Scheme is part of the new legislation bought in by the Housing Act 2004 and came in to effect on the 6 th April 2007. From the 6 th April 2007 all deposits received by Landlords and Letting Agents from Tenants, for assured shorthold tenancies (AST) must be protected by a Government authorised deposit protection scheme. The legislation has come about to ensure tenancy deposit disputes are dealt with fairly. Existing tenancies prior to the 6 th April 2007 will not be affected. However, tenancies that are renewed (i.e.: a new AST tenancy is created) will be affected. The only way to avoid this legislation would be not to take a deposit from the Tenant. However, we would not recommend this. There are financial penalties for not complying with the legislation. All Landlords and Letting Agents must carry out the appropriate legislation prior to the commencement of the tenancy. The TDS and the DPS protects deposits taken by Stuarts Residential. 16
Energy Performance Certificates From 1 st October 2008 an EPC will be required whenever a property in the social or private rented sectors is let Landlords are obliged to provide an EPC free of charge to prospective and sitting tenants at the earliest opportunity and they must provide a copy of the EPC with the tenancy agreement The purpose of the EPC is to show prospective and sitting tenants the energy performance of the property An EPC is valid for 10 years and can be re-used as many times as required within that time period. It is not necessary to commission a new EPC each time there is a change in tenancy. However, once a more recent EPC has been produced it will always supersede the existing one. Thus, where a number of EPCs have been produced for a property only the most recent one will be valid. The EPC shows two things the Energy Performance Rating (related to the running costs) and the Environmental Impact Rating (relating to the carbon dioxide emissions) of the property. Each rating is shown on an A-G rating. An EPC is only required for a property that is selfcontained, meaning that it does not share facilities such as a bath/shower, W.C, or kitchen with any other property, and has its own entrance, either from the outside or from a common part of the property. Where the Landlord uses a Letting Agent, the Letting Agent may be given the task of ensuring that these requirements are met, however the Landlord will remain responsible for any breaches. 17
Inventory & Schedule of Condition A professionally prepared inventory is essential due to the Tenancy Deposit Protection legislation bought in by the Housing Act 2004. In a recent case from the Deposit Protection Service they stated, it clearly shows the need for independent adjudication and proper inventory and condition reports. These are the tools that remove the mountains from the molehills of deposit disputes. Adjudication also dramatically underlines the advantage of proper inventories that have been checked at both the beginning and end of every tenancy. A professional inventory is a full and very detailed description of the property and its contents with a statement of their condition. It will include everything from walls, floorings and light switches to gardens, furnishings and appliances. The independent inventories that we offer are comprehensive and digital photographs are included. The checkout report is paid for by the Tenant and is a comparison of the condition of the property and its contents at the end of the tenancy with its conditions as noted on the inventory at the beginning of the tenancy. The legislation is designed to protect Tenants and means that a Landlord will need to be able prove their case beyond reasonable doubt should they wish to deduct monies from their Tenants deposit for damage caused. 18