Buying property to let as a long-term investment or to generate a regular income has become an increasingly popular option over recent years, and the demands from would-be tenants for quality rental property continues to grow in many areas of the country.
If you are thinking about building a substantial portfolio as a professional landlord, or merely looking to add diversity to your assets, then you need to understand the implications of being a landlord and your legal responsibilities to your tenants.
Tenancy Agreements
A tenancy agreement is a contract between landlord and tenant.
It is most likely to be an Assured Shorthold Tenancy Agreement (AST) regulated by the Housing Act 1988 as amended, and provides limited security of tenure to the tenant. Although the content varies, your tenancy agreement should cover:
- Details of the parties involved
- The date the tenancy began
- The duration of the tenancy
- Details of the initial deposit that the tenant should pay and how it is to be protected
- Details of the monthly rent, then it is due and how it is to be paid
- The length of the notice that the tenant and landlord need to give to end the tenancy
- Details of the tenants obligations while renting the property
A provision confirming that the tenant is not liable for fair wear and tear to the property.
The tenancy agreement should be signed by the tenant and the letting agent, or the landlord if no agent is involved. It can subsequently be changed if both parties agree. Unless you have considerable experience already, it’s a good idea to seek advice from a letting agent or legal advisor on the terms of the proposed tenancy agreement.
Initial deposits
An initial deposit should cover you against missing items, or any damage caused by the tenant.
Deposit protection schemes
Tenancy Deposit Protection (TDP) schemes guarantee that tenants will get their deposit back at the end of their tenancy. (However, the tenant is still obliged to meet the terms of the tenancy agreement and must not damage the property.)
Landlord obligations
Landlords are legally required to protect deposits on tenancies which began after April 2007, it’s good practice for landlords to protect deposits in all circumstances. If you don’t protect your tenant’s deposit, you could be taken to court. You could be required to repay the deposit plus a sum equivalent to three times the amount, and you may not be able to seek possession of your property. Tenancy Deposit Protection schemes do not over holding deposits.
Types of scheme
These are two types of Tenancy Deposit Protection schemes and you should seek professional advice – for example from an agent or solicitor – on what’s the best for you:
Custodial
– the deposit protection service provides the only custodial scheme. It holds the deposit in a bank account and returns it at the end of the tenancy to the person who is entitled to it. This scheme is free to landlords and letting agents.
Insurance based
– where you or the agent holds the tenants deposit and pays a fee to insure it against default. My Deposits and Tenancy Deposit Scheme are insurance based providers.
Landlord insurance
Standard home insurance doesn’t normally pay out then a property is let, so its’ important that you arrange a specialist policy. As well as insuring the building and any contents that belong to you, landlord insurance often provide legal cover which could help in disputes. Many policies also include other valuable cover like:
Rent guarantee cover
This helps protect you against a tenant failing to pay rent, or if something unexpected happens, to make letting impossible.
Landlord liability cover
This can protect you against large compensation claims arising from any injury caused by a defect in your property.
Your tenants will be responsible for insuring their own personal possessions.
Landlord repair and maintenance obligations
The Landlord and Tenant Act 1985 covers the three main areas of your responsibility as a landlord under an assured shorthold tenancy.
Repair
You must keep the structure and exterior of the property in a good state of repair. You have financial responsibility for ensuring your property is safe and fit for use, and you must ensure that all necessary repairs are carried out properly.
Gas and Electrical Safety
As a landlord you are responsible for the safety of gas installations and appliances. You must arrange an annual safety check and keep proper records. There are also regulations covering the safety of electrical installations and appliances. Though not currently compulsory in all properties, it makes extremely good sense to fit carbon monoxide and smoke detectors in all let properties. As a landlord, you must also keep up to date with changes in relevant legislation
It’s your responsibility to find out when your obligations change.
Fire safety of furnishings
You must ensure that any soft furnishings and fittings you provide comply with the relevant standards for fire safety, and it’s a good idea to seek independent advice on your legal responsibilities in this area.
Ending a tenancy
At the end of an Assured Shorthold Tenancy (AST), you have an automatic right as a landlord to possession any of your property as long as you’ve given the tenant two months’ notice to vacate the property.
If the notice period expires and the tenant had still not left the property, you will need to start the process of eviction through the courts. You can’t forcibly remove a tenant without an eviction order.
If you wish to seek possession under an Assured Shorthold Tenancy because your tenant has not paid the rent, or if they’ve broken other terms of the agreement, you’ll need to use one of the reasons or ‘grounds’ for possession specified in the Housing Act 1988. You will have to seek independent legal advice on bringing an AST to an end.
Buy to Let Mortgages are not regulated by The Financial Conduct Authority