Some think that letting a property out is an easy and trouble-free way of generating an income. It can be, but there are many traps for the unwary! This is a brief guide to some of the legal issues that you need to consider, and is intended for those would-be Landlords who have one or two properties they are thinking of letting (or existing Landlords who are already doing so). It is a complex area and this can be no more than a general guide to the law-if you have specific questions please contact us for further information.
The letting agreement
Under the Housing Act 1988 (as amended), a property let after January 1989 for residential occupation by one or more individuals is usually either an assured shorthold tenancy or an assured tenancy, unless the Landlord can establish that he can take advantage of one of the exceptions specified in the Act. These include, for instance, service tenancies where the accommodation is provided as part of the Tenant’s job. As from 1997, the tenancy is deemed to be an Assured Shorthold Tenancy (“AST”) unless otherwise agreed. A tenancy can be oral-however it would extremely unwise to let a property on this basis as the terms of the tenancy are then uncertain, and recovering possession, recovering arrears of rent, and imposing controls on how the property is to be used is very much more difficult.
As from 6 April 2007, all deposits taken by Landlords for assured shorthold tenancies in England and Wales must be protected via the Landlord’s participation in an approved tenancy deposit protection scheme (a fee is payable). Landlords have 14 days from the date they accept a deposit to register it with a scheme and inform the Tenants of the details. If the Landlord does not do so, the Tenant can apply to the Court for an order requiring him to do so and to pay the Tenant three times the deposit.
At the end of the tenancy, if the Landlord and Tenant agree how the deposit should be divided, the money will be paid out accordingly. Should there be a dispute over the deposit, the scheme will hold the amount until the dispute resolution service or courts decide what is fair.Both custodial and insured schemes feature alternative dispute procedures that can be called on to settle disputes.
Managing the letting
It is perfectly possible to manage the letting yourself; however many people choose to use a letting agent to do so for them as the work involved can be quite extensive, and a good letting agent will assist you in ensuring that you are not in breach of any of legislation, deal with deposits, repairs and so on. There is of course a fee to be paid, which is normally a percentage of the monthly rent.
Terminating a tenancy and recovering possession
Possession of a Tenanted property can only be obtained with an order from the Court or the consent of the Tenant. To do otherwise is both a civil and a criminal offence under the Protection From Eviction Act 1979.
An AST cannot be less than 6 months in length, although it can be more if agreed with the Tenant (however it has be done by deed if for more than 3 years). This initial agreed period is the contractual tenancy, and it cannot be terminated by the Landlord unless the Tenant is in breach of the tenancy. Once it expires it is replaced by an automatic statutory periodic tenancy, which can only be terminated by the Landlord by service of a notice in proper form giving not less than 2 months notice to quit (a section 21 notice). This can be served at the outset of the tenancy so that it expires at the end of the contractual tenancy, which prevents the periodic tenancy beginning.
It is of course also possible for the Tenant to terminate the tenancy; if the tenancy agreement does not permit the Tenant to do so without giving a specified period of notice, the Landlord can bring a claim against the Tenant for breach of contract.
If the Tenant is in default (for example if the rent is in arrears or unpaid in whole or in part), then again a notice must be served requiring possession (a section 8 notice). The length of notice required depends on the grounds on which possession is sought.
In both cases, after the notice period has expired, an application must be made to the Court for an order in order to regain possession. If the application is made under section 21, the so-called accelerated procedure is used, and there is no hearing. The Court must grant a possession order provided the notice has been served properly and the other formalities attended to.
In claims brought under section 8, the Court has a discretion whether to award a possession order but also has the power to make an order requiring payment of any arrears outstanding, if appropriate, and also costs. In this case a hearing will take place before a District Judge, and the Defendant also has the opportunity to serve a defence (and if appropriate a counterclaim).
In both cases, if a deposit has been paid by the Tenant, the Landlord is required to show that the deposit is held in one of the approved schemes before the Court can entertain any application. If the Tenant does not vacate despite receiving a possession order, the Landlord must then instruct the Court’s bailiffs to obtain possession-again, to do otherwise is an offence under the 1979 Act.
Other legislative considerations
Gas safety regulations
The Gas Safety (Installation & Use) Regulations 1998 place a statutory duty on all Landlords of residential property to ensure that all gas appliances, pipework and flues are maintained in a safe condition. They seek to avoid the escape of carbon monoxide poison which is silent, odourless and deadly and require that: all let properties must have at all times a valid Gas Safety Record, even if the gas supply consists only of a capped off gas pipe where all other pipework and appliances have been removed. Before a Tenant takes occupation, the gas appliances and pipework must be checked by a registered engineer who must provide the Landlord with a Gas Safety Record. The Landlord must also provide the Tenant with a copy of that safety record at the start of the tenancy. A gas safety check must be carried out annually and the Tenant provided with a copy of the safety record within 28 days of that check being carried out, and the Landlord must also keep a copy of each Gas Safety Record for at least two years.Non-compliance with the regulations is a criminal offence and carries monetary penalties or imprisonment or both.
The Furniture and Furnishings (Fire) (Safety) Regulation 1988 as amended
The regulations require that the following furniture and soft furnishings supplied by the Landlord in let properties meet fire safety standards. Furniture manufactured since March 1989 will comply with these regulations and most will be marked with a label showing compliance. Non-compliance is a criminal offence and carries penalties of a £5,000 fine, 6 month’s imprisonment, or both.
The Electrical Equipment (Safety) Regulations 1994
The regulations require that all appropriate electrical equipment supplied in a property must be safe to use. Unlike the Gas Safety Regulations, there is no mandatory requirement for the equipment to undergo any safety testing, but the duty of care remains the same.
Plugs and Sockets (Safety) Regulations 1994
The regulations require that, where any plug, socket or adapter supplied for intended domestic use, it must comply with the appropriate current standard, and specifically that: the live and neutral pins on plugs are part insulated so as to prevent shocks when removing plugs from sockets.
Building regulations part P, Electrical safety in dwellings
Part P came into effect in England and Wales on 1 January 2005 making it a legal requirement for certain types of electrical work in dwellings (and associated buildings such as garages, sheds, greenhouses and outbuildings) comply with the UK safety standard BS 7671:2001.Anyone carrying out these types of electrical work must either be registered with one of the Government-approved Competent Person Self-certification Schemes or they must submit a building notice to the local authority before starting the work.Whether work is notifiable is dependent on the nature of installation work proposed and its location within a dwelling.
Houses in multiple occupation (HMO)
The Housing Act 2004 introduced licensing for houses in multiple occupation (HMOs). The Act provides a detailed definition of HMOs and sets out standards of management for this type of property. Most of the Act came into force on 6 April 2006. Under the Act, there are two types of HMO licensing: mandatory licensing and additional licensing.Licensing is mandatory for all HMOs which have three or more storeys and are occupied by five or more persons forming two or more households. If a council considers that a significant proportion of HMOs in its area are being managed sufficiently ineffectively so as to give rise to one or more particular problems, either for the occupants of the HMOs or for members of the public, it can require additional licensing enabling it to impose a licence on other categories of HMO which are not subject to mandatory licensing.An HMO is a building or part of a building in which more than one household shares an amenity such as a bathroom, toilet or cooking facilities, or which is a converted building that does not entirely comprise self-contained flats (whether or not there is also a sharing, or lack, of amenities) or which is comprised entirely of converted self-contained flats and where the standard of conversion does not meet the minimum that is required by the 1991 Building Regulations, and more than one third of the flats are occupied under short tenancies.
Running an HMO without a licence, or breaching the terms of a licence, is a criminal offence carrying a fine of up to £20,000.
Sections 47 and 48 Landlord and Tenant Act 1987
Under section 47 every demand for rent must show the address of the Landlord, and if that address is outside England and Wales the demand for rent must also carry an address in England and Wales where notices in proceedings can be served on the Landlord. Failure to comply with section 47 means that any portion of the rent which is attributable to service charge is not lawfully due. Section 48 requires that the Tenant must be given an address in England where notice of proceedings can be served on the Landlord. Unless section 48 of the Landlord and Tenant Act 1987 is complied with rent is not lawfully due.
Section 11 Landlord and Tenant Act 1985
This Act requires Landlords to:
- keep the structure and exterior of the property in good repair, including drains, gutters and external pipes;
- keep installations for the supply of water, gas, electricity and sanitation in good repair and proper working order; and
- keep installations for space heating and water heating in good repair and proper working order.
Landlords have an implied right to view the condition and state of repair of the property on giving the Tenant 24 hours notice in writing.
Taxation of Income from Land (Non-Residents) Regulations 1995
Any Landlord who is considered non-resident for taxation purposes is liable to pay tax on the rental income arising from letting his property. When a Landlord is resident abroad and the agent is collecting rent from the Tenant on his or her behalf, the agent is obliged to deduct tax at the basic rate (less allowable deductions) and each quarter to account for and pay to the Inland Revenue this tax deducted. However, overseas Landlords may apply to the Inland Revenue for an exemption from this requirement. Where a Tenant pays rent direct to a Landlord who is resident abroad, the liability to deduct income tax as outlined above remains the same, except that becomes the responsibility of the Tenant. Non-resident status includes those living in the Channel Islands, Isle of Man and the Republic of Ireland.
Obtaining consent to let a property
Before letting a property, Landlords must obtain any necessary permission from a lender whose loan or mortgage is secured against the property. In respect of leasehold properties, the head Landlord will almost certainly require that permission is sought before letting. The Landlord’s insurance company must also confirm that cover will be maintained if the property is let. In particular it is important that the public liability element covers any loss or injury occurring at the property, which might be sustained by the Tenant or visitors during the tenancy, for which the Landlord could be liable.
The Data Protection Act 1998
The act requires that Landlords who hold information on their Tenants (whether in paper form or computer) should be registered data users.
- obtaining and processing of personal data must be fair and lawful;
- personal data must be held only for specified and lawful purposes;
- personal data held for any purpose must be adequate, relevant and not excessive in relation to that purpose;
- personal data must be accurate and, where necessary, kept up to date;
- personal data must not be kept for any longer than is necessary for its purpose;
- an individual is entitled to be informed whether personal data relating to them is being held and to access any such data;
- an individual is entitled, where appropriate, to have such data corrected or erased;
- appropriate security measures must be taken against unauthorised access to, or alteration, disclosure or destruction of, personal data and against accidental loss or destruction of personal data;
- consent must be obtained from an individual to process their personal data.
A data subject may be entitled to compensation for any damage or distress he or she may have suffered in consequence of inaccurate data held by the data user, or data lost, destroyed or disclosed without authority. Alternatively, a court may order inaccurate records to be rectified or erased.
The Equality Act 2010
It is unlawful to discriminate against an applicant for a tenancy on the grounds of sex, marital status, disability or race (including colour, nationality, creed, ethnicity or national origin). The Act also makes it unlawful for Landlords to refuse unreasonably consent to a disabled Tenant to adapt accommodation to their needs.
For more information contact David Vaughan-Birch.