24 April 2019
On the 1st June, the much-debated “Tenant fee ban” will come into force across England and Wales. First announced by Phillip Hammond in his Autumn Budget in 2016, it means the only payments that can be levied at tenants are rent, dilapidation deposits and default fees. While it has seen some fierce opposition, there is no reason why this should negatively affect potential rental income for landlords. The losers will be those unscrupulous estate agents who have for too long relied on charging exorbitant unjustifiable admin fees to tenants. However, for those considering purchasing a new home as a rental property, whether it’s your first foray into the market or you’re a seasoned landlord, its important you’re up to date on all new regulation if you want to make sure your asset is protected as much as possible.
Any landlords found breaching the new legislation can be fined up to £30,000, and criminal prosecution is possible. The maximum dilapidations deposit has also been capped at 5 weeks, or 6 weeks for properties with rent of over £50,000 per year. One risk for landlords is that, should you be renewing a contract after the 1st June deadline and your dilapidation deposit isn’t reduced to the acceptable level, then you are directly at risk of a fine! The ban doesn’t just apply to new contracts, so vigilance is essential. There is also the issue that if tenants stop paying rent for any reason then you only have five weeks rent to cover them. At Martyn Gerrard we have introduced additional protection for landlords through our Let Alliance Nil Deposit scheme, which provides six weeks cover should the tenant opt and pay for the scheme.
However, breaching the new rules isn’t the only risk for landlords. The fact that one can no longer charge tenants fees for referencing will mean that some agents are tempted to cut corners on what is an absolutely fundamental task. As a landlord there is now a greater onus on making sure you are using a reputable, quality agent. This may cost a little more but it is imperative you ensure any tenants are properly vetted and approved, as getting this wrong can cost thousands. Again, our Let Alliance Nil Deposit Scheme protects landlords against this risk as the product is only offered to tenants who have been fully referenced by the referencing agency, where you can acquire a rent guarantee policy too.
On top of the tenant fee ban, there are two other developments to be aware of if you want to make sure that your investment remains the asset it should be, and not a costly headache. First are the changes to rules for a ‘house in multiple occupation’, or HMO’s. HMO licenses are traditionally required in any property where five or more people live over three floors, but are not part of the same family. HMO’s require landlords to introduce various safety measures, from fire doors to electrical equipment certification. Non-compliance can result in unlimited fines, a criminal record and a ban from acting as a landlord in the future.
What many don’t realise however is that HMO rules can be different for each borough, and many councils in the North London area have updated their rules and are getting much stricter about enforcement. The main reason for this is that the councils get to keep the fines! Camden, and soon Harringay, have changed their rules so that HMO licenses are required for any property with three unrelated persons, and also within properties on a single floor, so many are expanding their enforcement teams. Tenants are also being encouraged to report non-compliance, encouraged by the fact that landlords can be forced to repay all rent to tenants for the length of their contract. In just one of the London boroughs, there have been 1200 prosecutions of landlords and agents for HMO breaches in the last 5 years, and so for any landlord ensuring that you are HMO compliant by checking your borough’s specific rules is an absolute must.
The second major change that all landlords should be aware of is the introduction of the Homes (Fitness for Human Habitation) Act 2018, or ‘Fitness for Human Habitation Act’ which came into effect on the 20th March this year. It isn’t entirely new, rather a clarification and bringing into line of previous legislations, but it is harsher in a number of ways. There are now 29 hazards that landlords are responsible for monitoring – including damp, mould, cold, asbestos, heat, and radiation to name a few. Tenants can take landlords to court and sue if it is found they have failed to maintain standards in one of these areas. The problem here is that it can be incredibly difficult as an independent landlord to both have the necessary knowledge on these matters and make sure you are compliant.
At the time of writing the Government have also just announced that they intend to end “no fault evictions”, by removing the Section 21 notice. Although their proposals presently lack any real detail, it on the face of it appears to be yet another attack on the private Landlord.
That said, with the amount of new rental property coming to the market we still believe rents will continue to rise, giving a good return for Landlords. Self-management can seem tempting in the quest to avoid fees in the short-term, but pale in comparison to the very costly risk of being caught out for non-compliance. At Martyn Gerrard we offer the comfort of over 50 years of knowledge and experience and will be holding Landlord Information talks across the North London area in the coming months – so look out for details soon.