How can letting agents add value?

The tenant fees ban means a massive loss of income for letting agents. Landlord website Goodlord estimates the loss at around £200 million in turnover each year. That’s a big blow. UK landlords are already reeling from a series of tax and regulation blows. So letting agents trying to offset their loss of income by simply charging clients more for delivering the same service won’t work. Instead agencies will have to reinvent themselves and develop new income streams.

Adding property management to the mix is an obvious one – it’s a service that agents can still charge for but it’s one that could easily backfire. So be prepared to do it well or not at all.

Ensuring you’re charging your full management fee every time is a good place to start, says Goodlord. Agents should make sure to spell out every single service they provide, from compliance to inventories, and let landlords know what they would be missing out on for a discounted fee.

Proptech expert Neil Cobbold believes providing an appealing landlord proposition that is “transparent and tech-enabled” will be key while at the same time “reminding landlords at every opportunity why the rental market continues to be a good place for investors with the right agency partners”. Added value will be crucial for success in future. What about adding rent protection insurance or void period management to the service offer. What else would clients like to see?

Ask tenants too. How much agents can make from insurance or utility and media switching services is determined by tenant take-up, so understanding and managing expectations is crucial. That way agents can actively improve tenants moving experiences, develop brand loyalty and maybe even generate recommendations.

Property consultant Abi Hookway also puts a positive spin on the fees ban, telling the press this week in the wake of scare stories about landlords leaving the sector in droves, that there may even be an upside if landlords exit the private rental sector in larger volumes. They may create an over-supply of buy to let units on sale – thus making them cheaper for future investors, she says. Abi also suggests that offering longer term management options with a guaranteed rental income could be a winner. She believes many landlords would jump at the chance to avoid the hassle of having to find new tenants, manage rent arrears and deal with disruptive tenants for several years at a time. All part of the job for a professional letting agent.

Tenant fees ban – the unintended consequences

The Tenant Fees Act came into effect in England on Saturday and there are already big question marks hanging over the new legislation. Both the government and the lettings industry want to make renting fair for tenants but agents are not convinced the new Act will work in the way that was intended.

Glynis Frew, the CEO of major letting agent Hunters, said this week that good intentions could easily result in unintended consequences. We agree that a small number of rogue agents and landlords have charged what she describes as “mind-boggling” fees, but this isn’t representative of the industry as a whole. Instead of opting to cap fees, they have been scrapped altogether. The likely results are rent increases, landlords leaving the sector in even greater numbers than they are already and letting agents shutting up shop – which as well as reducing consumer choice, also has a negative impact on our beleaguered high streets.

Our view is that the Act will mean agents looking closely at their all-inclusive management fees and having to pass on disbursements such as deposit registration costs to landlords. The industry will be looking to push extra products such as insurances, on which agents can take commissions to cover the shortfall in income. 

Local authorities, charged with enforcing the legislation, can fine landlords and agents up to £5,000 for levying a payment that is now prohibited (see yesterday’s blog for a list of allowable fees) and they can prosecute or impose a fine of up to £30,000 if an ‘offence’ under the Act has been committed. This is where a landlord or agent has been fined or convicted for a breach within the last five years and commits a further different breach.

Being a landlord has never been more precarious.  Reducing deposits from 6 weeks to 5 is no real protection against tenants not paying their last month’s rent and the Deposit Alternative products that are now springing up may offer landlords more protection but are of course optional, and cannot be forced on tenants.   Flexibility as to how tenants make payments is also diminishing as many landlords refuse to take rent or deposit payments by credit card as, understandably, they don’t want to pay the fees.

The challenge for agents will be to ensure they are providing an added-value service to landlords by having effective tenant referencing, contractual and deposit systems in place as well as ensuring compliance with the new Act.

Right to rent update

Earlier this month, the Government issued new guidance on right to rent checks post-Brexit. Like most things Brexit-related, there has been a lot of uncertainty about what will happen next and landlords and letting agents have been rightly confused as to what their rights and responsibilities will be once the UK leaves the EU later this year. In response, the Home Office has now confirmed that there will be no changes made to existing legislation until 1 January 2021.

Under the law as it stands, anyone letting a property must check that prospective tenants have the legal right to rent a home before a new tenancy agreement is signed.

Until 1 January 2021 EU, EEA and Swiss citizens will continue to be able to prove their right to rent in the UK as they do now, for example by showing their passport or national identity card.

There will be no change to the way EU, EEA and Swiss citizens prove their right to rent until 1 January 2021. This remains the same if the UK leaves the EU with or without a deal. Letting agents and landlords do not need to check if new EEA and Swiss tenants arrived before or after the UK left the EU, or if they have status under the EU Settlement Scheme or European temporary leave to remain. Nor will they need to retrospectively check the status of EU, EEA or Swiss tenants or their family members who entered into a tenancy agreement before 1 January 2021.

Irish citizens will continue to have the right to rent in the UK and will continue to prove their right to rent as they do now, for example by using their passport.

However, the Home Office states that letting agents and landlords should continue to conduct right to rent checks on all prospective tenants to comply with the Code of practice on illegal immigrants and private rented accommodation and the Code of practice for landlords: avoiding unlawful discrimination.

As is now the case, in order for a landlord to obtain a statutory excuse from a civil penalty when letting to the non-EEA family member of an EU, EEA or Swiss citizen, the prospective tenant will need to show Home Office issued documentation as set out in the legislation and guidance.

So watch out for new guidance on how to carry out right to rent checks from 1 January 2021 and in the meantime, if you’re still confused, go to the government website at gov.uk which has plenty of useful links and more information on right to rent checks.

Section 21 changes: have your say today

Last week this blog looked at the problems that could be caused for the rental sector by the proposal to scrap “no-fault” Section 21 evictions.

The government proposes to effectively make tenancies open-ended, while at the same time strengthening the rights of landlords who want to recover their properties by giving the Section 8 process more teeth. Getting this right will make or break the planned change in the law. Get it wrong and the government risks seriously damaging the rental sector – which is already struggling to meet the demand for housing.

The average time it takes for a private landlord to repossess a property via the current system is nearly four months, according to data from the Ministry of Justice published in Landlord Today last week. This is completely unacceptable. All landlords know that eviction of any kind is a last resort. And even official figures point to the fact that only 10% of tenancies are ended by the landlord, not the tenant. All other things being equal, they have a better investment with a long term tenant where there is no void rent loss and less move-in, move-out wear and tear.  But there are legitimate reasons why a buy-to-let landlord may need to evict someone when they have a change of circumstances and that situation must be supported by an efficient court process.

In Scotland, where court reform was rolled out prior to scrapping their equivalent of Section 21, the new regime seems to be working. So paying attention to Section 8 will be vital if the new regime is to be fair to landlords as well as to tenants.

Not surprisingly, there has been a strong reaction to the government’s plans from the lettings sector, with more than 6,000 people responding to the Residential Landlord Association’s survey asking what a post-Section 21 private rented sector should look like – a record response for the trade body. The RLA survey closes today and the results will be used to respond to the government’s formal consultation when it is launched, so go to the RLA website at https://rla.onlinesurveys.ac.uk/possession-reform-ensuring-landlord-confidence-apr-may to have your say.

Government announces; section 21’s set to be axed for UK landlords.

The government has decided to take action and abolish Landlords ability to serve a section 21 notice. This has come in light of many claims from various tenant support groups, suggesting that 46% of tenants received a notice to leave the property within 6 months.

Removal of section 21 could cause landlords to leave the already struggling property market and would mean many landlords wanting to rent out their property short term will no longer be able to do so, leaving them no choice but to rent indefinitely Unless sufficient grounds were given, of a similar kind to those that have been issued in Scotland.

As of December 2017, Scottish landlords were no longer allowed to serve section 33’s (their version of a section 21) for a no-fault possession, however the government have added a few extra grounds for possession if a landlord has “reasonable cause” for example, needing to sell, refurbish or move back in. Scotland now has open-ended tenancies meaning there is no end date, like the “assured tenancy” and it’s looking like it will be that way here also.

The end of the section 21 comes after many campaigns from various organizations claiming that it causes tenants to ‘live in fear’.

Many tenants and support groups see this as a victory, however, this abolishment will more than likely lead to landlords driving up the cost rent causing tenants to suffer as a result. This will also lead to Landlords that ‘need’ their properties back to cause an even larger decline in the already diminishing housing stock unless additional provisions are put in place. In reality, the government needs to listen to landlords and give them the ability to obtain their property back when ‘needed’ as this is what happens the majority of times anyway.  

Could a tax tribunal ruling mean BTL investors avoid 3% stamp duty surcharge?

Buy-to-let investors could soon fill the HMRC with stamp duty surcharge refund requests. This is following on from a potential precedent set at a recent tax tribunal that saw a couple acquire a neglected building and were able to refute the additional 3% stamp duty charge on purchases of second homes.

It was revealed at the tribunal, held in Bristol, that potentially, buy to let investors could avoid paying the 3% stamp duty surcharge. This instance could cause many more landlords who have already paid the surcharge, to demand a refund from HMRC and suggests that many property purchases could fall short of the additional 3% surcharge and just consist of the standard rate stamp duty.

Paul and Nikki Bewley acquired their uninhabitable bungalow in Western-super-Mare and made the decision to bulldoze the original build in order to make way for a new property, thinking they would not accountable for the 3% charge for Taking on the additional property.

HMRC argued this view, believing that the 3% charge was applicable, as the property was capable of being used as a dwelling sometime in the future.

However, a recent tax tribunal ruled against the HMRC and in favour of Paul and Nikki Bewley, stating that they are only able to charge the 3% if the home is in an acceptable living condition right away.

HMRC has yet to decide on an appeal, stating: “We’re considering the judgment carefully.”

But, this ruling suggests that many buy-to-let landlords could be exempt from the 3% surcharge, when buying a property that is uninhabitable at the time they purchased it.

Commercial Trust Limited, a specialist buy-to-let broker, considers that this ruling could represent an opportunity for past claims from buy-to-let investors who have paid the additional 3% charge on properties that were uninhabitable at the time of purchase.

Stay put – when is it safe to leave?

Stay put policies have really come under scrutiny in recent months. In a high-rise block the concept is sound – but only if all the many aspects that add up to successful compartmentalisation are in place. This means sub-dividing buildings into a number of compartments to restrict the spread of fire but it relies on effective fire doors, fire stopping applied correctly to windows and service access points and so on.

Both the public and the property industry are now painfully aware that when a fire broke out at Grenfell Tower on 14 June 2017, proper attention had not been paid to the passive fire protection that was needed to make compartmentalisation work. Stay put utterly failed that night and the result was horrendous loss of life. Once the policy was finally abandoned and residents advised to leave the building, it was too late to safely evacuate.

Grenfell has forced government to take a fresh look at Approved Document B – which is the part of the building regulations that deals with fire safety. Stakeholders are being consulted and changes made. However, so far, those changes haven’t included any advice around escape plans, ie what should residents do if stay put has to be abandoned?

The RIBA drew the government’s attention to this issue earlier this week, saying that too much emphasis is still being placed on building design and construction to resist the spread of fire, while aspects such as warning residents of a fire, escape plans and access for the fire service have not been prioritised.

The architects’ body wants guidance on escape plans to be included in Approved Document B, as well as a requirement for:

  • at least two staircases in new multiple occupancy residential buildings;
  • the introduction of centrally addressable fire alarms, which allow fire crews to quickly find which alarm has been activated; and
  • sprinklers to be fitted in all new and converted residential buildings and  retrofitted in existing residential buildings above 18 metres.

Jane Duncan, chair of RIBA’s expert advisory group on fire safety, said: “We simply cannot allow buildings to continue to be built to regulations and guidance that everyone, including the government, acknowledges are deeply flawed.”

We agree. While the government is still shaping its response to Grenfell, let’s hope it does too.

Know your onions – and your tomatoes!

Could you tell the difference between cannabis and tomatoes? One Scottish letting agent was caught out recently when she found a tenant growing what she thought was cannabis in the bedroom of a rented property in West Lothian.

In fact, the letting agent was left red-faced when the plants turned out to be tomatoes! However, the agent was right to be vigilant and right to report her suspicions when she got back to the office. Cannabis farms are on the increase and growers often choose rented properties to grow their plants.  

The bad news for landlords is that the law holds you responsible if you allow your rented property to be used for the production, cultivation, possession or supply of cannabis. Weed is a Class B drug and the penalties under section 8 of the Misuse of Drugs Act, 1971 are severe. You could end up with a criminal record or a hefty fine.

So what are the warning signs to look out for? Here are a few pointers:

  • If you know what cannabis smells like, this might give you a clue even when the plants are out of sight. It is one of the major tell-tale signs of being near a drug farm.
  • Equipment such as lighting racks and ventilation fans being taken into the property may be a sign of tenants being up to no good – the neighbours might also have spotted such activity.
  • Have the windows been blacked out or permanently covered? This may be a sign that lighting conditions are being controlled for the cultivation of a cannabis crop.
  • Is there evidence of strong lights being left on day and night?
  • Constantly misted windows and signs of condensation might indicate the higher than normal temperatures being maintained within the building.
  • Growers are likely to be using ventilation and extraction fans 24/7 – you would be likely to hear the sound of these as soon as you approach the property.
  • annabis farms require a lot of power and energy – unusual cabling running out of the property could be used to tap into illicit supplies of electricity from street lighting.

If you or your property agent does become suspicious, call the police immediately. Don’t tackle any of the occupants yourself as they could respond violently.

The moral of this story is that not only should landlords and property agents be vigilant and be aware of the tell-tale signs of illegal activity in rented properties  – but they also need a rudimentary knowledge of horticulture!

Don’t forget the smoke alarm!

Landlords and letting agents are the target of a new smoke alarm awareness campaign launched this week. West Yorkshire Fire and Rescue Service is promoting ‘Let it, don’t forget it’ in a new video urging private sector landlords and letting agents to make sure smoke and carbon monoxide alarms are fitted in their rented properties. The fire safety video, which you can watch on YouTube here, highlights the changes in the law that were introduced in 2015.

The Smoke and Carbon Monoxide Alarm Regulations 2015, oblige landlords to take responsibility for fire safety in their properties. At least one smoke alarm must be installed on every storey and carbon monoxide alarms must be fitted in any room containing a solid fuel burning fire or stove. Either hard wired or battery powered alarms can be installed and your local fire service can offer advice if needed. But the landlord’s obligations don’t end  there. Either they or their letting agent must make sure all alarms are working properly at the start of each new tenancy.

Failure to comply could mean a fine of up to £5000, so we suggest landlords make provision for tenants to sign the inventory when they move in, to record that the required alarms have been tested by the landlord and that they are satisfied they are in working order.

Renters also need to take responsibility for their own fire safety and test the alarms in their home regularly. We recommend doing this monthly. It only takes a few minutes and it could save a life. If an alarm isn’t working inform the landlord straight away.

In July 2018 the letting agent responsible for a property in Huddersfield where two little boys died in a house fire was jailed for 12 months for failing to fit smoke alarms.

West Yorkshire Fire and Rescue Service were called to the blaze.  Dave Walton, deputy chief fire officer said: “On the third year anniversary of the boys’ loss we want to remind landlords and letting agencies of their responsibilities. Do not take the risk with people’s lives and do not think that a fire ‘will never happen’ – it could… If you are a private sector landlord or letting agent then take your responsibilities seriously and take heed of this warning.”

To read the government regulations on fire safety in rented (but not long leasehold) homes, click here

High Court: Right to Rent does breach human rights

The High Court has ruled today that the government’s controversial Right to Rent scheme breaches human rights law.

Right to Rent was introduced by Theresa May when she was Home Secretary, as a key strand of the Government’s increasingly discredited ‘hostile environment’ for illegal immigrants. No one wants to find they are renting their property to someone who is living in the UK illegally. But the problem with the Right to Rent scheme is that it puts landlords, not the Home Office, in the driving seat. Landlords are personally responsible for checking the immigration status of tenants themselves, which is regarded as completely inappropriate by landlord organisations because they could face prosecution if they get it wrong and are found to be renting to someone who has no right to UK residency.

Last year the Joint Council for the Welfare of Immigrants (JCWI) brought a case against the government, backed by The Residential Landlords Association (RLA) and Liberty, claiming the policy is incompatible with human rights law because it drives discrimination against non-UK nationals who might be in the country legitimately and British ethnic minorities.

Today, the JCWI got the verdict it was hoping for. The High Court has ruled that the scheme does breach the European Convention on Human Rights and that discrimination by landlords is taking place “because of the Scheme.” The judge, Mr Justice Martin Spencer said that the safeguards used by the Government to avoid discrimination, namely online guidance, telephone advice and codes of conduct and practice, have proved ineffective. He concluded that “the Government’s own evaluation failed to consider discrimination on grounds of nationality at all, only on grounds of ethnicity.”

The RLA is now calling on the government to accept the decision, scrap the Right to Rent, and come up with a better way to sensibly manage migration, “without having to rely on untrained landlords to do the job of the Home Office.”