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Want to make money from short-term lets? Check your lease first!

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Thinking of sub-letting? Think again…

Many of us now use short-term lets to pay for our holidays or to make a regular income.  As we’re right in the middle of the holiday season you might be tempted to give it a go. But before you do – think again. Here’s a cautionary tale for renters or leaseholders thinking of using Airbnb or another online platform to make a bit of extra cash.

Toby Harman was taken to court in July and was hit with a whopping £100,000 fine for renting out his London flat on Airbnb. He had been renting out his ‘cosy studio apartment with a hot tub’ on the short-term lettings website since 2013. Sounds great if you fancy a bijou London base for a spot of sightseeing. Unfortunately for Toby, he was caught out when Westminster City Council discovered the host masquerading on Airbnb as ‘Lara’  was in fact one of their tenants. It turned out that Toby was sub-letting his flat in strict breach of his social housing tenancy agreement. After a failed appeal he was evicted and told to pay back £100,974 in unlawful profits.

This case revolves around the dos and don’ts of social housing but the same rules are likely to apply to any homeowner who doesn’t own their freehold. If you are renting, it goes without saying that your landlord may not be thrilled to find you are sub-letting his property. Eviction is the likely outcome if you’re caught out and you could end up in court. And if you are a leaseholder, don’t even think about going down the Airbnb route without first checking your lease. Read the small print – the devil is always in the detail.

Most leases state that a flat can only be used as a private dwelling and short-term lets are very unlikely to fit the bill. This is clear from the widely reported 2016 case of Nemcova v Fairfield Rents Ltd (now known as the Airbnb ruling). Well worth a closer look if you’re in any doubt.  

The other important point to note was highlighted earlier this year in the case of Bermondsey Exchange Freeholders Limited v Ninos Koumetto. This case draws attention to the fact that most residential leases don’t allow owners to share possession or occupation of their flat or to use it for a commercial purpose (which includes AirBnB lettings) without consent of the freeholder. By all means talk to your landlord but don’t be surprised if you get a negative reaction.

What all these court cases clearly show is that short term lets are a minefield if you live in a flat. So tread carefully!

Looking forward to the flat of the future

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Ever wondered what the flat of the future will look like? Laura Geode from American Proptech company Homebase has some interesting ideas. Most of them revolve around IoT or the internet of things. This means greater connectivity between the devices and appliances in our homes; something we will soon all take for granted.

First, says Laura, our homes will talk to us. Many of us already have AI assistants in the form of Alexa or a Google hub but this technology is evolving fast. For flat owners and renters, a digital concierge will soon be there to turn on your lights, rent a car from the block’s car-sharing service or find a film for you to watch.

The internet of things will transform the way we live

And what about fixtures and fittings? Laura predicts that from windows to appliances and light bulbs to locks, there will be dozens of IoT devices in each unit making them more user-friendly and energy efficient. Picture this: your refrigerator door features a screen showing a digital image of all the food inside of it. You click on the chicken breasts and a list of recipes appears, all based on the food you have in stock. Missing an ingredient? There’s a one-click option to buy and have it delivered to you in time for tea!

Developers are keen to take up this technology but Laura says it’s important to approach it correctly. Most properties that try to be “smart” start with installing IoT devices like thermostats and locks, she says. Instead, developers should start with property-wide wi-fi, Bluetooth, and sensors. This network infrastructure allows devices to work seamlessly together.

In America apartment blocks feature air conditioning as standard. In the UK this may be essential in future as global warming takes hold. So in order for a block air conditioning system to be as energy efficient as possible it needs to communicate directly with the lights, thermostats and windows in the building. That’s not possible without network infrastructure in place.

Above this, says Laura, will sit the building operating system. This means residents will be able to control all of their devices from a single app and property managers can collect building-wide data too. This data makes it possible to find ways to run blocks more efficiently and create a better resident experience. And if all this sounds a bit far-fetched, don’t forget that the 5G technology we need to make all this possible, is already here.

Finally, Laura urges block owners and managers – especially in the rented sector –  to constantly ask themselves “How can we provide more things ‘as a service’?” From dog walking to wifi, residents want to live somewhere that makes their life easier. Hospitality and block management are coming together. And that won’t stop anytime soon. 

Landlords in the firing line – again!

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Landlords are under fire again today. This time for not giving renters enough information about their tenancies. In a new survey by the National Landlords Association, reported in Landlord Today, more than two thirds (67%) of tenants say they don’t get enough information about their rights and responsibilities. This is hard to believe. Landlords have to give new tenants a copy of the government’s How To Rent guide when they sign their rental agreement.  If they don’t, they can’t use the section 21 (no fault) eviction procedure if they need to – although this may not be an option for much longer.

It would help landlords if the Ministry for Housing, Communities and Local Government (MHCLG) which issues the guide and updates it on a regular basis – could get new versions out in a timely manner. When the tenant fees ban came in on 1 June, a new version was released but the MHCLG didn’t update it until the last minute. This is important because the new form includes changes to form 6a. This stipulates that landlords and letting agents cannot use a Section 21 eviction procedure if they have taken a ‘prohibited payment’ from a tenant and it has not been refunded in full.

Any landlord signing a rental contract with a new tenant that week, could have been forgiven for not handing over the correct version of the guide but would still have found any Section 21 notice invalidated by using the wrong version.

That aside, despite an apparent lack of knowledge of the How to Rent guide, there is a positive message from the NLA survey. Most tenants have a good relationship with their landlords. More than two thirds (68%) say they have never had any cause for complaint. And another 12% say any complaints they do have are dealt with properly.

So the majority of landlords are clearly doing the right thing and most tenants are happy. If the landlord or agent has handed over the How to Rent guide at the outset of the tenancy, surely they have fulfilled their side of the bargain. Many do a lot more and spend time talking tenants through what they can expect.

But as several readers point out in Landlord Today, although it is important for tenants to know their rights and responsibilities, you can’t force people to read the small print.

Fire safety – do you know the drill?

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A devastating fire wrecked a block of flats in Barking at the beginning of June. No one died but the fire spread so fast that it could easily have led to loss of life, particularly as the residents reported that no alarms had sounded. Fire safety systems should always be regularly inspected and tested and – unless a stay put policy is in place – residents should evacuate the building immediately they hear the alarm.

Unfortunately, as fire risk specialists Lawrence Webster Forrest says in a recent blog, although the need for immediate evacuation may seem to be something of a ‘no-brainer’, studies have shown that people are reluctant to evacuate and are inclined to assume the fire alarm is a test or a false alarm. Clearly this is dangerous, so fire training in residential blocks is a must – and should be taken as seriously as regular inspections of fire safety equipment.

Thankfully most of us have no experience of fire developing inside a building. But what this means, according to LWF, is that they are likely to base their idea of how fire spreads on their experience of bonfires or other outdoor fires. But fire inside a building represents an imminent threat to life. So in an emergency situation, evacuation must be completed as quickly as possible.

It is the responsibility of property managers to make sure that, in an emergency, residents know what to do and when to do it. This means helping them to:

  • familiarise themselves with escape routes, which may not be used on a daily basis.
  • Understand how to use exit devices on fire doors. These should be demonstrated and residents given the opportunity to operate one themselves.

It is important that residents know not to use lifts when the fire alarm has sounded. Also, everyone should be familiar with plans to evacuate neighbours with disabilities or who are particularly vulnerable. Knowing who is responsible for helping particular fellow residents could mean the difference between someone evacuating the block safely or being trapped in their flat.

So if you’re a property manager, make sure this is at the top of your list for your next residents meeting. And if you’re a leaseholder or tenant and don’t know what the evacuation procedure is in your block – ask. Don’t take the risk.

How can letting agents add value?

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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

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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

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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

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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.

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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?

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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.