The responsibility and liability for a residential let property ultimately falls on the landlord, even if you’ve instructed an agent to manage your property. The level of service you instruct may depend entirely on how many properties you let, their location and how hands-on you are as a landlord. If you only let one or two properties and can manage the property yourself, you may just need help finding tenants. If opting for a fully managed service It is therefore important to ensure that you place your property with a suitably qualified letting agent, such as ourselves whom are familiar with the large and complicated areas of legislation covering residential let properties.
Below we have put together the following guide for Landlords to understand some of the legal framework and responsibilities that a Landlord has, and equally what would be expected from their letting agent to cover on their behalf.
The following has been adapted from the UK Government guidance for Landlords and their agents renting and managing residential property in the UK. This is a guide only and needs considered interpretation for each individual set of circumstances. Hunter Mason will be pleased to provide professional advise on any aspect of property management.
1. Landlord responsibilities
a) General
Landlords, and their appointed agents, renting out a property must:
• keep the rented properties safe and free from health hazards
• make sure all gas equipment and electrical equipment is safely installed and maintained. This is via periodic Gas Safety inspections and certification.
• provide an Energy Performance Certificate for the property which is no more than ten years old.
• protect your tenant’s deposit in a government-approved scheme
• check your tenant has the right to rent the property if it’s in England
• give the tenant a copy of the How to rent checklist when they commence renting
b) Fire safety
It’s the Landlords, and their agents, responsibility to:
• fit and test smoke alarms and carbon monoxide alarms
• follow fire safety regulations for property in a purpose-built block of flats or for houses and property adapted into flats
c) Health and safety inspections
The Housing Health and Safety Rating System (HHSRS) is used Local Authorities to make sure that properties in its area are safe for the people who live there. This involves inspecting rented property for possible hazards, such as uneven stairs.
The council may decide to do an HHSRS inspection because:
• the tenants have asked for an inspection
• the council has done a survey of local properties and thinks a property might be hazardous
HHSRS hazard ratings
Inspectors look at 29 health and safety areas and score each hazard they find as category 1 or 2, according to its seriousness.
Landlords and their agents must take action on enforcement notices from a Local Authority. There is the right to appeal enforcement notices.
The Local Authority can do any of the following if they find a serious hazard:
• issue an improvement notice
• fix the hazard themselves and bill the landlord for the cost
• stop the landlord or anyone else from using part or all of the property
d) Financial responsibilities
As a Landlord you have to pay the following tax and National Insurance:
• Income Tax on your rental income, minus your day-to-day running expenses and any agency fees
• Class 2 National Insurance if the work you do renting out property counts as running a business
If you only occasionally rent out your property or part of your home (for example through short-term rental apps), check if you need to tell HM Revenue and Customs (HMRC) about this income.
If you have a mortgage on the property you want to rent out, you must get permission from your mortgage lender.
Landlords are advised to seek guidance and advise from a regulated firm of accountants for more details on these financial responsibilities and obligations.
e) Regulated tenancies
There are special rules for changing rents and terms for regulated tenancies (usually private tenancies starting before 15 January 1989). If you have such a tenancy arrangement in place with any of your tenants then we at Hunter Mason can offer further advise on these special tenancies.
2. Dealing with repairs
A landlord and their agents must ensure that the property is kept in good condition, and any gas or electrical systems must meet specified safety standards. Some general principles to managing this are:
a) When you can enter the property
A Landlord and/or their appointed agents and contractors have a legal right to enter their rented property to inspect it or carry out repairs. You must give your tenants at least 24 hours’ notice, although immediate access may be possible in emergencies. Your tenants have the right to stay in the property during the repairs.
You’re normally responsible for repairs to:
• the structure of your property
• basins, sinks, baths and other sanitary fittings
• heating and hot water systems
• anything you damage through attempting repairs
If your property is seriously damaged by a fire, flood or other similar incident, you do not have to rebuild or renovate it. However, if you do, you cannot charge your tenants for any repairs made.
b) Common areas
If you own a block of flats, you’re usually responsible for repairing common areas, like staircases. Councils can ask landlords to fix problems in common areas, or to repair a tenant’s flat that’s been damaged by another tenant.
c) What happens if repairs are not done properly
If a landlord refuses to carry out repairs, tenants can:
• start a claim in the small claims court for repairs under £5,000
• in some circumstances, carry out the repairs themselves and deduct the cost from their rent
If you do not make repairs to remove hazards, your tenants can ask the council to inspect the property under the Housing Health and Safety Rating System (HHSRS) and to take any action that is necessary.
If the council finds serious hazards, it must take enforcement action to make sure the hazard is removed.
d) If the property is temporarily unfit to live in
The tenants can be asked to move out temporarily during major repairs. Before this happens, you should agree in writing:
• how long the works will last
• the tenants’ right to return
• details of any alternative accommodation
You cannot repossess a property to do repairs. However, if you’re planning substantial works, or want to redevelop the property, you can apply to the courts for an order for your tenants to leave. The courts are more likely to grant this if you provide alternative accommodation.
e) Repairs and charging rent
If the repairs are very disruptive, your tenants may be able to claim a reduction on their rent known as a ‘rent abatement’. This will depend on how much of the property is unusable.
You may also have the right to increase the rent after carrying out repairs and improvements, depending on the tenancy agreement.
3. Rent increases
The tenancy agreement should include how and when you’ll review the rent. There are however special rules for increasing regulated tenancy rents for which Hunter Mason can provide further advise.
a) When you can increase rent
For a periodic tenancy (rolling on a week-by-week or month-by-month basis) you can usually only increase the rent once a year.
For a fixed-term tenancy (running for a set period) you can only increase the rent if your tenancy agreement permits this. Otherwise, you can only raise the rent when the fixed term ends.
b) How you can increase the rent
If a fixed-term tenancy agreement says how the rent can be increased, you must stick to this.
For a periodic tenancy, you can:
• agree a rent increase with your tenants and produce a written record of the agreement that you both sign
• complete a particular form (Form 4: Landlord’s notice proposing a new rent), giving your tenant at least a month’s notice
The rent increase must be fair and realistic – that is, in line with reasonable rents on the open market.
c) If your tenants do not agree
If your tenants think the rent increase is unfair, they can ask the ‘First Tier Property Tribunal’ to decide the right amount.
4. Settling disputes
It is strongly advised for a landlord, or their appointed agents, to make every effort to sort out disputes with their tenants without going to court by:
1. Speaking to the tenants about both your and their concerns.
2. If this does not work, then by writing a formal letter setting out the problems and issues.
3. Use a mediation service, such as a letting agents ‘Dispute Resolution’ procedures, as this is usually cheaper and quicker than going to court.
4. As a last resort, the tenants can be taken to court.
a) Going to court
If legal action is taken, the case may go to a small claims court. Small claims cases are those worth less than £10,000 (or £1,000 if the case is about repairs to a property).
The courts provide a free mediation service for small claims cases, which can take place over the phone.
If you want to get your property back because your tenants owe you rent money, you or your agents can make a possession claim online.
Specific rules must be followed if you want to evict your tenants. Hunter Mason can provide further advise on this.
b) Free advice for disputes
Your tenants can get free advice from Shelter and free advice from Citizens Advice about disputes and housing problems.
For complicated matters Hunter Mason may advise the engagement of a solicitor for legal advise and further assistance. There would be additional costs for this both for the solicitor and also for your agents.
5. Houses in Multiple Occupation (HMO)
If your property is let to several tenants, who are not members of the same family, it may be classified as a ‘House in Multiple Occupation’ (HMO).
A property is an HMO if both of the following apply:
• at least 3 tenants live there, forming more than one household
• toilet, bathroom or kitchen facilities are shared
A household consists of either a single person or members of the same family who live together. It includes people who are married or living together and people in same-sex relationships.
a) Licences
An HMO must have a licence if it is occupied by 5 or more people. A council can also include other types of HMOs for licensing.
Hunter Mason can offer further advise to advise if you need an HMO licence from your council.
b) Risk assessment
The council has to carry out a Housing Health and Safety Rating System (HHSRS) risk assessment on an HMO within 5 years of receiving a licence application. If the inspector finds any unacceptable risks during the assessment, then the landlord must arrange to carry out works to eliminate them.
c) Reporting changes
The council must be informed if:
• you plan to make changes to an HMO
• your tenants make changes
• your tenants’ circumstances change (for example they have a child)
6. Paying tax and National Insurance
When you rent out property you may have to pay tax. As aforementioned, we strongly advise landlords to seek good professional advise from their accountants regarding the Tax and National Insurance obligations. As a guide, the following needs to be considered:
a) Running a property business
You have to pay Class 2 National Insurance if your profits are more than £11,908 a year and what you do counts as running a business, for example if all the following apply:
• being a landlord is your main job
• you rent out more than one property
• you’re buying new properties to rent out
If your profits are under £6,725, you can make voluntary Class 2 National Insurance payments, for example to make sure you get the full State Pension.
You do not pay National Insurance if you’re not running a business – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.
b) Property you personally own
The first £1,000 of your income from property rental is tax-free. This is your ‘property allowance’.
Contact HM Revenue and Customs (HMRC) if your income from property rental is between £1,000 and £2,500 a year.
You must report it on a Self Assessment tax return if it’s:
• £2,500 to £9,999 after allowable expenses
• £10,000 or more before allowable expenses
c) Register for Self Assessment
If you do not usually send a tax return, you need to register by 5 October following the tax year you had rental income.
d) Declaring unpaid tax
You can declare unpaid tax by telling HMRC about rental income from previous years. If you have to pay a penalty it’ll be lower than if HMRC find out about the income themselves.
You’ll be given a disclosure reference number. You then have 3 months to work out what you owe and pay it.
Do not include the £1,000 tax-free property allowance for any tax years before 2017 to 2018.
e) Property owned by a company
Count the rental income the same way as any other business income.
f) Costs you can claim to reduce tax
There are different tax rules for:
• residential properties
• furnished holiday lettings
• commercial properties
g) Residential properties
You or your company must pay tax on the profit you make from renting out the property, after deductions for ‘allowable expenses’.
Allowable expenses are things you need to spend money on in the day-to-day running of the property, like:
• letting agents’ fees
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
• accountants’ fees
• buildings and contents insurance
• maintenance and repairs to the property (but not improvements)
• utility bills, like gas, water and electricity
• rent, ground rent, service charges
• Council Tax
• services you pay for, like cleaning or gardening
• other direct costs of letting the property, like phone calls, stationery and advertising
If you’re a company paying Corporation Tax, you can claim interest on property loans as an allowable expense. You cannot do this if you’re an individual landlord who pays Income Tax. Read more about changes to tax relief for residential property.
Allowable expenses do not include ‘capital expenditure’ – like buying a property or renovating it beyond repairs for wear and tear.
You may be able to claim tax relief on money spent on replacing a ‘domestic item’. This is called ‘replacement of domestic items relief’.
Domestic items include:
• beds
• sofas
• curtains
• carpets
• fridges
• crockery and cutlery
You must have only bought the domestic item for use by tenants in a residential property and the item you replaced must no longer be used in that property.
The replacement of domestic items relief is available from:
• the 2016 to 2017 tax year for individuals and partnerships
• 1 April 2016 for companies
Furnished residential lettings
You may be able to claim ‘wear and tear allowance’:
• for the 2015 to 2016 tax year for individuals and partnerships
• on or before 31 March 2016 for companies
Furnished holiday lettings
For furnished holiday homes, you may be able to claim:
• plant and machinery capital allowances on furniture, furnishings and so on in the let property, as well as on equipment used outside the property (like vans and tools)
• Capital Gains Tax reliefs – Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders
You can only claim these if all the following apply:
• the property is offered to let for at least 210 days a year
• it’s let for more than 105 days a year
• no single let is more than 31 days
• you charge the going rate for similar properties in the area (‘market value’)
If you own the property personally, your profits count as earnings for pension purposes.
To help with your tax return, you can use the capital allowances helpsheet and the furnished holiday lettings helpsheet.
h) Commercial properties
You can claim plant and machinery capital allowances on some items if you rent out a commercial property – like a shop, garage or lock-up.
i) Working out your profit
You work out the net profit or loss for all your property lettings (except furnished holiday lettings) as if it’s a single business. To do this, you:
• add together all your rental income
• add together all your allowable expenses
• take the expenses away from the income
Work out the profit or loss from furnished holiday lettings separately from any other rental business to make sure you only claim these tax advantages for eligible properties.
j) Making a loss
Deduct any losses from your profit and enter the figure on your Self Assessment form.
You can offset your loss against:
• future profits by carrying it forward to a later year
• profits from other properties (if you have them)
You can only offset losses against future profits in the same business.
7. Changing a regulated tenancy (fair rent)
There are special rules for changing rents and terms for regulated tenancies (sometimes called ‘fair rents’) which usually started before 15 January 1989. Hunter Mason can provide more advise on this, but as a general guide the following is to be considered:
a) When you can increase rent
You can only increase the rent up to the maximum set by the Valuation Office Agency (VOA) – check the register of fair rents to find out what it is.
You can ask VOA to review the rent every 2 years, or earlier if something has affected the value, so that it remains fair. Your rent might increase or decrease.
Download and fill in a fair rent form to get your rent reviewed. Send the completed form to the VOA Network Support Office by post:
VOA Network Support Office
Wycliffe House
Green Lane
Durham
DH1 3UW
Telephone: 03000 501 501
Email the VOA Network Support Office if you have any questions about increasing your rent:
VOA Network Support Office
NSOhelpdesk@voa.gsi.gov.uk
b) If the fair rent increases
You must serve a notice of increase of rent on your tenant. You can charge the new rent from the date it’s registered.
Fill in a ‘notice of increase’ form (available from legal stationers) and send it to your tenant.
You can backdate your notice of rent increase for up to 4 weeks.
c) Cancel a registered rent
Download and fill in a fair rent form to cancel a registered rent, and send it to the address on the form. For example, if the tenancy stops being regulated, or you and the tenant agree to cancel it.
It may take up to 6 weeks to cancel a registered rent.
With our Full Management service, let Hunter Mason take the stress and worry of managing a property away from you and provide you with the assurance that it is being correctly managed in compliance with statutory obligations and that your asset is being well looked after.