Residential property is a popular investment for businesses and individuals alike. Brexit and hikes in stamp duty for buy-to-let landlords reportedly contributed to a reduction in buy-to-let borrowing in the last year. But according to a June 2017 study by property experts at Knight Frank, the private rented sector (PRS) in England will continue to grow, with nearly one in four households expected to be renting in the private sector by 2021.
There has in recent years been a focus on the role of professional institutional landlords in the PRS, including the growth of “build to rent” developments. However, the industry is overwhelmingly made up of small-scale landlords and individual investors. Many will self-manage and we often see PRS landlords falling into the same traps when it comes to managing their lettings. These can be costly to resolve and may even restrict or delay landlords being able to end a tenancy.
Here we look at three common pitfalls for PRS landlords, how to avoid them and how to get it right. This piece looks at the law as it applies to assured shorthold tenancies (ASTs), although parts may also apply to other types of residential tenancies.
It has been a legal requirement since 6th April 2007 that landlords protect deposits paid by tenants with a government approved scheme. This involves either paying over the deposit to the scheme provider or insuring it with the provider. Landlords are required, within 30 days of receipt of the deposit (or 14 days for ASTs granted prior to 6th April 2012), to protect the deposit and provide the tenant (and any person who paid the deposit on their behalf) with certain prescribed information about the deposit. The prescribed information is set out in legislation and will often accompany the tenancy agreement itself.
Whilst most PRS landlords are aware of their obligation to protect the deposit, providing the prescribed information can cause problems. What many overlook is that, depending on the deposit protection scheme used, it may also be necessary for the landlord to give the tenant a leaflet (supplied by the scheme provider) setting out the operation of the scheme, or the information contained within that leaflet, in addition to the statutory prescribed information.
A landlord who fails to protect the deposit in time and/or provide the prescribed information may be barred from serving a notice under Section 21 of the Housing Act 1988 to recover possession of the property (unless the deposit is returned to the tenant). They may also be liable for financial penalties of up to three times the value of the deposit.
Section 21 is a non-fault based procedure to enable landlords to recover possession without having to prove a ground for possession such as rent arrears or nuisance. It is therefore imperative that landlords check with their scheme providers what the individual requirements of the scheme are and what additional documentation or information needs to be given to their tenants under the scheme. This will help avoid any delays in seeking possession. A landlord who serves the prescribed information late will not be prohibited from serving a Section 21 notice, but may still face financial penalties.
Deregulation Act 2015
The Deregulation Act 2015 imposed further obligations on landlords to provide tenants with additional information for ASTs granted on or after 1st October 2015, namely a gas safety certificate and energy performance certificate for the property (where applicable) and the government “How to Rent” checklist. Again, a landlord will be unable to serve a Section 21 notice until this requirement has been complied with. We recommend PRS landlords provide these documents at tenancy sign-up to avoid complications or delays at the end of the tenancy. This requirement will apply to all ASTs from 1st October 2018.
Section 48 Notice
Landlords are obliged under Section 48 of the Landlord and Tenant Act 1987 to provide their tenants with an address in England and Wales where their tenants can serve notices on them, including notices in proceedings. Any rent or service charges otherwise due by the tenant will not be payable unless the landlord has complied with this obligation. This causes particular problems where a landlord intends to end the tenancy and take possession of the premises due to rent arrears, because the relevant grounds for possession in Schedule 2 to the Housing Act 1988 require rent to be lawfully due from the tenant. The notice required under Section 48 can be included in the tenancy agreement itself, but if a separate notice is served this should be properly recorded to avoid any later dispute.
Despite the significant role played by the PRS in providing housing, the PRS continues to be heavily regulated, often at the expense of small private landlords. Such regulation was compounded in February 2016 when new duties were imposed on PRS landlords to carry out immigration checks on new tenants and occupiers of their properties, with criminal offences and fines applicable from 1st December 2016 for those who fail to do so and let their properties to persons disqualified from renting in England due to their immigration status. Landlords must ensure that they are adhering to the letter of the law or they may face hefty penalties or difficulties down the line when looking to reclaim their property.
This is not an exhaustive list of the pitfalls for PRS landlords and the problems they may face when dealing with their lettings, and PRS landlords who need advice on their legal obligations should always speak to a specialist solicitor. DMH Stallard have a dedicated team dealing with landlord and tenant law, who give advice to PRS landlords on a wide range of contentious and non-contentious issues, including tenancy agreements, possession claims and statutory duties. For more information please contact Faye.Didcote@dmhstallard.com.