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Buy to let investors urged to do their homework

17/02/2016

Buy to let investors urged to do their homework before rushing in to a new tenancy agreement.

Wolverhampton-based legal associate Andrew Verlander is warning landlords to ensure they’re compliant with all current legislation in order to avoid facing potentially costly consequences should the landlord/tenant relationship break down.

The popularity of buy-to-let investments has grown noticeably since pension reforms were introduced last year and coupled with a certain urgency amongst investors to complete on new investment purchases before changes to Stamp Duty are introduced on April 1, there is no better time for landlords to check that they’re meeting their responsibilities. 

Legislation known as the Deregulation Act came in to force almost a year ago and clearly outlined the principal areas that landlords need to ensure compliance of for all new Assured Shorthold Tenancies (AST’s) after October 2015.  These were that a landlord must provide (before the start of a tenancy) copies of the energy efficiency certificate and gas safety certificate and a copy of the government’s “How to rent” booklet.  They must also provide evidence that the tenant’s deposit has been protected in a recognised scheme.

Failure to comply with these elements can impact on the landlord’s ability to serve a S21 notice in order to evict tenants.  The Act also additionally puts restrictions on a landlord servicing S21 notices where they haven’t responded appropriately to disrepair complaints from the tenant.

Andrew comments: “In spite of the Deregulation Act being introduced almost a year ago and being enforceable against new ASTs since October of last year, we’re continuing to see a worrying number of landlords who wish to evict their tenants but can’t due to their own mismanagement of the tenancy agreement.  Perhaps of even more concern is that there are also otherwise reputable lettings agents who are similarly not as compliant as they need to be.

“Most commonly we’re seeing landlords failing to secure the tenant’s deposit in the stated timeframe or neglecting to ensure that the property is fitted with the necessary number of smoke and carbon monoxide alarms and checking them prior to the start of a new tenancy.  Agents, meanwhile, can slip up simply by not providing the tenant with a copy of the Government’s prescribed information booklet.”

Purchasers of second (or more) properties will be impacted by changes to Stamp Duty that come in to effect on April 1.  The tax implication on a property purchased for £150,000 would, at the moment, be £500, but from April 1st this will rise to £5,000.  This is placing an urgency on many investors to complete quickly, but as Andrew Verlander warns, rushing in to life as a landlord could have far greater implications further down the track:

“Buy to let investors, both experienced and those who are newer to the market, should be wary about rushing to complete on a property purchase before Stamp Duty changes without given due consideration to their legal obligations.  This is particularly exacerbated when the property has a sitting tenant and the tenancy agreement isn’t compliant with the terms of the new legislation.

“For the majority of investors, buy to let is a long term commitment and as such we would urge all landlords to take the time to be fully up to speed with what their obligations are.  This should avoid costly consequences at a later stage such as the return of a tenant’s deposit plus compensation, or a quasi-void period when a sitting tenant refuses to pay until an agreement dispute is resolved – each of these could arguably cancel out any saving made by completing before Stamp Duty increases.”

The Deregulation Act was, however, introduced to bring clarity to tenancy agreements for both the landlord and tenant and Andrew concludes on a positive note:

“The introduction of this legislation removed the requirement for the date of possession to be the last day of a period of tenancy since now it only needs to provide 2 months’ notice in order to be legally compliant.  Additionally, the same S21 Notice can now be used regardless of whether it is for a fixed term notice or a periodic tenancy notice, thus removing potential confusion in this respect. 

“However, any landlord with concerns relating to their tenancy agreements should view the investment of legal advice as an associated cost of their overall property investment and given our experience with clients whose agreements haven’t been water tight, this could be a small price to pay.”

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