Monday, July 15, 2013

Landlord & Tenant - The ‘Accidental Landlord’

…..becoming a Landlord brings with it a whole raft of roles and responsibilities which many landlords to do not expect and are completely unprepared for.  This is a particular shock to the system for the majority of ‘Accidental Landlords’ as they never planned to take on this role in the first place!

The term ‘Accidental Landlord’ is an interesting one and basically relates to those who have inadvertently become a Landlord without any desire or intention to do so.  It may seem bewildering to many that someone can become a Landlord in this way, however there are numerous ways in which this can happen. Inheriting property is a good example whereby property is often acquired unexpectedly and those who will inherit the property decide to rent the property rather than sell it.  It all seems rather simple to find some tenants and then start collecting rent, however many of those who acquire property in this way are often unaware and unprepared for the statutory (legal) requirements and responsibilities (which I will explain later), that they will be required to meet once they become a Landlord.

Relocation is another example of how someone can become and Accidental Landlord.  A career opportunity may result in the need to relocate which provides a dilemma for anyone who currently has a property.  There is always the option to sell, however a better choice for many will be to rent the property, thereby giving the opportunity to return in the event that things do not work out. All of a sudden a new Landlord is born, again with all of the statutory requirements and responsibilities that come with it.

Over the last few years it is fair to say that the housing market in the UK has been exceptionally flat (although we are now starting to see signs of improvement).  Trying to sell a property in a flat market is incredibly difficult and some will take the decision to rent out their existing property until the market improves whilst at the same time take advantage of the slow market by purchasing another property.  Whilst rental income will often cover the cost of one of the mortgages, some will not understand that they are now making themselves Landlords, and as with the examples previously discussed they will also be required to take on all of their new roles and responsibilities.

When the housing market in the UK was booming through the mid to late 1990’s there was a scramble to purchase property, so much so that people were prepared to buy before a property was built, something referred to as ‘buying off plan’.  This proved to be very lucrative for many because property prices at the time were increasing at such a rate that the value of property purchased in this way would often have increased (sometimes substantially) by the time construction had been completed.  Fast forward a few years when the property market crashed, some of those who had purchased properties in this way suddenly found that they could not sell them, and for many renting them was the only option.  They never planned to become Landlords, however they too had to take on all of the roles and responsibilities that they were never prepared for. They were Accidental Landlords.

Accidental Landlords may be more common than you would think. The most recent census, published by the Office for National Statistics, shows the number of private renters in England and Wales increased by 88% between 2001 and 2011:
Accidental landlords make up around 30% of all landlords according to Rightmove’s figures and are largely seen as a casualty of the credit crunch. However, rising rents and lack of voids have alleviated their plight to such an extent that when asked what their plans are for their current rental property, 12% of this group responded that it had gone so well that they are looking to buy another property, with a further 69% reporting that we would be holding onto their rental property and just 16% stating that they still want to sell it as soon they can.

High demand and a shortage of housing together with difficulties in securing finance for property purchase, in the UK has created a strong rental market, where in many areas rental incomes have continued to rise at a steady pace. Landlords (even accidental ones) are currently benefiting from this situation however managing rental property and tenants requires knowledge and understanding and is something that a Landlord cannot afford to ignore.  So what can you expect or indeed what is expected of you if you become a landlord?

Firstly, you need to choose your tenant’s carefully.  No Landlord wants a Tenant who will not pay their rent on time or fall into rent arrears or indeed will cause damage or disruption to a property.  In the event that this happens there are legal procedures that can be instigated in order to remedy the situation, however these can be time consuming, costly and stressful.  The likelihood of this happening can be significantly reduced, by taking the time to undertake background checks before allowing a tenant to sign a tenancy agreement.  This should include obtaining references (and checking them!), asking for proof of income to prove that they can afford the rent and in some instances asking for a guarantor. The next thing to consider is taking a deposit from the Tenant. Most Landlords take a deposit of one month’s rent, which the Landlord is legally obliged to protect in a government-supported deposit protection scheme.  The Landlord is also required to provide the Tenant with details of the selected scheme within 14 days. 

A tenancy agreement will need to be signed by the Tenant which should provide details/information in respect of the amount of rent and when it should be paid, the type and length of the tenancy, the notice period required when the tenant decides to vacate the property, occupation details, Landlord responsibilities and so on.  Basically, the tenancy agreement is a legally binding contract, which a Landlord should ensure is carefully worded to provide clarity and protection for themselves and indeed their Tenant.  There are a number of 'off the shelf’ tenancy agreements that a Landlord could purchase however, a new or inexperienced Landlord should take the time to research the content of the agreement to satisfy themselves that they understand what to expect from their Tenant as well as what responsibilities they will be taking on.  To the new or inexperienced Landlord this might seem to be quite a daunting task, however, never be tempted to take on a Tenant without a robust tenancy agreement in place.  There are many examples where poorly worded, often confusing tenancy agreements have resulted in disputes, which have proved very expensive for both Landlords and Tenants alike. This is such an important document that it is always worth getting professional advice to ensure that the agreement is adequately drafted.

A Landlord also must comply with their statutory (legal) responsibilities in respect of ensuring that any property they rent is safe and habitable for the Tenant to occupy. This incudes the requirement for gas safety checks every 12 months, ensuring that the electrical installation is safe before the start of the tenancy (as well as during the tenancy), making ‘reasonable adjustments’ to a property to accommodate tenants with disabilities and meeting licencing requirements for Houses in Multiple Occupation (HMO’s).

In summary becoming a Landlord brings with it a whole raft of roles and responsibilities which many landlords to do expect and are completely unprepared for.  This is a particular shock to the system for the majority of Accidental Landlords as they never planned to take on this role in the first place.  So next time you see a property related programme which suggests that it is easy to buy property, refurbish it and rent it out, you will hopefully appreciate that there is much more to it than just collecting the rent and increasing your bank balance!

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  2. Thank you for such a valuable blog.

    There are over 70 government regulations and statues that landlords have to adhere to, to remain compliant, and many "accidental" landlords are not aware of their obligations to the tenant.

    As a landlord, the safety and wellbeing of your tenant is your responsibility. Tenants are people, not a rent payment!

    Anyone letting out a property - for whatever reason - should make themselves aware of their responsibilities.

    My advice is to join a landlord organisation such as the Residential Landlord Association, and also join communities such as Property Tribes, the U.K.'s busiest landlord and investor community, where huge amounts of information and advice are shared.

    No one can divest a landlord of their responsibility to a tenant - not even an agent on a fully managed service - so there is NO excuse for any landlord not to learn about their obligations to their tenant!