Are You Using The Correct Tenancy Agreement?

There are two kinds of tenancy agreements. Do you know which agreement applies to yours? Many landlords aren’t sure of the difference between the various tenancy agreements and how to choose the correct one that works for them. At Concentric, our goal is to help you understand the facts and get you the information you need to be a successful landlord. We've written this blog to help you know which tenancy agreement is best for you.

Let us break down what the two categories of tenancy agreements are and where they can be implemented to work for you appropriately. 

There can be serious consequences for you if you attempt to use the wrong legal contract for a tenancy. So it's important you get the right one. 

 

Assured Shorthold Tenancy

The assured shorthold tenancy agreement is one of the most common agreements and was introduced in 1988 when the Housing Act was passed. This contractual agreement is beneficial to both tenants and landlords as it clearly outlines what each party can and cannot do.

For example, tenants can be assured of security of tenure for the fixed term of the contract, providing they do nothing to breach it. On the other hand, landlords are provided with two specific notes: Section 8 and Section 21. These notes can be used to gain possession should the need arise. In order for a property to qualify for an assured shorthold tenancy agreement, there are three specific criteria. 

1. The tenant must be an individual.

2. The landlord must not be a resident at the property

3. The property must be the tenant’s home

For the first rule, the tenant must not be a corporation or a trust. This means that if a tenant is a company, they will not qualify for this type of tenancy agreement. The second rule is clear enough; you as a landlord must not live in the property. Finally, the tenant must reside at the 

property as their primary home. In other words, an individual purchasing a number of properties for investment purposes would not qualify for this assured shorthold tenancy agreement.

 

Non-Housing Act Agreement Tenancy

Non-Housing Act Agreements are the other main category of tenancy contracts. This is a general catch-all term for all the contracts that fall outside those three main criterias. These tenancy agreements are an entirely different breed as there is far less legislation to consider. For example, if you have a company that would like to become a tenant, you would need to use a non-housing act agreement. 

Now, let’s get into the details of what makes these two different. 

 

The Difference Between Them

There are several variances between these two main agreements that you as a landlord need to know. First of all, non-housing act agreements allow you as a landlord to disregard several key pieces of legislation. For example, the requirement to register deposits is not applicable for non-housing act agreements. For any tenancy agreement like this, did you know that you don’t need to register the deposit?

Also, the tenant fee ban is not applicable, so there is no deposit cap. The laws banning fees are also not applicable, meaning that you can charge your tenant a referencing fee, admin fee, or late payment fees.

As a landlord, you may have times when you are forced to take possession of a property. At these times, it’s important to understand the tenancy agreement you are tied to. There is a completely different process between a housing act agreement and a non-housing act agreement. Basically, in a non-housing act agreement tenancy, the landlord can simply let the tenant know at the end of the fixed term that the tenancy is over. This terminates the tenancy, which then goes into a rolling contract. At this point, the landlord simply gives notice to quit within a minimum period of 4 weeks. As you should be able to see from this, tenancies that fall outside the Housing Act offer landlords many more opportunities and leave them with a bit more flexibility to act.

 

Be Careful To Use The Right Agreement

It is important to always ensure you are using the correct tenancy agreement. Despite all of the benefits of using non-housing act contracts, you shouldn’t think that you can use those when the criteria for an Assured Shorthold Tenancy is met. As a landlord, you must abide by the Housing Act if it applies to your tenancy. From the perspective of the law, your tenancy will be looked at regardless of the contract you signed as being either an Assured Shorthold Tenancy or not, based on those criteria. 

We recommend keeping all these things in mind when selecting your tenants so that you know from the first what kind of agreement you are getting yourself into. Always ensure that you use the correct contract for every scenario. We at Concentric are always looking for ways to provide help and advice to landlords so that they can better manage their properties.

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Spring Newsletter – Property Market Update

Sales Focus

I think it is safe to say that 2020 was a year like no other for obvious reasons! And from a property market point of view certainly a year which has defied expectations – with the UK experiencing its strongest annual price growth recording since the summer of 2016. To close out 2020, December alone saw over 129,000 homes change hands which is 32% higher than December of 2019 – this only added to what is always a mad rush in the middle of the month to hit clients exchange deadlines so they could enjoy Christmas with peace of mind.

The Mortgage Market has recovered with the bank of England reporting approvals to be up 3.7% on the previous year. Already this year we have seen more mortgage products released again, particularly on 90% loan to value mortgages which of course will be a big help to first-time buyers. And with an estimated 10% more sales agreed in 2020 than in 2019, the start of 2021 has been incredibly positive. The New Year itself was reported as being the busiest ever start to a year by our friends at Rightmove with visits to the website up by 30% and sales property enquiries up by 11% compared to the same period a year ago.

They have also reported that sales agreed in January are up 9% year on year. However – we have seen a new supply of properties coming to market reduce by 12% and the total number of homes for sale down by 6% as new sellers remain cautious while lockdown restrictions remain. This has caused a supply/demand imbalance and is only likely to maintain upward pressure on prices. But with surveys suggesting a large percentage of would-be sellers are holding off due to the pandemic, perhaps we can expect a surge of new supply towards the summer as lockdown measures are eased. Many sales are currently in the conveyancing process, in fact, there are approximately 650,000 transactions currently going through and the process has been a lot slower meaning a heightened level of stress for a lot of home movers – especially those who were pushing for the stamp duty deadline that was previously set for the end of this month. 

But that stress has been lifted for so many with the latest budget announcement as the stamp duty holiday has been extended to the 30th June – so there is some breathing space and opportunity. The chancellors budget announcement was on the 3rd March and represents a number of changes and factors for the housing market. Here are my 4 key takeaways: Starting with Stamp duty – so it is a 3-month extension from the end of March to the end of June meaning that stamp duty is only payable above the threshold of £500,000 which represents savings of up to £15,000 on purchases. This excludes the 3% second property surcharge for anybody who is unsure. – furthermore, to avoid a ‘cliff edge’ when this period ends, the tax-free threshold will then drop from £500,000 to £250,000 for a further three months before finally returning to the normal level of £125,000 from October 1st. This is huge news as savings of up to £5,000 can still be had for completions across the summer months.

Secondly, 95% mortgage guarantee scheme. – I said earlier that the return of 90% LTV mortgages has helped more first time buyers get back into the market with a 5% rise in demand from said buyers in the first 6 weeks of the year. And sales of between £100,000 and £250,000 have seen an increase of around 18% in the first couple of months of this year which is in keeping as buyers of lower value properties tend to be more reliant on the availability of finance – especially at higher loan to values.

So this mortgage guarantee scheme is part of a government initiative to turn generation rent into generation buy and means that the lenders who sign up for it (so far the likes of Lloyds, Santander, Barclays and HSBC are all involved) can purchase insurance from the government to cover some of their losses if the property is repossessed. A bit like an indemnity policy. So a safety net for the lenders to be comfortable offering high loan to value products to buyers again. And this is not just for the first-time buyer but also existing homeowners and those trying to re-mortgage with low equity. (this of course excludes buy to let mortgages which remain at a minimum 25% deposit required)

The third takeaway is Tax thresholds being frozen – a number of tax thresholds including those for capital gains tax and inheritance tax, will be frozen until April 2026. – Capital gains threshold will be held at £12,300 for the 21/22 tax year whilst inheritance tax remains at £325,000 (meaning tax payable only kicks in above those amounts.

So who does this affect?

The move to freeze CGT means anyone selling an investment property or a second home will have to pay capital gains tax of 28% on any increase in the property’s value since they first bought it above £12,300.

Couples who jointly own a property can combine their CGT allowance to £24,600. Inheritance tax is paid at 40% on all assets worth more than £325,000 that are not left to a spouse or civil partner, although this threshold increases to £500,000 if you leave your home to your children or grandchildren. Of course, the speculation over a hike in capital gains tax has already seen some landlords act and we have seen a spike in the sale of previously rented homes. With the 5 year freeze this may well reduce the number of landlords thinking of selling again.

And finally, the extension to the furlough scheme will be extended until the end of September. I have put this in here for 2 reasons: firstly if the government is continuing to support people’s incomes who can’t currently, work then they are less likely to struggle to keep up mortgage payments meaning we are less likely to see a spike in forced sales or repossessions that some have been speculating. And secondly, for all of you landlords with tenants who are being supported by the furlough scheme it means they are less likely to struggle to upkeep your rent payments! That’s a definite positive for all of us! It really is no surprise that reports are stating that we are experiencing one of the busiest ever Spring markets!

 

Lettings Focus

To start with we are still seeing average rents across the UK rising with a 1.4% increase across the last year. Interestingly though Zoopla reports some major cities to have decreased with London most notably dropping by around 8% and more locally Birmingham is apparently down by almost 1% year on year. So taking London out of the equation and the UK increase would in fact be more like 2.5% year on year. And this is expected to continue for the foreseeable future. 

So, guys, I would always encourage regular tenancy compliance checks and a rent review is something I personally tie in with those checks as its always good to know where you stand versus current market rates. A few other interesting points to note starting with a look at where the demand is at its strongest and it appears that commuter belts are stronger than main cities themselves right now. So take our area for example...

Rents in central Birmingham fell by -3.4% in the year to December 2020, but average rents across neighboring boroughs, including Bromsgrove, Sandwell, and Wolverhampton rose by an average of 5.3%. And as my area is Wolverhampton, I just want to advocate why our area is great to invest in for anybody who is actively looking...

1)We are seen as the best value commuter area outside of Birmingham – this takes into account the average cost of rent or mortgage payment plus annual train ticket. Second to us is Cannock! 

2)The average Gross rental yields are now above 6%

3)Tenant demand is unbelievably high right now and there is a real supply issue in the local rental market. – We have personally seen a further 50% increase in the number of tenants registered as looking for a property so far this year and Rightmove reported an increase or 22% in enquiries on properties for let in the New Year. All perfect ingredients for a buy-to-let and I will leave that there but if anybody wants to discuss further I do have a Buy-to-let advisory service which you can contact me if you want some help or are interested!

So that concludes the Spring property report and I do hope you found it useful or at least interesting! If anybody wants to share their views or opinions with me or perhaps would like some advice, please do contact me – I would love to hear from you!

 

Ali Durrant

Branch Manager of Concentric Sales & Lettings

ali@concentricproperty.co.uk

Electrical Certificates – why every landlord should have them

The risks

Imagine if you picked up the phone in the middle of the night to be told that there was a fire at your rented property. As horrific as that news would be, one of the first things that the fire department, the police, and the insurance company would check is whether or not the electrics and electrical appliances within the premises were safe, or whether they could have been the cause of the fire.

And if that were the case, who do you think liability would automatically be with?

If you fail to produce a valid electrical certificate, it could very well be you, the landlord. That would mean that not only do you risk prosecution, but it’s highly unlikely that your insurance would payout.

But, if you have a valid, up to date certificate from a qualified electrician, then you have proof that you have done everything you can to ensure that the electrics in that property are safe. In that case, liability would no longer lie with you as the landlord, but with the electrician, as the question would be whether he had completed the work properly, or with the tenant, who has a responsibility to take care of the property while he or she lives there.

Is it law to have an electrical certificate for my property?

It will be, as right now Government are in processing a law which will mean that all rented properties will have to have electrical checks every 5 years. However, until that time, most agencies are recommending that their landlords get ahead of the game and make sure that all new tenancies start with a valid and up to date electrical certificate, before the tenant moves in.

That’s because, under the Consumer Protection Act Section 37 and Section 19, you have a responsibility to guarantee that your property is safe and fit for tenants to live in. And having an electrical certificate is part of that responsibility.

What will the new law mean for landlords?

Landlords will be required to have electrics checked in their properties every 5 years. This is mandatory, and must be carried out by a qualified electrician. This will be phased in over 24 months; in the first year, all new private tenancies will be affected, and in the second year, all existing private tenancies will also have to adhere.

If a property has recently had an electrical installation condition report (EICR) and has a valid certificate, then the property will not be required to have an inspection until 5 years has lapsed since the date of issue.

What will the required checks include?

The new legislation will require 5 mandatory recommended electrical safety features, which are:

What’s the difference between an EICR and a PAT test?

When we talk about getting an electrical certificate for your property, we’re really talking about the EICR – this is a test carried out by a qualified electrician, and tests the infrastructure of the properties electrics. As detailed above, this includes the wiring, units, plug sockets and switches etc.

A PAT test is really there for the appliances within that property. That would be anything that you include as portable appliances in the property, which might be things like a fridge or freezer, electric oven, dishwasher etc. It’s not mandatory for you to have a PAT test, but some landlords like to get one if they do include these appliances, as again, it provides an extra layer of cover if anything should happen.

In conclusion

While it’s not law to provide an electrical certificate at the time of writing, it’s highly recommended that you obtain one. It’s a small price to pay for peace of mind that your property is safe, and that you won’t be held accountable if something should go wrong.

The Government will be changing the law on this soon, so get ahead and make sure that you’re properties are protected, if not on existing properties, but on all of your new tenancies going forward.

If you are looking to keep all your properties safe by staying compliant with current legislation, click HERE to download our FREE compliance checklist.