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.

We’ve got tons of content available to assist you with practical step-by-step guidance on legislative updates and the issues that matter for landlords. We even host a quarterly online seminar that you can join!

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170 Pieces of Legislation You Need To Know

Did you know that there are 170 pieces of different legislation you must adhere to as a landlord?

If you’d like to learn more about the laws and regulations that apply to you, read on.

Here at Concentric Sales and Lettings, we are dedicated to getting you the latest information on legislation updates as well as providing the guidance you need to be successful, safe and compliant as a landlord. 

In this blog we’re going to discuss some of the most important pieces of legislation that you should be aware of as a landlord. This is by no means an exhaustive list but is intended as something of a primer to the laws governing our industry.

 

The Housing Act of 1988

In 1988, the Housing Act came into being and completely revolutionised the private rented industry in the UK. The new law gave greater opportunities to landlords and drove the private rented sector into an economic boom. For the first time, private landlords were able to secure possession of their property in a legally protected manner. Before 1988, this was simply not possible. It was also thanks to this law the Assured Shorthold Tenancy (AST) was born.

This is the same AST we all know and use for so many of our lettings. The Housing Act gave landlords 17 grounds for gaining possession of their property, giving unprecedented levels of opportunity for landlords to evict should the need arise. The law also made it possible for you to secure possession of your property without waiting after two successions of your property to family members. 

Overall, the Housing Act of 1988 dramatically changed the letting world as we knew it. Not only did landlords receive easier access to evict tenants that were not paying their rent, but Section 21 was introduced. This law created a non-default notice that gave landlords the opportunity to serve notice on their tenants, giving them a fixed period of notice before they needed to give up possession of the property.

 

Laws To Keep You And Your Tenants Safe

The Housing Act is not the only piece of legislation governing the private rented sector, but it is one of the most important. Other important pieces of legislation include gas safety laws, deposit registration laws, smoke and carbon monoxide detector requirements, the Accommodations Agencies Act, the Consumer Protection Act of 1987; the list truly is endless. As we stated previously, there are over 170 pieces of legislation that you need to be aware of so that you remain in compliance.

Abiding by these rules and regulations also keeps you and your tenants safe. For example, Section 11 of the Landlords and Tenant Act of 1985 details your repairing obligations as a landlord. You may have also heard of HHSRS, which is a piece of legislation describing 29 different hazards that you need to be aware of and assess. The central purpose of these laws is to answer the question, is your property fit for human habitation?

The Homes (Fitness for Huan Habitation) act 2018 was passed into law in 2019 and was yet another important piece of legislation surrounding the safety and condition of your property.

 

Crucial Procedural Laws

These laws have impacted the way we, as landlords, do our job. For instance, the Housing Act of 2004 is a landlord law that created new rules regarding how we as landlords handle our tenant’s deposits. HMOs are a legally recognized entity with a whole body of laws that you need to be aware of if you are involved in one. The Immigration Act of 2016 is another very important law. Landlords, did you know that you have to check if your potential tenant has the right to rent in the UK before renting your property to them? The law requires that you be able to prove that you carried out these checks. Sections 47 and 48 of the Landlord and Tenant Act of 1985 are two pieces of landlord legislation that require you, as the landlord, to provide your address to your tenants. There are also Minimum Energy Efficiency Standards, abbreviated to MEES, that are in place. These require all of your properties currently rented to be operating at an “E” rating or above in order to be compliant.

 

How To Be Compliant As A Landlord

In order to be compliant with all legislation impacting landlords, the best thing to do is to know the laws. Take some time to do your research and get to know the laws in your community. We have only scratched the surface of the rules and regulations you have to abide by as a landlord. Additionally, certain properties will be impacted by specific, local rules that you’ll also have to be aware of.

Sometimes, it can seem like the list of pieces of legislation is endless, but we hope you’ve found this content informative and helpful. If you did, please check out more of our content here on our blog, and feel free to visit our social media channels. If you’d like to learn more, we host a quarterly online seminar that you can join to get the latest updates on the regulations and legislations that matter to you.

Register your space on the next page.

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

Things you should consider before you rent out your property (Part. 1)

When you are preparing your property for rental, what’s the first thing that comes to mind? What are the things that you look for when you are checking the home for potential tenants? Is it the standard of the décor? The appearance of the carpets and flooring? It’s likely that you will be looking at these things, envisaging it through the eyes of the tenant – but before you even take those things into consideration, you should be thinking about safety.

When a tenant looks around the property, they won’t be able to see whether or not the electrics are up to standard. They won’t be wondering whether the boiler has been serviced. Because they will expect that you, as the landlord of the property, to have done all of the work required to make sure that the property is safe. Don’t let those things escape your attention, as these are the things that could cause you the most problems down the line.

Our advice, particularly to first-time landlords, is to focus your attention on the safety first, before anything else. It really doesn’t matter if the property isn’t ultra-modern in its décor or furnishings – first and foremost, it needs to be completely safe.

Make sure that you take the time to check your compliance with Gas Safety Regulations, that you have adequate smoke alarms placed in key places throughout the property (and that they are in full working order), and that you have fitted carbon dioxide sensors in places where there are risks.

Touching a bit more on that – if your property has an open fireplace, regardless whether it is used or not, it is essential that a carbon dioxide sensor is fitted nearby – if, as has happened in the past, the tenant decides to go against your advice and use the fireplace, then you as the landlord would be liable.

All aspects of safety for the property are the responsibility of the landlord. Keep all safety checks, such as electric and gas etc. up to date – that way you have proof if something were to go wrong.

Make sure it’s clean

This seems pretty obvious, but always make sure that the property you are renting out is clean before you show it to potential tenants. There is nothing more off-putting than walking into a home which has a bad odour, grubby door handles, and unsightly marks on the carpets.

The cleanliness of a property is the first thing your potential tenants will notice, so if you are unable to get it up to standard yourself, make sure you get a professional cleaner in to get the jobs done for you.

Key things are:

Remember; if the property is in a clean and tidy state when the tenant moves in, then they are more likely to keep it that way. And of course, you can insist that when they vacate the property, they leave it in the same condition as when they moved in – this will be noted in both your contract and your inventory.

Present to suit your market

This is something else that is often overlooked – presenting your property to attract the type of tenant you want. You’ll want to take into consideration the kind of area the property is in, and the demographic. If you’re in an area of town where there are a lot of retirees, then you should make sure that the property is set up and decorated in such a way to attract an older clientele. If it’s somewhere that tends to attract professional couples, then they will be more attracted by modern décor and slick modern appliances. And families will have different requirements again.

Something else to consider is, how will you attract the kind of tenant that you want? For example, if your property is a bit run down, hasn’t had any investment in the overall décor, kitchen, bathroom, then think about the grade of tenant that you’re likely to attract.

And to add to that, the more you are willing to invest in getting your property modernised, the higher rent you’re likely to get for it, as people are willing to pay for the convenience of having modern appliances, adequate storage, a good number of plug sockets to suit their needs, and any little modern touches that will make their lives within the home easier and more comfortable.

Of course, these are just a few of the many things that you as a landlord will want to consider when you rent out your property – join us for part 2 of this series where we will guide you through some more of the requirements and legalities you will face when looking to fill your property.

Need advice? Call our office on 01902 421405 where we will be happy to help you to get the right tenants for your property.

Alternatively, download our FREE 'SELL YOUR HOME FAST' guide here.