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A guide to renting your property
Renting property
Whether you are a landlord or a tenant, it is vital that you have a comprehensive understanding of your obligations…
The official birth of buy to let took place in 1996. Buy to let is the name given to an initiative originally conceived by the Association of Residential Lettings Agents (ARLA) that was initially supported by a small panel of eight mortgage lenders.
These were the first mainstream financial institutions that were willing to throw open their lending to investors wishing to buy property to let in the private rental market. Since then, the number of lenders who service this section of the market has grown to more than 50, as buy to let has become increasingly popular.
The investment environment for buy to let landlords has improved dramatically over the past decade for several reasons aside from the greater number of willing lenders. The 1988 Housing Act gave landlords much greater power to evict problem tenants.
Previously, tenant occupation was extremely detrimental to the value of a property, making residential investment something of a mug's game.
At the same time, various socio-economic factors have been pushing up the demand for rental property. The economic environment has made it more difficult for first time buyers to reach that first rung on the ownership ladder, so they are turning increasingly to renting.
The increasing division of the family unit has led to more people leaving home at an early age - a time when they are not financially able to own their own home.
The job market has changed too; there is far less security now, with much shorter employment contracts and a greater need for mobility, all pointing towards a greater need for rented accommodation.
Demand for rented property has risen by 50 per cent over the last decade and is likely to continue to grow. Privately rented property now represents more than 11 per cent of the housing stock.
Landlords
If you are thinking about letting out your property, you must check with your mortgage lender that they are happy for you to do so. Inform them in writing of your wish, as if you fail to get their written agreement then this could be a breach of your mortgage conditions.
You should also make sure that the lettings agent is aware of any restrictions your mortgage lender has imposed. It is possible that the lender will marginally raise the rate of interest that you are being charged on your mortgage loan or charge an additional administration fee.
If you live in a flat or other type of leasehold property, you will need to check your lease to make sure that you are not breaching it by letting your property out. You may need to gain permission from the freeholder or from their managing agent.
They will generally require a fee for granting consents and in some cases special conditions may be imposed. These conditions will need to be added to the tenancy agreement.
Insurance is another factor to consider. Your existing building and contents policy may not cover the property if it is rented out, and generally there will be a slight increase in the level of your premium to accommodate the extra risk of having your property occupied by tenants.
For private landlords, there are two main types of tenancy. The short assured tenancy, which is for a minimum of six months and a maximum of five years, does, in practice, require two months notice to terminate the lease after the initial duration. Some mortgage lenders insist on this type of lease.
The former main residence assured tenancy means that you can let out a house, which was formerly your main residence, with a minimum of one month's notice by either party to terminate the arrangement.
As a landlord, once you have taken a tenant on you cannot just get rid of them. A court order is required first and if, for example, the tenant is behind with the rent or causing a nuisance, eviction will not automatically be ordered. Choosing carefully when you come to selecting a tenant for your property is vital.
If you decide to let the property to three or more tenants who are not all part of the same family, a Multi-Occupancy licence must be obtained from the local authority.
The Disability Discrimination Act, Sex Discrimination Act and Race Relations Act also apply to anyone letting, selling or managing premises. If you are in doubt about anything, seek legal advice.
As a landlord, you are also responsible for repairs to the structure and exterior of the property, heating and hot water installations, basins, sinks, baths and toilets.
You are also responsible for the safety of gas and electrical appliances, the fire safety of furniture and furnishings provided under the tenancy, ensuring that the property is fit for habitation, and for maintaining the common areas in multi-occupancy dwellings.
Many landlords choose to become accredited. This is a set of standards relating to the management or physical condition of privately rented accommodation. Landlords can join a scheme and, if they abide by the standards they are then accredited.
Accreditation schemes are voluntary, and, although there is no compulsion for landlords to join, there may be many advantages, including the status of being publicly identified as a good landlord. There is also the business advantage of advertising their accredited status to tenants who place emphasis on good quality and well-managed accommodation.
Incentives to become accredited can include consultation on proposals that may affect landlords, such as changes to legislation or local housing strategies and even access to loans to renovate properties to relevant standards.
Tenants
As the tenant, you are responsible for paying the rent as agreed and taking proper care of the property, paying bills for utilities if this was agreed with your landlord, and, in most cases, paying the council tax, water and sewerage charges.
If you choose an accredited landlord, you can benefit from knowing that the property will be in good condition and the tenancy will be managed to a high standard.
Local authorities – usually the housing or environmental health department, run most of the accreditation schemes, and tenants can contact their local council for advice about who is accredited. The Environmental Health Officer at the council will give you more details about your landlord's obligations.
The Tenancy Deposit Scheme, which came into effect in April last year, is run under government legislation and requires every Landlord or Letting Agent that takes a deposit for an Assured Shorthold Tenancy in England and Wales to join.
Landlords take a deposit from a tenant at the start of the tenancy, which acts as a safeguard should the tenant cause any damage to the property. Some unscrupulous Landlords are either very slow to return deposits at the end of the tenancy or make unfair deductions, and some tenants are reluctant to forego their deposit if they have damaged the property.
The tenant pays over the deposit (commonly one months’ rent) in the usual way when the Tenancy Agreement is signed. The Landlord or Letting Agency has 14 days from the commencement of the tenancy to provide the tenant with details of the scheme that they are using, and if there is no dispute at the end of the tenancy the deposit will then be returned to the two parties as agreed.
If a dispute has arisen then the parties will be invited to make use of the Alternative Dispute Resolution process that is provided free within the scheme.
There are two types of scheme - insurance backed or custodial. Under the insurance backed scheme the Landlord or Letting Agency pays a premium to the scheme but retains the deposit whereas with the custodial scheme the deposit is transferred to the scheme within the 14-day timescale.
CONTACTS
Government information, www.direct.gov.uk
Tenancy Deposit Scheme, www.tenantdepositscheme.co.uk
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