Protect yourself from risk 

Court fees going up

Carolyn Uphill a landlord and Chairman of the NLA on making sure you have the right insurance cover and the perils of not doing your research.
 

During my time as a landlord and as Chairman of the NLA I have come across many landlords who thought they had appropriate insurance cover but unfortunately found out the hard way that they in fact needed specialist landlord insurance. Landlords should treat their investment as a business, and as with all business operations there are rules and regulations, with stiff penalties for getting things wrong. Essential are things like making sure they have the right paperwork, establishing good relationships with their tenants and providing the necessary services for a comfortable tenancy. But what about all the other risks you face as a landlord?

One thing is for sure; standard building insurance will not do

Whatever size the portfolio, a landlord needs to make sure they are protected. I have lost count of the number of conversations in which a landlord has said they thought that their standard house building insurance policy ‘would do’. Sadly that is far from the case. Without notifying your insurer that you have let the property out, your insurance may not be valid at all and it will not cover you for the things which as a landlord you may be liable for.

Do you have the appropriate cover?

Loss of Rent
Did you know only 23 per cent of landlords have loss of rent cover? That’s nearly three in four landlords who underestimate the significance of specialised landlord insurance. If, for example, your property burns down, not only do you need to rebuild it, but you may also need to re-house your tenant, at your cost. Of course, this is not an everyday occurrence but it will prove to be a very difficult and costly situation if you don’t have the right cover in place. There will still be outgoings, such as the mortgage, which needs to be paid whilst the property is being rebuilt and without a specialised loss of rent cover, there will be no income to help mitigate these payments.

Public Liability
Public liability cover is another area of protection which landlords mustn’t overlook. Only a specialist landlord insurance policy will provide you with this cover and that’s why you need to ensure you have the right policy for the business you’re in.

Rent Protect
All businesses come across potential bad debts during their lifetime and these costs must be accounted for, otherwise it could destroy a business. It is no different for landlords; these debts are more commonly known as ‘rent arrears’ and are critical for those of you who may have a mortgage to pay, which is why investing in a ‘Rent Protect’ policy is a must.

You never know what might go wrong and all these eventualities can be insured against. With our business heads on we need to calculate the risk to us, the damage they would do to our finances and consider investing in an appropriate policy.

Where to look

The NLA exists to support the private sector landlord and one of the ways we do this is to offer specialist products and services that can be trusted to suit the needs of the landlord and you will find details of these on our web site at www.landlords.org.uk/services 

There are lots of other risks to consider, financial and political, and we can’t protect ourselves from all of them but we must wise up to those which are foreseeable and controllable if we want to reap the rewards of our investment.

Safety first

Richard Price, Director of Operations, NLA supports the Gas and Fire Door safety awareness week campaigns and would like to help spread the word of gas and fire safety.

Both the gas and the fire door safety week campaigns are upon us. It is a great time to promote the importance of providing a safe environment for tenants and the importance of safety in private rented accommodation cannot be under-stated.

Landlords must take their responsibility and duty of care to tenants seriously in order to avoid preventable injuries and fatalities caused by fire or gas in the home.

It is important to be aware of what you are legally required to do as well as what is expected of you.

Can you smell something?

When it comes to gas safety it is important that annual inspections of all gas appliances, including boilers, gas cookers, gas fires, pipework and flues are carried out only by a Gas Safe registered engineer.

The legal requirements around the installation of Carbon Monoxide alarms differ in different countries of the UK, but the NLA advice is simple: fit audible alarms in any property that has a gas supply. Suitable alarms can be found in the NLA online shop. Remember, you cannot smell or see Carbon Monoxide, it is known as “the silent killer”

Gas Safe Register has compiled a top tips list to stay gas safe, as well as an introduction video which covers the basics.

The NLA has also put together an informative video on gas safety and your responsibilities which we recommend all landlords watch.

Put wood in hole

When it comes to fire safety it is important that the residence has been assessed for potential risk. In keeping with the risk-based approach of the Housing Act 2004 and the Regulatory Reform (Fire Safety) Order 2005, landlords should (and for certain properties must) carry out or arrange for a fire risk assessment in order to identify what fire hazards exist, what the risks to occupants and visitors are, and the appropriate action to take to mitigate and control the risk of fire in their properties.

The NLA strongly recommends that all residential properties are fitted with fire detection and alarm systems and that an adequate means of escape is established in case of fire. Again specific requirements differ in different countries of the United Kingdom.

Wherever fire doors are required, we recommend that good quality certificated fire doors are fitted in order to keep a fire adequately contained and to minimise the risk to tenants and damage to the property.

We also recommend that landlords make their tenants aware of the importance of not obstructing or propping open fire doors for their own safety, especially in communal areas.

Our video informs landlords how to carry out a fire risk assessment and is essential viewing for landlords of all residential properties. If a landlord has larger HMOs this additional video will cover what to do.

Knowledge is power

The NLA library has a wealth of information which can guide anyone who isn’t sure what they need to do. The online library on the NLA website offers guidance to support landlords through the process.

Other useful resources:

NLA Library – Gas safety information

NLA Library – Fire safety information

Fire Door Safety Week

Gas Safety Week

NLA Property Insurance

How effectively do you manage your rental income?

Incoming Chairman Carolyn Uphill

“With proper planning and financial protection in place many could turn a failing business into a success and we’re urging landlords to explore the range of support the NLA can offer to help run a successful and profitable business”. – Carolyn Uphill, Chairman, NLA

Carolyn Uphill, NLA Chairman discusses the importance of planning and financial protection

Having looked at our recent research it is quite worrying that more than a quarter (27pc) of landlords who let out a single property break even or run at a loss, but with some good financial management and appropriate safety nets in place this can be avoided.

There are various reasons why a person becomes a landlord, from it being an investment opportunity to it being more beneficial financially to let a property than to sell. However if they are barely breaking even or are actually running at a loss landlords should step back and reassess how they are managing their business. It should be stressed that taking a professional approach to letting property and using all available help can make a huge difference.

Managing your portfolio

Keeping an eye on the outgoings as well as the income can be very useful in pinpointing any shortcomings. One of the many services that the NLA offers is our online rent management solution, Rent Manager. Like all of the NLA’s services, Rent Manager is designed by landlords, and aims to make the task of rent management much easier, saving you both time and money, no matter the size of your portfolio.

Using Rent Manger, which is free to full NLA members, allows you to:

  • Set-up different tenancies for all tenant and property types e.g. HMOs, student lets, LHA tenancies, full property lets etc.
  • Create rent schedules for tenants in properties/rooms
  • Enter and keep track of full and partial rent payments
  • Receive rent arrears alerts
  • Record all tenant communications

To see how the software can benefit you, watch a demo here www.nlarentmanager.org.uk/demos.html or for more information about Rent Manager visit www.landlords.org.uk/services/nla-rent-manager

Safety nets

After having put in place a rent schedule it will be much easier to act quickly and address any issues such as arrears. Leaving arrears for even a month or two without addressing it could come back and bite you as debt could potentially mount up to an unmanageable level leaving you out of pocket and with an even more difficult task of rectifying the problem without any further costs. We recommend that all landlords should budget for 10 months’ rent in a year in order to cover any periods of voids or arrears.

A tenant who can’t, or won’t, pay the rent is every landlord’s worst nightmare. Even when including a two month buffer in your budget, a landlord could still be faced with arrears, which is all the more concerning if the profit from the rental income is relied on for mortgage repayments. This is where a service such as the NLA’s Rent Protect could prove invaluable as it protects you if a tenant fails to pay the rent.

Rent Protect covers landlords for up to £2500 per month in unpaid rental income and it covers legal costs to help you in the recovery of unpaid rent.

This gives you peace of mind that you won’t lose out if your tenant can no longer pay the rent and will give you the time to consider your options.

For more information about Rent Protect visit http://www.landlords.org.uk/services/nla-rent-protect

Local council websites and the chamber of secrets

Rebecca Lambert Neu, on her brief time temping in the NLA’s Policy Office…

Who knew local council websites could be so frustrating? After spending a day and a half with the Policy Team at the NLA I could happily testify in a court of law to this fact.

I arrived at the NLA with a clear task: I had two days to compile a list of the Housing in Multiple Occupancies (HMO) licensing fees set by the various local councils across England. This was essentially googling every council in England’s mandatory licensing fee and putting it into a spreadsheet, which sounds pretty straight forward, no?

However, at least a third of the 300 plus council websites I had to look at did not have the licensing fee listed at all, or it was deeply entrenched into the site and listed with all other types of council fees. Now I’d like to think I’m not particularly stupid, and as a 16 year old I have grown up with the internet and generally can find my way around websites with relative ease. But after the 5th council website I got to where I could not find any relevant information about HMO licensing fees, I began to despair for those who were less technically minded than me, or those who didn’t know specifically what they were looking for and would be forever ensnared in their local council’s website.

So after my adventures online, I resorted to phoning councils themselves. This managed to take just as long as searching through the websites and in fact some councils seem to do as much of an extraordinary job at hiding their contact details as they do with hiding other important information. Once you find the number, the normal call-queue wait to be spoken to by a real person ensues. Apparently, very few general enquiry workers have actually heard of HMOs, and even fewer know which department to put me through to when I explain it. The average call was about six minutes, transferred through various departments and explaining again each time what a HMO was.

Why on earth would councils have such impossible websites?! Surely it’s in everyone’s best interest for information to be listed clearly?

So I issue a big thank you to England’s councils and highlight this as a prime example of just how vital good e-communication is in today’s world. As for the council phone call void, I don’t have a solution, merely a request for no pan flute music on holding lines any more.

Right to rent checks are being rolled out – how will you be affected?

Matthew Oliver, NLA’s Parliamentary Officer, outlines what the changes will mean.

Matt Oliver, NLA Public Affairs Officer, explains the Immigration Act Landlords Scheme

Matt Oliver, NLA Public Affairs Officer, explains the Immigration Act Landlords Scheme

In a written ministerial statement, the government yesterday announced the areas where they will be piloting the Immigration Act Landlords Scheme.  This is the scheme where landlords are required to check the immigration status of tenants, as prescribed in the Immigration Act.

What do you need to know?

From 1 December 2014, landlords in these areas will need to check that someone has the right to live in the UK before letting a property to them. This includes landlords who take in lodgers or sub-let property.

Therefore, the right to rent checks will only apply to:

  • landlords in Birmingham, Walsall, Sandwell, Dudley and Wolverhampton
  • all adults aged 18 and over living at the property (children under 18 will not need to be checked)
  • only new tenancy agreements starting on or after 1 December 2014

Landlords will need to see evidence of a person’s identity and citizenship, for example a passport or biometric residence permit. Copies of the documentation will need to be taken as evidence the checks have been carried out and retained for one year after the tenancy ends.

Importantly, if landlords let a property after 1 December to someone who doesn’t have the right to rent, then they could be fined up to £3,000.

The landlords code of practice

The Home Office have released guidance to support landlords with the changes. The Landlords Code of Practice explains:

  • if your property is affected
  • if any exemptions apply
  • how to carry out a right to rent check
  • what documents individuals can show you as evidence of their right to rent
  • when and how to request a right to rent check from the Home Office

Our thoughts

We have to take a practical approach to the issue and it would be fruitless to make any more sweeping statements about our opposition to the plans – we’re far past that point.

However, right to rent checks bring about significant changes for landlords, so we hope that the pilot roll-out provides an opportunity for the Home Office to test the changes and to understand the implications they will have on the process of securing private rented housing.

Combatting illegal immigration is important, but we’ve always been concerned that if landlords are made responsible for making initial immigration checks then the process must be simple to carry out. And on the face of it, the system for checking and verifying a tenant’s right to rent seems both practical and workable, but only where someone’s right to rent is clear cut. Where there is doubt, landlords will need to check with the Home Office which could take up to two working days.

The changes could therefore make it harder for tenants with question marks over their eligibility to rent property in the UK, regardless of their legal status to remain,; any delay to verifying the immigration status of a given individual will hinder the usually expedient process of securing a home in the private rented sector, thus making them less desirable to let to.

What’s next?

The Home Office expects to continue with the phased introduction of checks across the UK next year.  To advise the implementation and evaluation of the measures, the Government is convening a Consultative Panel, consisting of key stakeholders, including the NLA.

We trust that our presence and feedback to the panel on the first phase of the roll-out will be thoroughly evaluated and considered to ensure a smooth transition for landlords.

Our new Housing Minister is keen to stress the positive role of the PRS

Pity the minister re-shuffled in July.  While you or I spent our summer holiday reading for pleasure, they resign themselves to packing a stack of briefing papers next to the must-read political biography and the highly recommended literary novel that they told the Sunday heavyweights were on their summer booklists.

CEO Richard Lambert on the NLA's meeting with the Housing Minister

CEO Richard Lambert on the NLA’s meeting with the Housing Minister

The new Minister for Housing and Planning Brandon Lewis doesn’t appear to have been tempted to slip a couple of thrillers surreptitiously into his suitcase.  When NLA Chairman, Carolyn Uphill and I met him yesterday, he was well on top of the subject – interested, engaged and keen to stress to us the positive role he saw the private rented sector playing in the provision of housing.

This was very much an introductory meeting.  We wanted to ensure Mr Lewis could put faces and names to the NLA when it came up in future, and that he had a sense of who we represent and what we are trying to achieve. Equally, we wanted to get a feel for how Mr Lewis was approaching the issues and to put some thoughts into his mind for the future.

Retaliatory eviction

We hoped that we would get some pointers on the Government’s attitude towards Sarah Teather’s private member’s bill on retaliatory eviction.  However, the Minister was carefully non-committal, saying that the Government was “not yet ready” to declare its position on the Bill.  Questioning whether there was the evidence that retaliatory eviction was as widespread as is often perceived, Carolyn Uphill stressed the importance the NLA and landlords in general attached to the no-fault possession procedure, and expressed our concerns over any call to reduce the flexibility section 21 gave to the market without good reason and sound evidence.

Model tenancies

We’ve been waiting through the summer for the launch of several initiatives which emerged from the Government’s response to last year’s Select Committee report, and he confirmed that we should see these shortly.  One of these will be a model tenancy agreement.  The Government’s aim was not to trump all existing tenancy agreements, but rather to change tenants’ understanding of how tenancies work, and raise awareness that longer tenancies are possible, and that they can ask for them.  This gave us the opportunity to outline the NLA’s recent campaigns which have highlighted the business benefits of long-term relationships between landlord and tenant.

Licensing

More generally, we wanted to stress our concerns over the way local authorities are using the power to introduce discretionary licensing schemes.   Over the past year or so, we’ve seen more and more councils propose selective or additional licensing schemes, and some worrying trends have emerged:

  • The growing number of proposals for blanket borough-wide licensing
  • Poorly drafted consultations, based on flimsy evidence, which do not demonstrate how the case for licensing meets the specific criteria of problems caused by low demand or anti-social behaviour
  • The imposition of additional property or management requirements as conditions of licences
  • The absence of an independent check on whether local authorities have made their case and properly justified their licensing proposals, which means that there is no scrutiny of or check on how the powers are used – or in many cases, abused.

Brandon Lewis was very sympathetic to these points and said that he was “very aware of blanket licensing as an issue, especially in London”.  We pointed out that in reality licensing is a burden on the law-abiding, as they are the ones who accept the obligation, and pressed the case for accreditation as a method to filter out the responsible landlords from those who do not comply with the law or standards, who should be subject to more rigorous enforcement.

Further reading

All in all, it was a very useful conversation.  And I’m afraid we are going to add to his reading pile: we promised a couple of recent issues of UK Landlord for his red box.

Ownership of Properties

Spofforths Chartered Accountants Student Induction Course at Spofforths in Horsham. Staff and student portraitsJo White, Tax Consultant discusses property ownership

I am often asked to advise clients on property ownership. The most common way to own property is in your personal name, whether on your own or with another person(s).  However, it is also possible to own a property in a company or Trust.

Where you own the property personally the profits generated are taxed on you.  Depending on your other income this could be at 20%, 40% or 45%.   A Trust is subject to income tax at a rate of 45% whereas a company is subject to corporation tax typically at 20%.

Whilst the rate of tax payable by a company can be lower than an individual there is a potential double tax charge.  Income Tax will be payable on any profits extracted from the company, however with careful planning your tax liabilities can be minimised.  Companies are also subject to tax on any profits made from the sale of the property at 20% as opposed to 28% for an individual or Trust.  However, the shareholders would then pay a tax charge on the extraction of these funds.

If as a landlord you are looking to reinvest any profits into new properties then it is possible that a company may be of benefit as you will not be incurring a double tax charge.  If you are a basic rate tax payer you may not benefit from the low company tax rate and personal ownership may give you more flexibility on the ultimate sale of the property.

It is also important to be aware of the other non-tax issues surrounding property ownership in different structures.  Raising finance, for example, can sometimes be more difficult in a corporate structure.

Whether you are a new landlord or have a portfolio of properties already it is important to get professional advice to ensure any decisions made reflect your personal circumstances.

Make sure you take full advantage of the tax saving opportunities open to you – call us today on

01403 253 282 or email jowhite@spofforths.co.uk. Jo is presenting at the Worthing and Chichester NLA meetings on 8 October and 25 November respectively. Click HERE for more information.