Rent Arrears Recovery

Michael Devlin from Chafes Solicitors

For  residential landlords there are two key areas that ensure that your properties remain profitable investments. These are maintaining good relationships with tenants, and obtaining prompt payment of rent. These may be simple ideas on the surface, but in reality it can be difficult to ensure that both are being maintained.

These two components are closely linked with late or non-payment of rent placing stress upon the relationship and investment. Now more than ever this is a relationship that needs to be carefully managed.

With this in mind it is important that landlords have in place not only thorough credit checks of new tenants, but also a system to deal with any arrears as efficiently as possible. Being aware of the options and acting quickly can minimise any adverse effects of rent arrears.

In residential cases, recovering possession through the courts needs to be as swift as possible. Having a clear knowledge of these options and a plan of action in place is critical.

To avoid possible problems, consider these initial steps:

• Request to obtain credit checks of new tenants
• Gather references from previous landlord and employer (for both of these, you must have the tenants permission)
• Acquire tenant ID
• Obtain evidence of ability to pay the rent
• Carry out a through third party inventory with the tenant
• Seek a guarantor where necessary
• Request a deposit and protect it under one of three government endorsed schemes (protecting the deposit in this way is a legal requirement)

 

Of course this does not guarantee a successful tenancy, but will go some way to give you peace of mind. You might like to ask a third party referencing company to assist. Always make sure you follow the correct guidelines when asking a tenant for such personal information.

The NLA provides more detailed information on finding a tenant through their Landlord Library.

If the tenancy does go wrong, join the NLA for initial advice from their Advice Line and contact a solicitor who will be able to give you legal advice in obtaining outstanding rent arrears.

Chafes Solicitors can provide advice on how to pro-actively plan to minimise the effect of rent arrears or can act to implement the chosen course of action.

To join the NLA, visit www.landlords.org.uk

This blog has been provided by Michael Devlin from Chafes Solicitors. They are an NLA recognised supplier and have a specialist team of solicitors who act for both residential and commercial landlords.

Take cover from the cold

Each year, NLA Property Insurance sees a spike in claims during the winter months.  Is it a coincidence?  We think not.  In fact, during the extreme bout of cold weather between December 2010 and January 2011 we saw an increase 48% in claims for flood-related damage.

The most common cause of damage was from frozen pipes bursting and causing flooding.  But most of these claims can be avoided if landlords take some simple steps to protect their property and reduce the risk of flooding or damage during the colder months.

•    Firstly, ensure all pipes are adequately insulated, especially those in the loft.  Outside taps should be lagged, or turned off internally if possible and drained down
•    Ensure the overflow pipes are correctly connected and not blocked, in case there is a leak
•    If your tenant is leaving the property for any period during the winter, instruct them to leave the heating on a low setting.  This will ensure water doesn’t freeze in the heating system
•    Leave doors between heated and unheated parts of the property open, to allow warm air to move through the property.  In really cold spells this could include leaving the loft hatch open to allow warm air to circulate, reducing the risk of frozen pipes
•    It is important to check that gutters and downpipes are clear and free from cracks or splits, and the supporting brackets are secure as snow can build up, adding excessive weight.
•    Show your tenant where the stopcock or isolation valves are located in case they have to turn off the water to any part of the property.  Check that the valve moves easily without the need for any special tools
•    Give your tenant an emergency contact number in case there is a problem and arrange for emergency repairs to be undertaken as quickly as possible.

Flooding can cause many thousands of pounds in damage and even make a property uninhabitable while repairs are carried out.  For peace of mind, it is best to take out landlord insurance, such as NLA Property Insurance, to protect your investment.  It is tailored specifically for landlords, and will cover you for things that normal home insurance policies don’t.
For more information on NLA Property Insurance, download our free guide at www.landlords.org.uk/spotlight or visit www.landlords.org.uk/propertyinsurance.

It’s been a busy year…

From our Save Housing campaign against Article 4 directions to our NLA Landlord Live show, it has been another busy year at the National Landlords Association.  Let’s take a look back on this year’s big stories and how they impacted on the wider private-rented sector…

2011 started with our Saving Housing in Portsmouth campaign – our on-going fight against Article 4 directions being taken out by local authorities across the UK, in an attempt to limited the amount of shared housing in their areas.  It has obvious ramifications for landlords, particularly those which cater to students. 

We extended the campaign to Newcastle in February, along with 26 other local authorities.  You can join our Saved Shared Housing campaign by visiting  our website.

Also in February we announced extended hours for the NLA Advice Line.  It is now open from 9am – 7pm on Mondays (except bank holidays), and from 9am to 5pm Tuesday – Friday.  More than 800 calls a week are now made to the Advice Line.

In March, the government announced Stamp Duty Land Tax changes, which we campaigned for.  It provides significant tax savings for bulk property purchases.  NLA Chairman David Salusbury welcomed the changes: “The stamp duty concessions on bulk purchases will encourage landlords to invest more in residential property, thus providing much needed housing in the private rented sector.”

In April, we launched NLA Property Insurance, providing insurance tailored specifically to the needs of landlords, providing coverage for loss of rent, temporary accommodation for tenants if needed, theft of keys and malicious damage by a tenant.

In May, the inaugural NLA Landlord Live took place at London Olympia, with thousands of landlords attending to meet with over 300 suppliers servicing the private rented sector.  There were live property auctions, free workshops on local housing allowance and our Advice Line staff on hand to answer questions.

In June, we released statistics showing more than half of private residential landlords are planning to reduce the number of properties they let to tenants on housing benefits.  Worryingly, more than 90% of landlords say they can’t afford to reduce their rents to absorb the cuts.

Also in June, we welcomed two new Non-Executive Directors to our board – Tony Richard and Carolyn Uphill.  Both were formerly NLA Regional Representatives.

In July, we released our tips for landlords planning to let their properties during the 2012 Olympics.  If you are planning to let out your property, you’ll find them helpful.

In August, our landlord survey found 96% of landlords have a “very good” or “good” relationship with their tenants.  3% say their relationship is adequate while just 1% say its poor.  The survey also showed the majority of buy-to-let landlords would be significantly affected by any rise in interest rates.  A rate rise of two percentage points would have a negative impact on 89% of landlords, with 53% saying the affect would be significant.

In September, we released figures showing two-thirds of private landlords would consider taking advantage of the government’s Green Deal, designed to make homes more energy efficient at no direct cost to the landlord

In October, we welcomed our new Chief Executive Officer, Richard Lambert, to the NLA after a successful nine years as head of at the British Woodworking Federation.

In November, we held our NLA National Conference in Birmingham, with keynote speaker Terrie Alafat, Director of Housing Growth and Affordable Housing at Communities and Local Government describing the PRS as “definitely at the top of the government’s agenda”.

And to end the year in December, we made a special Christmas donation to homeless charity Crisis, to help them provide 50 places for homeless people over the festive period. 

Although 2012 will inevitably bring challenges for landlords, it is our continued mission to help promote best practice (as shown by so many of our members) whilst representing landlords at a local and national level.

A very Happy New Year to all the readers of the NLA blog!

 

 

 

Condensation and Mould – The Landlord Curse

It is that time of year again when tenants start complaining about damp and mould in their rental property.

As a landlord myself I have been on the receiving end of such a complaint just 3 months after finishing the refurbishment of my first HMO.  My tenant phoned me on the 23^rd December just as she was preparing to go away for Christmas to complain of mould.  Guess what my partner Steve and I spent the Christmas break doing whilst my tenant enjoyed her Turkey and Christmas Pud!?

Naive as I was at the time, I educated myself pretty quickly and established that the damp and mould was not because of rising or penetrating moisture but due to condensation.

If the humidity level in the property is over 80% for 6 hours or longer then mould can occur.  High internal relative humidity in a property is the result of poor ventilation.  This makes sense really as you are less likely to see condensation in the warmer summer months when the windows are open.

It is often argued that tenant lifestyle is to blame, but the truth is, most of us create at least 4 pints of moisture per day just by breathing, cooking, bathing and drying clothes, normal everyday activities.  In my 8 bedroom HMO, that’s a whopping 224 pints of moisture every week!  With an extractor hood above my cooker and inadequate extractor fans in my bathrooms as the only ventilation, no wonder I had a problem with condensation.

The argument over whose responsibility it is to ventilate the property is a tricky one.  Landlords often believe that the problem would just go away if tenants open their windows, but one of the reasons why 1 in 5 properties now suffer from condensation is because in our drive for energy efficiency, we have “sealed up” our homes to avoid losing valuable heat.

So how do you spot condensation?

• Streaming windows and walls
• Damp areas can appear on walls
• Wallpaper can start to peel
• Mould growth, usually black mould, starts to appear on window frames, walls and ceilings
• Soft furnishings and fabrics become prone to mould and mildew
• There is a constant musty damp smell in the property

Tips for tenants on how to reduce it….

• Try to keep the inside temperature reasonably constant for as much of the time as possible
• Avoid drying clothes indoors and do not dry clothes over radiators
• Ensure that any tumble drier is property vented or the condensate reservoir regularly emptied
• Do not supplement heating with paraffin/Calor gas type heating
• Keep furniture away from walls
• Do not disable any extraction units

Installing extract fans in the bathrooms and a ventilation unit in the loft area will also solve most condensation problems.  By gently introducing fresh, filtered air in to the home at a continuous low rate, the relative humidity levels are reduced.

Since my first experience with condensation and mould I have gone on to share my knowledge and experience with many NLA landlords, who have also suffered from the ‘Landlord Curse’.

Kim Thorogood is a Specialist Ventilation Adviser at EnviroVent Cardiff, Bristol & Bath.  She is an Accredited Landlord and has been an NLA member since 2007.

For further information visit www.homeventilation.co.uk or telephone 0845 2727 807

For more tips on Condensation and Mould in rental properties, watch our NLA Guide on Controlling Condensation and Mould Growth.

Spreading some Christmas cheer

The NLA is proud to support Crisis at Christmas.

This is the second year we have chosen to support Crisis with their Crisis at Christmas campaign. Like most offices our staff usually do a little Christmas fundraising to support local charities – the Membership team have a tasty Christmas tradition revolving around homemade sweet things (this year it’s been Vicky’s homemade fudge) which encourages everyone to take part. But over the last couple of years the NLA has decided to support one issue more substantially.

Our role in the housing industry means we see just how much of a critical issue homelessness is for the UK and Crisis was the first charity we thought of supporting.

Working closely with them throughout the year means we know just how much of an impact their work has. Over the last year welfare reform and ensuring local authorities meet their housing responsibilities have been key issues for both our organisations. The NLA is also a key partner in the Crisis’ Private-Rented Sector Access Development Programme which funds new community based services helping single homeless people to find and sustain good quality accommodation in the private-rented sector (PRS).

It is clear that the NLA and the private-rented sector are not the solution to all housing problems. But we were keen to do our bit.

Importantly for us Crisis at Christmas shows people taking action. Since 1972 it has been doing ‘Big Society’ and now, as Europe’s largest volunteering event, Crisis at Christmas involves 8,000 volunteers. They provide over 3,000 guests comfort, food, health services and advice. Most importantly they provide some Christmas cheer for those with very little to be cheerful about. What they achieve is extraordinary.

Last year we supported Crisis’ Newcastle Skylight centre in an effort to highlight rough sleeping as a national concern and not just a London problem. This year our contribution is equivalent to funding a place at Crisis at Christmas for every NLA local representative in the UK.

A small Christmas gift to help those who have a particular tough time at Christmas.

Our contribution is only part of the support Crisis – and this issue – needs. There are over 40,000 homeless people in England; in London alone nearly 4,000 people slept rough this year alone. That is 8 per cent more than last year. All the indications are that 2012 will present even more challenges for the industry in terms of housing need. We all need housing to rise up the political agenda and politicians need to use 2012 to do better.

We hope that the rest of the private-rented sector will join us in supporting Crisis. You can support Crisis at Christmas too by donating at http://community.crisis.org.uk/reserved

Laying the foundations for private renting?

Alex Marsh, Professor of Public Policy at the University of Bristol, talks about the Government's Housing Strategy, published last month.

The long-awaited Housing Strategy for England – Laying the foundations – has now arrived. The headlines were dominated by the mortgage indemnity guarantee, restarting “shovel ready” developments, and revitalising the Right to Buy. But what does the strategy have to say about private renting?

The chapter focusing on private renting opens with a statement of support for the sector, which the Government identifies as playing a key and increasingly important role in the housing market. The sector has witnessed significant recent growth, but high levels of demand mean affordability is deteriorating in some areas. The Government’s strategy has a dual focus: boosting overall supply by encouraging investment and tackling the minority of rogue landlords. In fact, rather more space is devoted to discussing investment.

Private renting in Britain is increasingly dominated by landlords operating on a small scale. So the Government continues to pursue the Holy Grail that has eluded housing policy for the last 30 years – greater institutional investment. We’ve had the BES, which gave the sector a short-term boost. We’ve had HITs, which sank without a trace. We’ve had the recent arrival of REITs, but largely to the benefit of commercial property investors. The Government is going back to the idea of REITs to see if it can be tweaked to entice investment into residential property.

It may be that this time things are different. The Chancellor’s Autumn Statement raised the possibility of new financial vehicles to encourage pension funds to invest in infrastructure. The broader investment environment is currently hostile. The risks associated with more exotic investment strategies are considerable. Residential property may be looking like an increasingly plausible option for a dependable income stream, especially as the Government strategy explicitly acknowledges the need to ensure that welfare reform does not unduly disrupt investors’ income expectations.

There are already some interesting developments occurring – such as the Build to Let Fund created by Bouygues and Grainger – in the search for appropriate vehicles for investing in private renting. The boundaries between tenures are blurring in other ways: for example, Sovereign, one of the largest housing associations in the country, have just announced an expansion of its operations in the market rental sector.

There is the potential for some large organisations to enter private renting, bringing with them professional property management expertise and the scope for brand recognition and reputation. This could alter the competitive climate in interesting ways.

The strategy reaffirms the Government’s commitment to avoid unnecessary regulation on landlords, but then goes on to state that:

we are … looking at measures to deal with rogue landlords and encouraging local authorities to make full use of the robust powers they already have to tackle dangerous and poorly maintained homes.

It says little more than that.

Pressure on the Government to act here is undoubtedly building. The Localism Act will mean more homeless people being housed in the private rented sector. Welfare Reform will mean those people are likely to have less money to pay the rent. Yet, budget cuts mean local authorities have less money available to take enforcement action. Any reputable landlord watching Channel 4’s Dispatches programme last Monday will no doubt be concerned that the action – or inaction – of rogue landlords puts the sector under the spotlight and damages its reputation.

We await further details of the Government’s thinking.

Alex Marsh is Professor of Public Policy at the University of Bristol

Rent Arrears: In the ‘normal course of business’ or ‘way too high’?

Carolyn Uphill, NLA Director and Local Representative for Manchester, questions whether any other business would accept their customers failing to pay.

All businesses have bad debts and Buy to Let is, after all, a business. Albeit one the Government doesn’t truly recognises through the tax system. A ‘normal’ allowance for this is in the region of 5% of turnover but rent arrears are running at more than twice that figure.

According to one set of figures recently published 10.7% of all UK rent was either unpaid or late by the end of August. This is an increase from the July figure for unpaid or late rent, which stood at 9%. Another source found that tenant finances took a “turn for the worse” in October with 10.1% of all rent late or unpaid at the end of the month, compared to 8.6% by the end of September (LSL Buy-to-Let Index Oct 2011).

Which ever way you look at it, this is still a huge slice of income to write-off. As rents rise, benefits reduce, and unemployment grows things may only get worse. So is Buy to Let a viable business?

For the answer we need to look back to the business model. All businesses need to factor in the possibility of bad debts but take every possible step to avoid them.

Just as a business takes up trade references you should not let anyone into your property without fully referencing them and establishing that the property is affordable to them within their income bracket.

Never let a debt accumulate. Rent is in arrears the day after it is due; so monitor your payment receipts and contact the tenant as soon as a payment is overdue.

Whilst landlords must never harass a tenant it is always the case, just as in business, that he who ‘shouts loudest’ is more likely to be paid. So be firm but polite, enquire if there is a problem, offer to discuss and/or help with this as appropriate, perhaps they have changed job and have a different pay-day, and try to agree a definite date by which matters will be resolved.

Good communications, built right from the start of the relationship with your tenant, may help to resolve any problem which arises.

Taking the matter to court should always be a last resort. This will take time, indeed the closure of some county courts will make this slow process take even longer, and involve the landlord in extra costs whilst rent remains unpaid.

Statistics also show that an increasing number of tenants are raising a defence, at the last minute, which delays a possession order. Just as a business must get their paperwork right and provide no grounds for a counterclaim when seeking payment on a contract, landlords must make sure that they have met their maintenance and repair obligations towards the tenant.

Rent arrears will continue to be a problem but the wise landlord will take a very businesslike approach to his selection of tenants, and his relationship with them throughout the tenancy, to maximise the possibility of being paid on time and in full for the service he is providing.

 

The property scandal’s other dimension…

On a night when it would be very easy for the NLA to bury its head in the sand and try to pretend that there were not problems in the private-rented sector, it is even more important for those responsible providers of accommodation to recognise our role in finding solutions.

Professional trade bodies, like the NLA, spend a lot of time talking about the need for local authorities and other enforcement bodies to be more proactive in their approach to tackling the very worst offenders.

These criminal operators all too often get away with the provision of poor quality and often dangerous housing by  targeting those households with limited access to alternative accommodation. These households, often made up of vulnerable individuals, sometimes don’t know how to access better property,  but far too often there simply isn’t enough available.

The obvious fact is that demand for good quality, good value, accommodation has not kept pace with supply.

One of the outcomes of this situation, the one which gets all of the media attention, is that rents rise. In certain areas of the country this is true, no-body can deny that in certain parts of London and the South East rent levels have followed a striking upward path.

However, for many other less glamorous areas of the country (usually those less popular with journalists) the result has been a lack of good housing providers, the responsible landlords able to compete with the rogues and demonstrate what private rented property should look like in twenty-first century Britain.

Today’s estimates project a need for more than 3 million new homes by 2020. At todays rates fewer than 150,000 are being completed annually.

Unless these figures changes drastically we will not build our way out of this situation any time soon, meaning that we have to look at how we put the stock we have to better use.

As the campaign on Channel 4 tonight has shown, a good start would be to get empty homes back into use. According to the Empty Homes Agency thee are around 350,000  (AKA 3 years of new building) long-term empty properties in England at the moment.

However;

At an even more basic level, more good quality homes can be created simply by allowing decent landlords to provide them. Throughout the country dozens of local authorities are currently using planning rules to prevent landlords offering new affordable homes (Article Four Directions). Likewise many councils are designating new areas of landlord licensing.

These authorities are doing this, for the most part, for all the right reasons. They want to ‘improve’ their locality. Unfortunately what these schemes actually do, when used too liberally, is prevent the law abiding from challenging and competing with the rogues.

The responsible landlord, who invests in his or her properties, takes note of restrictions on shared housing or chooses to move elsewhere because of the cost of compliance makes business unviable. The criminal operator, working under the radar, takes no notice and quickly becomes the only option for those in the most need.

Today’s campaign is called  ’The Great British Property Scandal’ and much of what has been highlighted is truly scandalous. But some of the ‘solutions’ can prove just as harmful when they’re not thought through.

There are real ways that we can all help improve matters – with some common sense and a little more co-operation.

Above all we must make sure there is always an alternative to renting from a rogue landlord.

Let us furnish you with tax advice

With the Chancellor’s Autumn Statement delivered, it seems an appropriate time to consider the status of landlords in the UK and in particular their treatment by the Tax Man.

It is often said that the private-rented sector (PRS) and in particular housing provided by private residential landlords, represents the last genuine ‘cottage industry’ in Britain. Although in the view of the NLA a professional and responsible approach to letting property is essential there is no strict right or wrong way to plan your portfolio – leading to a great deal of diversity in the market place.

As anyone involved in the PRS will attest some landlords choose to incorporate and hold their properties as a limited company, some portfolios remain personally held, some as a partnership or any combination of the above.

There are pros and cons to all of these options and there is no one-size-fits all solution for the PRS.

However, irrespective of how you organise your portfolio if you let property by way of business – you are, de facto, running a business, which in our view means that you should be treated like a business so far as tax is concerned.

The problem is that the main asset of a landlord is residential property – which is a ‘non-business asset’ according to HMRC and therefore does not afford the same status as an asset held for almost any other type of business.

If landlords were able to define their properties as ‘business assets’ they would be able to release capital from underperforming properties when necessary and reinvest this back into their portfolio without falling foul of Capital Gains Tax (CGT) which they will inevitably pay again on the same gains at some point in the future. (Notwithstanding the dire need for wholesale reform of CGT to recognise long-term investment).

But, there is one area of letting property which is considered more ‘business-like’ than others in this respect.

If you own Furnished Holiday Lets there is a chance that you can take advantage of Capital Allowances to recover or mitigate tax.

These allowances can allow taxpayers to write off the cost of certain capital assets against taxable income or profits.

Any item within the fabric of the building that HMRC view as plant and equipment could be eligible for a claim. This includes a domestic setting and the items within it, such as central heating systems, bathroom equipment, kitchen equipment, plumbing equipment and electrical cabling.

It can be difficult to make a claim because Capital Allowances mixed up with some pretty complex legislation. So it can require specialist knowledge and skills to make an effective claim.

The benefits to the landlord can be very significant in terms of recovering tax paid from previous and for mitigating tax for future years.

So if you own a furnished holiday let, you might be eligible to make a claim.

Portal Tax Claims, approved suppliers of the NLA, and professional experts in this field has provided advice and support in the writing of this blog.

To find out more, visit http://www.landlords.org.uk/services/suppliers/portal-tax-claims or call William Marshall on 07966 522 567

Give us your good landlording tips

At our recent NLA Conference, we were overwhelmed with stories from our members about how they look out for their tenants. So we asked some of our NLA Representatives to share with us some of their best tips to ensure their tenancies run smoothly.

Are you a landlord? Can you share any other good advice? Please let us know using the comments box below or follow and contribute to our Good Landlord #goodlandlord campaign on Twitter…

Getting to know your tenants is the obvious place to begin. London area representative Richard Blanco says he always starts with an induction meeting:  “I go through all aspects of the property with them and explain how everything works – the appliances, the heating, and what days the bins are collected.  I help them choose the cheapest energy supplier for their needs.  I also let the neighbours know a new tenant has moved in so they can make contact with each other and look out for each other.”

A reliable and understanding landlord will always be a hit with tenants. As James Fraser, representative in the East of England explains:  “I’m happy to adjust rent payment so it fits in with a tenant’s pay day.  I’m also big on getting any problems repaired quickly so if something goes wrong or breaks down in the property, I’ll try my best to have it fixed on the same day.”

Julie Woolfenden, NLA representative for the West Midlands has some good tips on how to handle the paperwork when a new tenant moves in. “I always keep duplicates of everything – the tenancy agreement, energy performance certificates, gas safety certificates and appliance instruction booklets.  I always give the tenancy agreement to the incoming tenant a few days before they move in to give them time to read over it.”

“When they move in there is a Welcome Card waiting, which also explains how the appliances work, the rubbish collection days, how to shut off the water stop cock and how the electricity, gas and central heating works.”

Understanding that a tenant might fall into difficulty and then working with them to resolve any matters is key, as London Representative Maryann Richmond-Coggan explains: “I always support tenants during difficult times.  If one is facing a tough time after losing their job I’ll make concessions and work with them to develop a payment plan to pay their rent along with any arrears they might owe.  I find it’s much better to work with an existing tenant than to go through the hassle of possession proceedings and finding a new one.”

Tailoring a property to a particular kind of tenant will mean that your property is set apart from the competition. West Midlands representative Mary Latham lets to students: “I provide a Wi-Fi internet service to tenants.  It doesn’t cost much to set up but makes the world of difference, especially for students.  If the property has a garden I make sure its low maintenance as not all tenants have green thumbs!  I install weed barriers and plant shrubs that require little attention.  I also give tenants a list of practical information when they move in – bus and train timetables, maps, local take-away shops, restaurants, along with contacts for a doctor, dentist and taxis.”

Keeping the property well maintained and everything in good working order is how Kent representative Marion Money ensures tenants are happy.  “If you promise the tenant a new kitchen when you are showing them around the property before they move in, then make sure you do it.  Keep up with your maintenance.  Get the boiler serviced during the warmer summer months when the heating isn’t being used.  That is also the time to do any outside painting.  Have the gutters cleared of leaves in autumn and make sure the tenant tests the heating system each year before it gets too cold.”

There are many ways landlords can help their tenants, and of course a happy tenant means a happy landlord.  If you’ve got any more landlording tips we’d love to hear them – just leave a comment below or join the conversation on Twitter – #goodlandlord.