National Landlords Association

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Of Letting Fees and Rent Controls – Landlords being pushed into a trap

Ban incoming?

A lot was made of letting agent fees in the run up to last year’s general election, and the issue is back again as the fix-all cure of the ills of private renting.

A Conservative Government would normally be the least likely to interfere in the market this way, but then again this is the same Government that stole Green Party economic policy when they introduced the restrictions on finance costs relief (aka the Tenant Tax/Turnover Tax).

The Communities and Local Government Select Committee held an inquiry into the effect of the letting fee ban in Scotland, and at the time the Government was quite clear on its position:

“I believe that the current legislation strikes a fair balance between the rights and obligations of landlords and tenants. In the past over-regulation and excessive red tape drove many landlords out of the rental market. My Department therefore has no plans to further regulate the private rented sector by banning letting agent fees in England, as this would only reduce the numbers of properties available to rent which would not help tenants or landlords.”

Brandon Lewis MP, then Minister of State for Housing & Planning

However, we have a new Prime Minister, new Ministers, and the issue has not gone away. There is currently a Private Member’s Bill in the Lords to ban the fees and loud campaigns from Shelter, Generation Rent et al for MPs to support it.

The Department for Communities and Local Government is due to undertake a review of the transparency regulations that came into force last year for letting fees, and although the Private Members’ Bill will likely fail it is not unheard of for popular causes to be folded into the Government legislative agenda.

Example: The bill to end “retaliatory evictions” was introduced by then Lib Dem MP Sarah Teather and after it failed the provisions were added to the Government’s Deregulation Act later that year.

The trouble with banning fees

The NLA’s position is clear: while fees should be transparent (to landlord and tenants) and kept to a minimum. As the letting agent’s client it is quite right that landlords bear the majority of the cost, but an outright ban on tenants fees is not the answer as there can be a legitimate need to charge a prospective tenant a fee of some kind.

To the proponents of a ban, it would liberate tenants from the up-front cost of moving home which would single-handedly outweigh any negative consequences of the policy.

But love them or loath them, letting agents are a business providing a legitimate service to tenants and landlords. This service isn’t free – there are costs. With fees banned the costs will be passed solely onto the landlords and as per any business they will meet those costs by increasing what they charge the customer (i.e. the rent).

Should a prospective tenant approach an agent for accommodation, that agent will expend time and other resources in matching them to potential properties, arranging and facilitating viewings and negotiating a new tenancy. This would normally also include credit/reference checks, and the aggregate cost of this entire process can amount to several hundred pounds per prospective tenant. If that prospective tenant decided to opt out after the process is done, or isn’t found to be acceptable from the credit/reference checks, there would be no way for the agent to recoup the cost of the resources spent. This should not excuse excessive fees, or double charging, but it illustrates the importance of all parties having a stake in the process.

Agents would otherwise be compelled to package those additional costs in the arrangements with landlords. So no upfront fees, but higher longer-term rents to cover the costs. Some campaigners may call that a win but the increased rents are likely to be inflated even further to cover letting agents’ costs.

The Rent Control Trap

But further regulation of the private rented sector should not just be looked at in isolation. Over the past few years financial burdens on landlords have increased, putting upward pressure on rents, including:

  • Finance costs relief restrictions
  • Additional rate of Stamp Duty Land Tax
  • Removal of the wear & tear tax allowance
  • Cut in capital gains tax not extended to residential properties
  • Increasing number of discretionary license schemes, sometimes costing well over £1000 for a 5 year license
  • Upcoming plans for landlords to contribute up to £5000 for energy efficiency improvements
  • Rising court fees

Adding a ban on letting fees on top of this will not help improve the affordability of the rented housing in the UK.

Landlords are finding themselves in a rent control trap: caught between Government policies on one side that are forcing up rents to cover rising costs, and growing calls from opposition parties and campaigners on the other side to introduce rent controls.

Somewhat ironically, the very same campaigners calling for a ban on fees also call for action to be taken on the rising rents.

It would be funny if it wasn’t so depressing.


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Is the Edinburgh Fringe under threat?

 

Since 1947, Edinburgh has welcomed performers and tourists to the city as part of its summer Fringe Festival. Many make the annual pilgrimage to Auld Reekie to see the very best (and bizarre) in comedy, music and theatre – from established names to aspiring newcomers.

It’s estimated that around 2,500 artists take part at the Fringe every year, attracting an audience of up to 400,000. As such, the Fringe has made Edinburgh the centre of the British entertainment industry every August, with landlords gearing their businesses toward meeting not just the demands of the local housing market but also the acts and tourists wishing to come and stay in the city during the Festival.

The existing system

At present, the private rented sector (PRS) works very well in providing accommodation for both purposes. In fact, it’s a tried and trusted recipe; with many landlords offering student lets for 10 months of the year and then letting to festival-goers during August.

Yet the new Private Housing (Tenancies) (Scotland) Act from Holyrood could potentially alter this established relationship and tradition and have a significant impact on accommodating future Fringe attendees.

What will change?

Under changes introduced in the Act, the existing Short Assured Tenancy (SATs) in Scotland, which can be used flexibly to offer a 10 month tenancy, will be replaced with a potentially indefinite alternative. Importantly, the changes mean that landlords will no longer be able to guarantee possession at the end of an agreed term and also mean they will not be able to bring future tenancies to an end using an accelerated – or no fault – procedure. Instead, the onus will be on renters to give notice to their landlords should they wish to leave.

The majority of student accommodation for the following academic year tends to be arranged in the early months of the calendar year (January and February) which means that many student renters will be reluctant to give notice to their landlords until they can be sure they have secured future lodgings.

What does this all mean?

The Act will create a great deal of uncertainty about whether landlords will be able to provide accommodation for the Fringe – from performers, festivalgoers and students.

The end to guaranteed possession at the end of fixed-term could create huge chains of people waiting for others to move, leaving landlords unable to guarantee temporary lets during the Fringe and creating difficulty for students who wish to work and study in Edinburgh over the summer by creating a shortage of places to stay.

All in all, the changes to be introduced via the Private Housing (Tenancies)(Scotland) Act will create a situation that results in less supply and greater demand for homes, increasing costs and putting the Festival under threat.

Homes going up


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People & Properties: Quick Stats on the PRS

The Department for Communities and Local Government has released more detailed analysis of Private Rented Sector (PRS) data from the results of the English Housing Survey 2014-15. See our previous blog on some of those headline figures here.

The Private Rented Sector Report gives details of PRS demographics, satisfaction with housing, tenancy details and housing stock. Here is a quick guide to some of the more interesting figures.

People

 The PRS now accounts for 19% (4.3m) of all households, up from 11% of all households in 2004-05 (an 82% increase over 10 years):

 Age

  • The PRS has a higher proportion of younger people than other tenure types with 70% of renters aged under 45, compared to 35% in the social sector and 25% of owner-occupiers
  • Between 1994-95 and 2014-15 the proportion of private renters age 25-54 increased from 56% to 72%, whilst younger (16-24) renters has fallen from 20% to 13%, possibly due to staying longer with parents before moving into the sector

 Tenure Length

  • On average renters had lived at their current address for 4 years, with 76% having been there for less than 5 years and 59% for less than 3 years
  • In 2014-15, 54% of renters had been in the sector for less than 5 years, whilst 24% had been in for between 5 and 10 years

 Household Types

  • Household types in the sector: single person household (27%), couples with dependent children (23%), couples with no children (21%), lone parents with dependent children (13%)
  • From 2004-05 to 2014-15 the proportion of households with dependent children rose from 25% to 36%

 Satisfaction

  • Only 65% (up from 48% in 2004-05) of renters were satisfied with their current tenure, compared to 98% of owner-occupiers and 82% of social renters.
  • However, 82% of renters were satisfied with their accommodation, compared with 95% of owner-occupiers and 82% of social renters.

 Properties

 The most common type of homes for renters were flats (38%) and terraced homes (36%), with relatively few residing in detached houses (8%):

 Quality

  • From 1996 to 2014 the proportion of renters living in a non-decent home fell from 63% to 28%.
  • The prevalence of non-decent housing is higher in the private rented sector (28%) compared with owner-occupiers (18%) and social housing (14%)

 Hazards

  • The proportion of private renters who lived in homes with a serious hazard halved from 2006 to 2014, from 30% to 15%
  • The overall improvement in the condition of PRS properties is due to a number of factors, including:
    • The growth of newly built homes entering the sector
    • The growing installation of energy efficiency measures
    • Improvement in day-to-day maintenance work undertaken by landlords
    • Local authority enforcement action against landlords

Age

  • Of all properties in the PRS, 33.1% were built pre-1919, compared to only 19.7% of owner-occupied properties, and 6.7% of those in the social sector

Repairs

  • For 64% of tenants, repairs and maintenance were the responsibility of the landlords, for a further 20% the property manager or estate agent were responsible while 7% did the repair work themselves
  • 66% of tenants were satisfied with the repairs and maintenance done on their home, and satisfaction was highest (76%) when the landlord was responsible for the work; the equivalent figure for estate/managing agents was 55%

 If you are feeling inquisitive, the full Private Rented Report can be found here, along with a few other reports that may be of interest:


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Is this the end of the EPC?

greenhouseHanded down to the UK through the catchy-named European Union Directive 2002/91/EC, Energy Performance Certificates have been the cause of many a headache for landlords since their introduction through the infamous Home Information Packs in 2007.

In 2012 we saw the tightening on regulations mandating EPCs for the private rented sector, and just last year more regulations come into force forbidding Section 21 re-possessions if tenants had not received a valid EPC.

The Minimum Energy Efficiency Standards for the PRS are set to come into force in 2018, and by 2020 landlords will not be allowed to let out property with an EPC rating of F or G (exemptions apply). Tenants already have the right to request energy efficiency improvements.

But now with Brexit on the horizon, the scrapping of the Department for Energy & Climate Change, and a new PM in Number 10, are EPCs finally on the way out?

No.

Unfortunately it seems that the new Government has no plans to change the agenda. (Sorry for the click-bait headline).

So where now for PRS energy efficiency?

The energy efficiency of properties in the sector is far below those in the social or owner-occupier sectors. This can at least in part be attributed to the make-up of the sector, with 30% of PRS properties having been built pre-1919 – a far higher portion than in other tenures.

But even though the Green Deal failed, EPCs are unreliable, and the majority of tenants do not care about it when looking at properties, energy efficiency has continually improved in PRS stock over the past decade.

As a Parliamentary committee just reported, the Government needs to improve upon its so-far “blinkered” approach to energy efficiency. The minimum standards that are set to be introduced in 2018 will stop landlords from letting energy inefficiency properties. However there is an exemption that landlords will not need to cover any upfront costs. With the failure and close of Green Deal financing the policy effectively neuters itself.

To actually achieve anything, the Government seem to have two realistic options:

  • Pause the minimum standards set to be introduced in 2018, until a time that funding is actually available through a (thought-through and improved) successor to the Green Deal
  • Scrap entirely or relax the no-upfront-cost exemption so landlords will have to fork-out for necessary improvements.

The NLA obviously favours the first option, and has been continually lobbying on this position (even recently including it as part of our evidence to the Public Accounts Committee inquiry into the Green Deal). While there are other funding streams, such as the Energy Company Obligation (ECO), these have strict eligibility criteria and are harder for landlords and tenants to access.

With the imminent restrictions of mortgage interest relief, additional SDLT rates, the imposition of Right-to-Rent checks and more regulations set to be introduced from the Housing & Planning Act 2016, imposing extra financial burdens on landlords would be detrimental to the PRS, low-cost housing and affordable accommodation at the moment.

A new Government, with new Ministers, means new opportunities to set out the benefits of the PRS and we are impressing upon them the need to keep costs down for landlords.

We will be doing the same for energy efficiency measures to make sure that landlords get a good deal, and are not being punished for providing housing to meet the growing demand.

NLA Property Services can provide you with a free energy assessment and find any Government funding that is available to you.

 


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Who’s Who in Theresa May’s Cabinet

The dust is settling on May’s clear out of Cameron’s Cabinet, so let us have a look at the new people in post that could impact on landlords’ businesses.

Theresa May – Prime Minister

theresa may

She made landlords de-facto immigration officers by introducing Right to Rent immigration checks as the longest serving Conservative Home Secretary for over a century, and now the Conservative Party have made her the new Prime Minister.

State-schooled May began her career at the Bank of England, before holding posts at the Association for Payment Clearing Services. Her political life began after being elected councillor in the south London borough of Merton. In 1997 she won the newly created constituency of Maidenhead in Berkshire, which she has held ever since.

One of the first acts of the new Prime Minister has been to reshuffle the Cabinet, starting with the removal of George Osborne as Chancellor, to the delight of many landlords who have been in the line of fire of his recent Budgets.

 

Philip Hammond – Chancellor of the Exchequer

hammond

Hammond was moved from his post of Foreign Secretary to take up residence in Number 11 Downing Street. Entering Parliament in 1997 after winning in the newly created seat of Runnymede & Weybridge, Hammond has held a number of high profile positions including Defence, Transport and Foreign Secretaries.

The independently wealthy landlord gives us some meagre hope that there will be a change of direction in current tax policies, most notably the Clause 24/Turnover Tax that will strip away mortgage interest relief.

We have already written to him to set out the case for a reversal of the most damaging of Osborne’s policies that also include the additional rate of SDLT and higher Capital Gains Tax for landlords.

With the uncertainties of Brexit still gripping the country and Whitehall, the new Chancellor has already today ruled out an emergency Budget. Hopefully this isn’t the only pre-Brexit policy/threat of Osborne’s that the new Chancellor will reverse…

 

Sajid Javid – Secretary of State for Communities & Local Government

sajid

Former Business Secretary Sajid Javid MP now heads up the Department for Communities & Local Government and will take on overall responsibility for the implementation of the recently passed Housing & Planning Act.

On top of this, we will be pushing for the Department to give its support to Bob Blackman MP’s Private Members’ Bill on homelessness reduction, which seeks to end the practice of local authorities advising tenants to ignore Section 21 notices.

One of the newer MPs in the Cabinet, the state-schooled son of a bus driver™ was only first elected in 2010 for the Bromsgrove constituency. A former Managing Director with Deutsche Bank AG, Javid has held a number of important roles since election including Financial Secretary to the Treasury, Secretary of State for Culture Media & Sport, and up until this week Business Secretary.

 

Damian Green – Secretary of State for Work & Pensions

damian green

Veteran MP Damian Green has taken over from Stephen Crabb as Work & Pensions Secretary. The Welsh-born former journalist was first elected in 1997 for the constituency of Ashford. Green served in several shadow ministerial positions while in opposition before he had a 2-year stint as Minister of State for Policing and Criminal Justice after the 2010 election.

While the rolling out of Universal Credit continues, and LHA rates fail to keep up with rent increases, landlords have quite a bit of interest in the work of the new Secretary.

The Work & Pensions Select Committee published a report on the delivery of benefits and the Government has just responded to their recommendations. The Committee recommended that Alternative Payment Arrangements (such as direct payment to landlords) should be allowed to be made without the need for 2 months of rent arrears to have been built up first. It also recommended trialling an online “landlord portal” for the housing element of Universal Credit. However, the Department for Work & Pensions rejected both recommendations; maybe the new Secretary of State can be persuaded to reconsider…

 

Greg Clark – Secretary of State for Business, Energy & Industrial Strategy

greg clark

The old Business, Innovations & Skills department has been merged with the Energy & Climate Change department, with the new ministerial department being fronted by Greg Clark MP (former DCLG Secretary).

For landlords, the effect that Brexit has on energy efficiency regulations will be of most interest, with infamous EPCs having originated from Brussels policy. The deadlines for upgrading properties to at least an E rating are fast approaching but with no new Green Deal funding there is no real incentive for landlords to improve properties.

This will be an important hole that the new department and Secretary will need to dig themselves out of, and the real worry is that they will remove the protection that landlords will not need to fork out for any upfront costs.

His previous department was not as anti-landlord as the Treasury, so we will also be looking forward on engaging in more proactive work, such as changing how annual gas safety checks are carried out.

Gavin Barwell – Minister of State for Housing and Planning 

Gavin Barwell

The new Housing minister replaces long-serving Brandon Lewis, who has now moved to the Home Office as Minister of State for Policing and Fire Services.

Barwell entered Parliament in 2010, representing Croydon Central. Before his election he had held a number of positions within the Conservative party and was a Croydon borough councillor from 1998-2010.

As the new Minister of State for Housing, he will take on primary responsibility for the implementation of the recently passed Housing & Planning Act. Specifically, he will have to work on regulations surrounding electrical safety, client money protection, banning offences & orders, the rogue landlord database, civil penalties and rent repayment orders.

The NLA has worked with Barwell before, in campaigning against Croydon’s Labour council when they sought to bring in borough-wide selective licensing. At the time, he saw landlord licensing for what it is: a tax on tenants. We hope he will bring this same understanding of the private rented sector with him to his new position.

As well as congratulating him on his promotion, we have also requested a meeting to discuss the new Government’s plans for the sector.


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Supreme Court Rules on Edwards v Kumarasamy

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The Supreme Court has today (13 July 2016) given its judgment on the case of Edwards versus Kumarasamy – finding that the landlord, Mr Kumarasamy, was not liable for the disrepair which caused his tenant’s injury.

In this case, which had been subject to two earlier appeals, Mr Kumarasamy’s tenant, Mr Edwards, suffered minor injuries resulting from an accident sustained while taking rubbish from his flat to communal dustbins. While walking from his flat to the bin storage area Mr Edwards tripped over an uneven paving stone which formed part of a paved area used by residents to access the bins.

The landlord had previously been found liable for damages by a deputy district judge by virtue of the statutory repairing covenant enshrined by section 11 of the Landlord and Tenant Act 1985.

Prior to reaching the Supreme Court both Mr Edwards and Mr Kumarasamy have had appeals allowed.

Delivering this, final, judgment Lord Justice Neuberger found that:

  • Mr Kumarasamy was not liable for the disrepair which caused the injury.
  • He could only be liable if the paved area in question was “part of the exterior of the front hall” – which it was not.
  • He could only be liable if he had prior notice of the disrepair before the accident.

As with most cases which reach the Supreme Court, the argument has become very technical and somewhat complex.

The full judgment may be found here: https://www.supremecourt.uk/cases/docs/uksc-2015-0095-judgment.pdf

However, in summary it appears that common-sense has prevailed. The landlord in question was found not liable for the injury to his tenant on the basis that the defect was not directly part of the property let by him and that he was not made aware of the defect in order to seek a solution.


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McDonald vs. McDonald: Eviction orders still stand

 

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The possession process is rarely pleasant. This much is a given, as the procedure for gaining possession of a property costs time, money, and is entered into usually as the very last resort.

 

Section 21 notices

For landlords, the most common way to regain possession of a property in England and Wales is by serving a Section 21 notice, as introduced in the 1988 Housing Act.

However, the legitimacy of the Section 21 was thrown into question recently by the Supreme Court case of McDonald vs. McDonald, which raised the issue of whether a tenant can appeal to the European Court of Human Rights (ECHR) when faced with eviction on the grounds that it contravenes their human rights.

 

The case details – McDonald vs. McDonald

The case is extremely unfortunate. The tenant in question has a history of serious mental health difficulties, and after failing to be placed in social property, her parents’ recourse was to buy a home for her to rent. However, her parents were unable to keep up with mortgage payments and receivers were brought in. Subsequently, a Section 21 notice was served, and proceedings for possession commenced.

 

Invoking Article 8: The Right to Privacy

The tenant appealed her eviction (in this case by the receivers) by arguing that it went against her human right to respect for privacy. Article 8 provides two stipulations:

Firstly, that ‘everyone has the right to respect for his private and family life, his home and correspondence’ and secondly that ‘there shall be no interference by a public authority with the exercise of this right.

It was argued that Ms McDonald’s forced removal from the property by the receivers constituted a breach of her right to privacy, and the ECHR was used as a defence that the eviction was therefore unlawful. However, the judge dismissed the appeal on the basis that Article 8 was intended to protect citizens from having their rights infringed by the state. The landlord (the receivers in this case) could not be construed as a public authority to that extent.

 

Conclusion

The Supreme Court has resolved this issue by taking the opinion that Courts are not permitted to entertain Article 8 defences in the face of mandatory right to possession, as is provided by Section 21 of the Housing Act.

It is difficult to see how the Supreme Court would have been able to resolve the issue without undoing Section 21 altogether, which would have removed the only way to guarantee repossession of a property for private landlords. In that sense, the ruling provides a great deal of relief for landlords and the sector at large.

Ultimately, while the rights of tenants and landlords must be respected, so too must the process of delivering an eviction notice.

 

If you need advice on the possession process, the NLA Advice Line is here to help. NLA Full Members can call the team on 020 7840 8939 or you can buy call credits online. Visit the NLA website for more information.

 

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