IMPORTANT INFORMATION FOR LANDLORDS

There are a number of considerations when renting a property in the UK. The information given here is designed to provide some background to the terms and conditions of letting your property through GREEN LOCATIONS and to offer other useful information. It is not intended to be a substitute for other professional advice or to replace the personal service we extend to all our clients.

WHAT IS ARLA?

The Association of Residential Letting Agents, ARLA, is the only professional body that is solely concerned with the self-regulation of letting agents and for nearly 25 years has been actively promoting the highest standards across every aspect of residential lettings and management in the Private Rented Sector.
ARLA is viewed by government, consumer groups, academia, think tanks and the media as the leading voice in the industry. ARLA member firms are seen as being at the forefront of the Private Rented Sector, ready, willing and able to comply with existing and anticipated government legislation. ARLA member firms successfully create, on average, over a quarter of a million new tenancies a year as well as arranging the renewal or extension of thousands more of existing tenancies every month.

WHY SHOULD A LANDLORD OR TENANT SEEK OUT AN ARLA MEMBER FIRM?

Probity and Protection – ARLA leads the industry in setting and regulating the highest standards in the industry and demands certain levels of professionalism and commitment to customer service from its membership. ARLA member firms are required to work within a robust Code of Practice, which covers the key stages in letting and managing a property. There are comprehensive membership Byelaws which include compliance with such issues as handling and accounting for Clients’ money; the mandatory ARLA Client Money Protection Bonding Scheme; Professional Indemnity Insurance; Dealing with Complaints and Disciplinary Procedures. ARLA member firms are required to employ a minimum of at least one member of staff, in any office, who holds a suitable industry qualification, recognised by the Association.
ARLA keeps its members up to date with changes in legislation and provides wide-ranging training and guidance to help members understand and interpret all aspects of letting and managing a property.

OUR SERVICES

The two main services we offer are Letting and Letting & Management. The former relates to the process of finding a suitable Tenant and the latter relates to the business of managing your property on a day to day basis as well as finding a suitable Tenant. Full details of the services and our fees are outlined in our Terms & Conditions of Business. If you would like a copy, email or call the office and we will be happy to send one to you.

One of our first discussions with you will be about the likely rent your property will achieve and the implications of letting out your property. On receiving your instruction to let your property we will market it through advertising, mailing lists, websites, window displays, and our contacts to attract suitable applicants. We will arrange viewings either by appointment with you or we should be provided with keys - access to the property at short notice can be very important.

All offers will be put to you with our recommendation and some background information on the applicants. Once an offer has been accepted we will take up references, draw up an Agreement and advise you on the necessary steps to be taken to ensure the property is ready for the tenancy to commence.

Once the tenancy has commenced, if managing the property, we will continue to be involved on a day to day basis, dealing with any problems the Tenants may encounter. We will visit the property every four months to ensure that the covenants in the Tenancy Agreement are being complied with and that the property is being kept in good order, and report to you accordingly. Whilst our inspection will not be of a structural nature if any matters of concern come to our notice we are able to instruct a Structural Engineer on your behalf to examine and report to you. If we are not managing the property, we are still on hand for further advice, however you or your appointed manager should be available if there are any maintenance queries from the Tenants

REFERENCES

Before a tenancy can be granted, we take up references on each Tenant. This is normally undertaken via a credit search agency. (Company lets and “corporate Tenants” maybe referenced differently.) In some instances, eg in the case of younger Tenants or where there is insufficient employment or UK financial history (eg of less than six months continuous employment), it may be necessary to request the provision of a Guarantor who is prepared to undertake responsibility for the full amount of the rent should the Tenants be unable to do so at any time during the Tenancy. He / she will be required to co-sign the Tenancy Agreement and allow references to be taken on them. The cost of all credit search fees is paid by the Tenant.

TYPES OF TENANCY AGREEMENTS

The Tenancy Agreement must be signed prior to occupation. The Agreement will in most cases be a standard contract to which may be added clauses relating to any special requirements or terms agreed. In many cases the type of tenancy created is an Assured Shorthold Tenancy in accordance with the Housing Act 1988. This applies to all tenancies where the rent is under £25,000 per annum to an individual or individuals for whom the property will be their main or principal home and where the Landlord does not enjoy resident Landlord status. Where the tenancy does not fall within the scope of the 1988 Housing Act, a Company or Contractual Tenancy will be arranged. Generally properties are rented on an annual basis, but the tenancy can be for any term agreed between the Landlord and Tenant. However under the provisions of the Housing Act 1988 repossession cannot be granted by the courts from a Tenant unwilling to vacate a property in the first six months of a tenancy therefore we prefer wherever possible to arrange tenancies with a minimum term of six months. If required a release clause to end the tenancy before the expiry of the agreed fixed term, or an option to renew for a further term can be inserted into the contract, however, this is subject to negotiation. Once the tenancy has commenced the Tenant has security of tenure for the fixed period, provided they are not in breach of the terms of the Tenancy Agreement.

At the expiry of a fixed term tenancy the Landlord can take possession of his property. In the case of an Assured Shorthold Tenancy the Landlord must first serve two months notice of his intention to do so. We will do this on your behalf unless it is agreed between the Landlord and Tenant to renew the tenancy for a further term.

STAMP DUTY LAND TAX

Under the Finance Act 2003, which came into effect from 1 December 2003, the Landlord no longer has any liability for Stamp Duty on any Lease created for a Residential Letting after that date. Where applicable, the sole responsibility for the payment of the Stamp Duty Land Tax, which was introduced under the Finance Act 2003, is placed on the Tenant.

THE RENT

Unless otherwise stated, rent is exclusive of telephone, water, gas, electricity and council tax. The usual method of payment, although this is subject to negotiation, is by calendar monthly instalments, payable to us in advance by standing order. We then forward this to you by BACS payment after deduction of our fee and any other applicable deductions (See also under Income Tax).

RENT INCREASES

If market forces are favourable, rents are usually increased every 12 months usually in line with inflation. In the first six months of an Assured Shorthold Tenancy, a Tenant has the right to ask for a Rent Assessment Committee to fix a different rent if they believe that the rent is not in keeping with market rents for the area. The Committee can fix a rent at a level they believe is a true reflection of the market.

SECURITY DEPOSIT

At the commencement of the Tenancy, the Tenant is required to lodge an amount usually equivalent to six weeks of the agreed rent, as security against any damage or loss at the property not reasonably considered to be due to fair wear and tear. Unless otherwise agreed, the deposit will be held by Green Locations as Stakeholder in an interest-bearing account, and at the end of the tenancy the deposit plus the interest accruing will be returned to the Tenant, less any agreed deductions.

With effect from 6 April 2007, in compliance with the Compulsory Tenancy Deposit Protection Scheme requirements introduced under the Housing Act 2004, Landlords and Agents are required to safeguard Tenant¹s deposits paid in relation to an Assured Shorthold Tenancy (AST) either by sending the money to the administrator of the Custodial Scheme, or by joining one of the two available Insured Schemes.

The Scheme has two main purposes; to safeguard tenancy deposits to ensure Tenants will get back all or part of their deposit to which they are entitled, provided they have kept the property in good condition; and to facilitate the resolution of disputes arising in connection with such deposits by means of an Alternative Dispute Resolution Service (ADR). Green Locations have joined the Insured Scheme administered by The Dispute Service, and all deposits held by us will be protected under this Scheme. We make no additional charge to the Landlord for this. If the Landlord does not wish us to hold the deposit, where the tenancy is an AST, he will have to personally safeguard the deposit either by personally joining one of the appointed Insured Schemes (for which a membership charge is payable), or by sending the deposit monies to the administrator of the Custodial Scheme, where it will be held until the end of the tenancy. There is no charge to the Landlord for membership of the Custodial Scheme. The Landlord must notify the Tenant within 14 days of taking the deposit of the provisions he has made for securing the deposit. If the Landlord fails to protect the deposit, and to notify the Tenant accordingly, he will not be able to serve a Section 21 Notice to gain possession of his property, and will be ordered to pay the Tenant three times the amount of the deposit.

Further details of the legislation can be found at www.direct.gov.uk/tenancydeposit. In many cases the full replacement cost of articles found defective cannot be charged to the Tenant because of their previous history. The Landlord is responsible for ensuring equipment is in good working order as repairs or replacements to old equipment will be charged to him. It is strongly recommended that service and maintenance agreements are taken where possible and contents insurance is maintained.

INVENTORY

Prior to the Tenant taking possession of the property an inventory of the condition of the property and its contents and their condition should be made, ideally by an independent inventory clerk. IT IS IMPORTANT THAT THE PROPERTY IS PROFESSIONALLY CLEANED PRIOR TO THE TENANCY COMMENCING.

The Tenant is checked into the property against the Inventory by the inventory clerk and a copy of the Check In Report and the Inventory is sent to both the Tenant and Landlord for their information. At the end of the tenancy, the Inventory is checked again with the Tenant and any costs for damage or loss agreed with the Tenant will be deducted from the Tenant's deposit. It must be expected that there will be a degree of "wear and tear" which is not covered by the deposit. Where Green Locations is managing the property we will undertake these negotiations on your behalf.

The cost of preparing an Inventory is the Landlord’s responsibility and varies according to the size of the property and its contents. In general the cost of checking in is also paid by the Landlord and the cost of checking out is paid for by the Tenant

CONTENTS, FURNITURE & FURNISHINGS

A property that is in good condition with a high standard of furnishings tends to attract a better rent and, more improtantly, will rent more quickly generally to a better type of Tenant. Generally, families prefer unfurnished property and professional sharers prefer part-furnished property. Demand for furnished / part-furnished property tends to be stronger at the 1 and 2 bed level.

Tenants seeking funished property are often happy to settle for part-furnished property and it is recommended that Landlords whose property is likely to attract professional sharers or professional individuals present their property as part-furnished, not fully furnished.

A property that can be presented as unfurnished or part-furnished will have greater apeal than one which cannot.

Unfurnished - describes a property that contains carpets, curtains and white goods (ie. oven, fridge / freezer, washing machine, dishwasher etc.)

Part-furnished - describes a property that contains basic furniture such as beds, a sofa and table and chairs.

Fully furnished - describes a property that contains most items a Tenant will need to live in a property other than linen and towels.

SERVICES AND COUNCIL TAX

We will write to the utility companies for electricity, gas, and water services (but not telephone) and notify them of the change of user at the commencement and termination of the tenancy. The Landlord and Tenant must sign for the supplies with the utility companies. We cannot be held responsible for any disconnection, and we cannot guarantee the utility companies will amend their records. Therefore we ask that Landlords confirm that the utilities have been transferred and confirm correct meter readings have been forwarded.

We will write to the local Council Tax office and notify them of the change of occupier at the commencement and termination of the tenancy. We cannot guarantee the local Council Tax office will amend their records. Therefore we ask that Landlords confirm the correct details have been recorded by the local Council Tax office

TELEPHONE

The Landlord should provide a working BT telephone line. The Tenant becomes the subscriber and is responsible for the line rental and all accounts. Whilst the Landlord can arrange to have the line disconnected so that the Tenant can arrange for reconnection we try to avoid this if possible. This can usually be done with a little co-operation. You may find the Tenant's name in the Telephone Directory if you return; unfortunately this cannot be avoided.

TV LICENCE

Television sets are not normally provided in rented accommodation. Please note that the Tenant is responsible for paying the licence fee in respect of the use of any television set in the property during the tenancy.

INSURANCE

You are strongly advised to ensure that building and contents insurance is sufficient and liability insurance covering injury to the Tenant is included. Insurance companies may void claims made against properties that have been let without their approval - see Lettings & The Law below. Some insurers may require an increased premium for let properties and may increase or withdraw cover if properties are vacant and unsupervised for more than 21 - 30 days (this varies with different insurers)

LETTINGS & THE LAW

INCOME TAX

The information provided below is not intended to replace professional advice from a qualified tax adviser.

The income you receive from your home is unearned income and is subject to tax regardless of residence status

UK Residents: If you will still be resident in the UK. during the period of the tenancy then you are responsible for paying the tax. We recommend you consult a tax adviser/accountant to ensure you understand the full tax implications for your particular circumstances. There are often changes in the tax law and so it is important to have someone who can give you updated information. Landlords must declare this income on their tax returns. If a Landlord does not receive an annual tax return then he or she has a legal responsibility to notify the Inland Revenue if their rental income gives rise to a liability to tax.

Overseas Residents: In accordance with the Finance Act 1995, agents are required to deduct tax at the basic rate from rental monies net of expenses prior to paying these monies to overseas Landlords. The payments must be made to the Inland Revenue quarterly and at the end of the tax year. If there have been excess payments then Landlords can, on submission of detailed paperwork, apply to the Inland Revenue for a rebate.

The Landlords Letting Agents, or if no agent is acting, then their Tenant, must deduct basic rate tax at source and pay this over to the Inland Revenue. However, under this Act the Inland Revenue introduced a system of Self Assessment and all overseas Landlords may apply to the Inland Revenue for Exemption. If granted the agent is issued with an Exemption Approval Number, whereby they are allowed to pass the rental monies to the Landlord without deduction of tax. We would strongly recommend that you apply for Self Assessment and we can provide you with the appropriate application form.

For the purposes of the “Non Resident Landlord Scheme” an individual is regarded as non-resident if their usual place of abode is outside of the UK for longer than 3 months.

Please note the Exemption Approval is not transferable between Agents and it will be necessary for a new application to be made the first time Green Locations lets your property.

Should you not wish to apply, or if you are refused Exemption, and we are obliged to submit quarterly returns to the Inland Revenue, we will make a charge to cover our administration costs. We always recommend that the services of a Chartered Accountant are used to ensure all allowable outgoings can be offset against tax.

Deductible Expenses

Generally, expenses must be of a non-capital nature and incurred wholly and exclusively for the purposes of letting the property. This is a statutory definition and a practical interpretation is sometimes difficult. Common items of allowable expenditure are:-

• Letting agents fees.
• Tax advisor’s fees for preparing an annual letting account and agreeing liabilities with the Inland Revenue.
• Usual maintenance of the property including repairs, although not, generally speaking, repairs which amount to improvements.
• Water rates, Council Tax, ground rents, insurances, service charges and inventory costs.
• A 10% wear and tear allowance if the property is let furnished.
• Legal fees for drawing up a lease of less than a year.
• Certain expenditure incurred before the property is first let.
• Interest payable on a loan to purchase, improve or make alterations to let a property.

Personal Allowances and Rates of Tax

• All UK resident landlords are entitled to personal tax allowances. In practice, these will often be used against other sources of income before letting income.
• Many non-resident landlords are also entitled to personal allowances including Commonwealth citizens and citizens of the European Union.
• The net profit, after accounting for personal allowances, is taxed at an individual’s marginal rate of tax. Rental income does not qualify for the special 10% rate applied to most forms of investment income.
• A husband and wife should consider in whose name let property should be owned to ensure the most efficient use of personal allowances and the lower rate bands of tax.

Capital Gains Tax (CGT)

• Capital Gains Tax is a charge to tax on assets which increase in value between the date of acquisition and the date of disposal. UK real property is chargeable asset for CGT purposes.
• Certain costs can be deducted for CGT purposes including incidental costs of acquisition and disposal such as the fees of a Surveyor, Valuer, Accountant or Solicitor.
• There is an indexation allowance to counteract the effect of inflation. In other words only capital growth in excess of inflation will be charged to tax. Taper Relief is available.
• UK resident landlords are entitled to an annual exemption. Both husband and wife being entitled to this.
• If someone has previously lived in the let property they may be entitled to additional reliefs and they should seek professional advice.
• Landlords must consider the potential liability to CGT very carefully.

Inheritance Tax (IHT)

• Liability to Inheritance Tax is largely governed by a person’s domicile status. Domicile is a legal status and is a concept which is distinct from a person’s residence status. The question of domicile can often involve complex negotiations with the UK tax authorities and professional advice is recommended.
• UK domiciled individuals are liable to IHT on assets situated in the UK. With careful planning this liability can be avoided.

Owning Property through a Company or Trust

• This is a complex area of taxation and professional advice should always be sought.

SAFETY REGULATIONS

Landlord Statutory Obligations

The responsibility for compliance with the following regulations or any re-enactment, is and remains the personal obligation of the Landlord. Failure to comply with safety legislation is a criminal offence and can lead to prosecution, fines or imprisonment or both.

The Furniture and Furnishings (Fire) (Safety) Regulations 1988
The Furniture and Furnishings (Fire) (Safety) (Amendment) Regulations 1993

All upholstered furniture, permanent or loose fittings, soft furnishings, beds, mattresses, pillows and cushions supplied to a property and forming part of a letting must comply with these Regulations. It is illegal to let a property with furniture which does not comply.

Carpets and curtains are not covered by the Regulations. Period and antique furniture manufactured before 1950 are exempt. New furniture manufactured since 1 March 1989 and sold by a retailer after 1 March 1990 was required to comply and carry labels to this effect. Where there are no labels, contact the manufacturer or retailer for confirmation. If in doubt the items should be replaced.

The Gas Safety (Installation and Use) Regulations 1998

Landlords are responsible for ensuring that appliances and pipework in tenanted premises are maintained in good order and in a safe condition so as to prevent risk or injury to any person.

The Regulations require that the appliances and pipework are checked for safety by a CORGI qualified gas engineer prior to the commencement of a tenancy and every 12 months thereafter. A record of the safety check must be supplied to the Tenant and a copy kept by the Landlord and/or his Managing Agent for at least two years. Where we are instructed to manage a property, we will accordingly arrange for a gas safety check to be conducted at the commencement of any tenancy (unless a current Gas Safety Record is available) and every 12 months thereafter. All contractors charges will be payable by the Landlord.

For properties not under our Management Service, we require a copy of the current and all subsequent gas safety records. If required we will instruct a CORGI engineer to attend the property and deduct the contractor’s fee plus an administration charge from rental monies received.

The Electrical Equipment (Safety) Regulations 1994

Landlords must ensure that ALL electrical appliances and the electrical supply is 'safe' and will not cause 'danger'. From 1st January 1997, all new electrical appliances must carry a 'CE' mark and instruction booklets or clear working instructions must be provided. Newly installed plugs and sockets must also comply with regulations.

Confirmation that inspections have been regularly undertaken could be requested, although no specific time-scale is given, nor is there any requirement for inspections to be made by members of specific bodies, other than the person be competent.

We recommend that an inspection is undertaken prior to the commencement of a tenancy and at regular intervals thereafter. We can arrange this on your behalf for an administration fee plus the contractors charge. (The administration fee will not apply for properties under our Management Service).

Part P Building Regulations (Electrical Safety in Dwellings)

From 1 January 2005 any works, repairs or maintenance undertaken on domestic electrical installations in certain areas of a property must be carried out by a competent person registered with an organisation providing an approved self-certification scheme. Wherever possible when instructing contractors on a Landlord’s behalf to carry out applicable electrical repairs and maintenance at a property, Green Locations will only instruct such competent approved contractors.

The Building Regulations 1991 Smoke Alarms

All properties built since June 1992 must be fitted with mains-operated interlinked smoke detectors / alarms on each floor. Whilst properties built before that date are not included under the statutory requirement, we strongly recommend that all properties to be let are fitted with smoke alarms and these are regularly serviced. We can arrange this for an administration fee plus the contractors charge. (The administration fee will not apply for properties under our Management Service).

CONSENTS

Before entering into any agreement to let your property you must check whether there are any restrictions to your doing so and whether consent needs to be obtained from:

Superior Landlord/Freeholder: If you hold the property on a Lease you must ensure that your Lease permits you to let the premises and that you are granted consent to do so. You must also ensure that the letting is for a period expiring prior to the termination of your own Lease.

Mortgage Provider: If the property is subject to a bank loan or mortgage, permission will be required from the lender before the property can be let.

Insurers: Insurance policies require you to notify them if the property is to be let. Failure to do so may void the policy.

PROTECTING LANDLORDS’AND TENANTS’MONEY

As a minimum, ARLA Member Firms are required:-

To maintain specially designated bank or building society accounts to receive and hold “client money” separate from their Firm’s own business or office accounts;

To reconcile such client bank accounts on a regular basis to ensure that balances match the ledgers or accounting records of the Member Firm and that individuals’ money can be identified;

To have a suitably qualified accountant audit these client bank accounts and the Member Firm’s accounting records annually, and a certified report must then be submitted to ARLA;

AND, all such money will be further protected because;

The Association’s Client Money Protection Bonding Scheme automatically covers the relevant money held in the client accounts of member firms against misappropriation of that firm. Member firms who are also Royal Institution of Chartered Surveyors members have their own client money protection scheme, which provides equivalent protection to customers of those firms.

WHY EVERY LETTING AGENT SHOULD BE COMPELLED TO BELONG TO A COMPREHENSIVE BONDING SCHEME.

Letting Agents collect and then hold various – and often large – sums of money belonging to landlords and tenants, frequently for a long time, and these can all add up to quite considerable amounts, Sometimes rogue agents “misappropriate” and misuse these funds or simply close down and disappear. ARLA believes that consumers, whether they are landlords or tenants, are entitled to expect that their money is secure and protected at all times.

HOUSES WITH MULTIPLE OCCUPANCY

The Housing Act 2004 changed the definition of a house in multiple occupation (HMO) and introduced mandatory licensing for certain types of HMO. The main changes to the definition are dwelling is an HMO if it is occupied by more that one household and amenities are shared. Converted buildings which do not comprise entirely of self contained flats and contain more than one household are HMO’s.

Houses converted to self-contained flats, which do not comply with the 1991 Building Regulations, and where more than one third of the flats are occupied under short tenancies will be HMO’s.

The Housing Act 2004 introduced mandatory licensing of those HMO’s with three of more storeys and five or more persons comprising two or more households.

Licensing came into effect on 6th April 2006

It is the responsibility of the Landlord of the HMO to apply for a licence. The fee for the licence will be determined by the local Council and the local Council will grant the licence if the property is deemed suitable for occupation. It will also require the licence holder to;

Produce a gas safety certificate on an annual basis
Keep electrical appliances and furniture, where provided, in a safe condition
Ensure that smoke alarms are installed and kept in proper working order
Supply the occupier with a written statement of the terms in which they occupy the property

There may also be conditions relating to the amenity standards.

Once issued, the licence will last for up to five years and the property will be inspected by the Council Housing Team during this time.

More information can be obtained from odpm.gov.uk/index.asp?id=1152003

Should you wish to discuss any of the above, or have any further queries, please do not hesitate to contact us.