The legal aspects a landlord faces can be split into three broad categories:
Contractual refers to the legal contracts that you will sign and enter into. You will be bound to fulfil your obligations under the terms of the contract. Breach of terms can result in you being sued and ultimately paying damages to the aggrieved party. As a landlord you will enter into legal contracts with your:
- Letting agent
Prior to entering into a contract with a lender the lender has to know about you. The lender asks you a number of questions and expects the truth. If it found that you have misled the lender by any of your answers to their questions, they can demand repayment of the loan in full plus all recovery costs. They can also inform the police and charge you with obtaining finance by deception. This is fraud and you can go to prison.
Once the lender has established that you are a person worth lending to, the lender insists you sign their contract. The lender sets the terms of the contract. As the lender has lent money to you it is their right to set the terms of the contract. Unless you are borrowing a large sum of money then you can never include any clauses in the contract based on your terms – that’s just the way it is. The key terms of the contract are:
- Payment – You have to pay the mortgage repayments on the dates the lender dictates. If you fail to do so, the lender can repossess the property.
- Maintenance – You must keep the property in a good state of repair fit enough to be habitable.
- Occupation – You must not leave the property vacant for more than 30 days.
There are several legal documents that are created when you find a suitable tenant:
- An inventory
- An Assured Shorthold Tenancy Agreement
- An eviction order
- An inventory
An inventory is a list of all items that are in the property – it includes descriptions of items, quantities and condition. Both the tenant and the landlord should sign this list. When the tenant decides to leave the property you can check the list to see what is left in the property. If there are any deviations from the list you can charge the tenant to correct the deviation. So, for example, if there were four dining chairs when the tenant moved in and now there are only three, you can deduct the cost of replacing the dining chair from the tenant’s deposit.
If you get an inventory done it will ensure that the tenant thinks that you care about the place you are letting and the tenant will be less likely to damage the property. If the condition of the carpet is recorded then the tenant is more likely to remove any stains caused, as he fears that you will deduct cleaning costs from his deposit.
Professional inventory services can be found in the Yellow Pages or by visiting www.yell.com.
- An Assured Shorthold Tenancy (AST)
This is an agreement between the landlord and tenant. It binds both parties to certain duties and obligations. The main features of a tenancy agreement are:
- Rent – How much rent is to be paid and the frequency of payment.
- Duration – An AST is for a minimum of six months and maximum of twelve months. I would always suggest a tenancy of six months as the tenant has the right to run the duration of the tenancy unless there is a breach on either party. See below.
- Running expenses – It sets out who is liable for the running expenses of the property.
- Tenant obligations – It details the tenant’s obligations to the property and the landlord, such as maintenance, not to sublet, informing the landlord of problems in good time, and reporting damage.
- Landlord obligations – It details the landlord’s obligations to the property and the tenant, such as privacy and timeliness of repairs.
Both the tenant and the landlord have to sign, with both signatures witnessed by an independent third party.
Below is an example of an AST:
ASSURED SHORTHOLD TENANCY AGREEMENT
1. Tenancy agreement made the day of 10th January 2002
Between [insert landlord’s name]
Of [insert landlord’s address]
(Herein after called the Landlord which expression shall include the person for the time being entitled to the reversion expectant on the determination of the tenancy hereby created) of the one part.
And [insert tenant’s name]
Of [insert tenant’s previous address]
(Herein after called the tenant which expression shall include his successors in title) of the other part;
Whereby it is agreed as follows:
The landlord lets and the tenant takes the dwelling house known as:
[insert investment property’s address}
(Herein after called the premises)
Together with the furniture, fixtures and effects therein upon an Assured Shorthold Tenancy within the meaning of section 19(a) of the Housing Act 1988 as amended by the Housing Act 1996, for the period of six months starting on the 10th December 2001 until 9th June 2002. The rent of £_____ per week, payable clear of deductions. Any money received for payment of rent for the premises is deemed to have been received from the tenant in advance on the first day of every week, the first such payment to be payable on the signing of this contract.
2. The tenant agrees:
(a) To pay the rent of £_____ per week in the manner aforesaid, without any reductions whatsoever.
(b) To pay the agent upon signing hereof a deposit of £_____, to be held by the landlord against liability of the tenant arising under this agreement. The landlord will provide a written list of dilapidations within 28 days of the end of the tenancy, and a further 28 days will be allowed for discussion and negotiations to arrange settlement. After this period of time either party may revert to use of the law courts to resolve the dispute. If there are no dilapidations, the landlord will undertake to return the deposit to the tenant within seven working days of the end of the tenancy.
(c) To pay all charges for gas and electric current supplied to the premises during the tenancy (all charges including any rental or other necessary charges) for use of the telephone if the tenant wishes to have the telephone connected, and the costs of reconnecting such services if they are withheld owing to the act or omission of the tenant. The tenant is also responsible for the water rates and council tax or replacement taxation for the term of the tenancy.
(d) To keep all parts of the premises, including landlord’s furniture, fixtures and fittings in good and tenantable repair and in good decorative state and ventilated (fair wear and tear and damage by accidental fire, maintenance and repairs which are hereafter agreed to be done by the landlord and those which are statutory for section 11 of the Housing Act 1985 omitted); to maintain the garden to an acceptable standard.
(e) Not to assign, underlet, charge or part with or share the possession or occupation of the premises or any part thereof and not to grant any licence to occupy the premises of any part thereof.
(f) Not to use the premises or any part of for any purpose other than that of a private residence.
(g) Not to carry on upon the premises any profession, trade or business, or let apartments or rooms, or receive paying guests or lodgers or place or exhibit any notice board or notice on the premises.
(h) Not to use the premises for any illegal or immoral purpose.
(i) Not to do or permit or suffer anything in the premises (or any building of which the premises form part) which may be or grow to be a nuisance or annoyance to the landlord (or any superior landlord) or to any occupier or tenant of any part of any building of which the premises form part;
(j) Not to damage, injure, or make any alteration to the premises or any part thereof.
(k) Within seven days of receipt thereof to send all correspondence addressed to the landlord directly to the landlord whose address forms part of this tenancy agreement. Any other correspondence of unknown names should be forwarded to the landlord. This should include any notice, order or proposal relating to the premises (or any building of which the premises forms part) given, made or issued under or by virtue or any statute, regulation, order, direction or by law by any competent authority.
(l) To permit the landlord upon giving 48 hours notice (except in the case of emergency when no notice shall be required) to enter upon the premises with or without workmen and equipment and to view the state and condition thereof and, if necessary, to carry out any repairs, alterations or other works.
(m) To pay all fees, expenses and costs (including solicitors, councils, and surveyors fees) incurred by the landlord in preparing and serving notice on the tenant of any breach of any of the covenants on the part of the tenants herein contained notwithstanding forfeiture is avoided otherwise than by relief granted by the court.
(n) To notify the landlord promptly after any event which causes damage to the premises, furniture, fixtures and fittings or which may give rise to a claim under the insurances of the premises.
(o) Not to leave the premises vacant for more than 21 consecutive days and to keep the premises locked and secured when vacant, and the tenant is responsible for using the security provided at all times.
(p) Not to change the locks to any doors of the premises, without the permission of the landlord; not to make any duplicate keys thereof but to return all such keys to the landlord at the end of the tenancy.
(q) To pay for professional cleaning redecorations, and garden maintenance should the final inventory dictate that such services are, in reasonable opinion of the landlord, necessary.
(r) Within the last two months of the tenancy to permit the landlord at reasonable hours, to enter and view the premises with prospective tenants or purchasers.
(s) At the end of the tenancy to yield up to the landlord the premises, furniture, fixtures, and effects properly repaired, decorated, and kept in accordance with the obligations herein before contained, and to remove from the premises all the tenants effects.
(t) No to remove any of the landlord’s furniture, fixtures and effects from the premises, and to leave them in the same location found.
(u) To keep the furniture, fixtures and effects in their present state of repair and condition (reasonable wear and tear and damage by accidental fire expected) and to replace with similar articles of at least equal value, style and colour of any part of the said furniture, fixtures, fittings or effects, which may be destroyed or damaged (except as foresaid) so as to be incapable of being returned to their former condition.
(v) Not to keep any pets.
3. The landlord agrees:
(a) That the tenant paying the rent hereby reserved and performing and observing the various agreements on their part contained herein shall peaceably hold and enjoy the premises during the tenancy without any interruption by the landlord or any person claiming under or in trust for them.
(b) To carry out those repairs, liability for which is cast upon the landlord by sections 11-16 inclusive of the Landlord and Tenant Act 1985 as amended by Section 116 of The Housing Act 1988.
(c) To pay the ground rent, service charges, and all sums payable by the landlord herein to the head landlord under the terms of the head lease.
(d) To insure the premises against loss or damage by fire, explosion, and such additional risks as the landlord may deem desirable.
4. The landlord and tenant agree:
(a) If the rent hereby reserved or any part thereof shall be unpaid for 14 days after becoming payable (whether being formally demanded or not) or if any covenant or agreement on the tenant’s part herein contained shall not be performed or observed then in any of the said cases it shall be lawful for the landlord at any time thereafter to re-enter upon the premises or any part thereof in the name of the whole and thereupon the tenancy shall absolutely determine but without prejudice to the rights of the landlord in respect of any breach of the tenants covenants or agreements herein.
(b) Ownership of all property left at the premises at the end of the tenancy shall immediately pass to the landlord who shall be entitled (though not bound) to sell the same for their own benefit and where necessary make charge upon to the tenant or the tenant’s deposit to refund any additional costs not recouped within the values received for the said articles.
(c) Where the landlord or the tenant consist of more than one person, the covenants on their part in this agreement shall be joint and several.
(d) Any notices served by the landlord on the tenant shall be sufficiently served if sent by second-class post or delivered by hand to the tenant at the premises or the last known address of the tenant.
(e) To end the tenancy at or after six months, either party must give at least two months prior notice in writing.
(f) In the event of maintenance that requires immediate attention outside office hours, and falls under the landlord’s statutory responsibilities under section 11 of the Housing Act 1985, the tenant may spend up to £50 to minimise damage or effect a repair without reference to the landlord, but should inform the landlord at the earliest opportunity. Any other repairs of any nature must be referred to the landlord or landlord’s agent. Any other repairs authorised by the tenant will be the responsibility of the tenant to pay.
It is hereby agreed that the parties hereto witness the day and year first above written.
AS WITNESS the hands of the parties hereto the day and year first above written.
SIGNED by the above named……………………………………………..
In the presence of……………………………………………………………
SIGNED by the above named mentioned……………………………………
In the presence of……………………………………………………………
- An eviction order
A landlord can evict a tenant and serve a Notice of Intention to Seek Possession (Section 8). A landlord can serve this notice and give a minimum of two weeks’ notice to the tenant for the following main reasons:
- The tenant is 14 days in arrears.
- Repeatedly late rent payment (even if the tenant is not in arrears at the time the notice is served).
- Any breach of the AST.
- Annoyance to neighbours.
- It is found that the tenant has given false information to obtain the tenancy.
A landlord can serve this notice and give a minimum of two months notice to the tenant for the following main reasons:
- You wish to reside in the property.
- Mortgagees wishing to repossess.
Below is an example of a Notice of Intention to Seek Possession (Section 21):
|HOUSING ACT 1988|
NOTICE REQUIRING POSSESSION OF A DWELLING HOUSE LET ON AN ASSURED SHORTHOLD TENANCY
To: [insert tenant’s name]
Of: [insert investment property’s address]
I as your landlord named in the Schedule below HEREBY GIVE YOU NOTICE THAT POSSESSION IS REQUIRED by me of the premises described in the Schedule below and which you hold of me as tenants on 31st January 2002.
The premises let to you: [insert investment property’s address]
Name and address of landlord: [insert landlord’s name and address]
If the tenant doesn’t leave then:
- File copies of the notices sent to the tenant with the court. Sue for all rent arrears and legal costs and court fees.
- Wait for 14 days for the tenant to reply.
- If no response is made (which is likely) then a possession order is made giving 14 days notice.
- If the tenant doesn’t leave then call the police to evict them as they are now in your property unlawfully.
We have to face a reality here though. This procedure will take a long time, give you stress and you can potentially lose up to six months’ rent. If you include court fees and solicitors’ costs and the threat of damage to your property the whole eviction process could cost you in excess of £3,000. If you want the tenant out of your property and they have ignored all your notices then offer to pay them to leave. This option could be cheaper. I would suggest one months’ rent being fair. This will pay the deposit for their next property.
Try to initiate a friendly separation. Do not add fuel to an already fiery situation by losing your temper and threatening immediate court action. Statistically only three per cent of tenants tend to be bad tenants – bad tenants being tenants that have no intention of paying the rent, not tenants that lose their job and can’t pay their rent. If a tenant loses their job it is more than likely that they are going to get another job. If they have been relatively good payers of the rent then be patient with them.
In my experience I would say that the three per cent statistic is right. The majority of people wish to settle in a home and feel secure. The best way for them to feel secure is to pay their rent on time.
You will have to enter legal contracts with insurance companies to cover you against certain risks. Your insurance will only ever be valid if you have originally told the truth on your proposal form when obtaining the insurance. The main insurances you will take out when investing in property will be:
- Buildings insurance – The insurance you pay to cover the property against fire, vandalism, water damage or weather damage.
- Contents insurance – This is insurance for items such as carpets, furniture and other fittings that you have provided for the property.
- Rental guarantee – This is insurance against your tenant defaulting on the rental payments.
- Emergency assistance – This insurance will cover the costs of any emergency repairs that have to be carried out including all call out charges.
When filling out the form they will ask you about previous claims. If you have any previous claims then reveal them. If you do have to make a claim and you have not told them about a previous claim then they do not have to pay out. It is very easy for them to find out if you have had a claim as they have a central register of all claims paid out.
If you do lie and they catch you out you will find it difficult to get insurance in the future, as you may be put on a blacklist which is accessible to all insurers.
If you do decide to use a letting agent then you have to read their terms and conditions very carefully. Watch for:
- Timeliness of payment – Check to see how soon the letting agent has to hand over the money, once the tenant has received it. I would not accept any period longer than three days.
- Get out clauses – If you decide to no longer use the letting agent check to see how easy it is to get out. One agent tried to sue me for all the lost commission he would have earned even though I was now collecting the rent! If you have an idea of using a letting agent at first and then taking over in six months inform the letting agent of this intention. You may be able to strike a deal where you have a realistically priced option to get out of the contract.
There are there main regulations governing the renting of properties:
- Gas safety
- Electrical safety
- Fire resistance
- Gas safety
If there is gas at the property then you have to get a landlords safety record from a CORGI registered engineer. They will inspect:
- The central heating boiler
- Oven and hob
- Gas fire
- Gas meters
If you do not get one of these certificates and someone suffers or even dies from carbon monoxide poisoning then you could face a hefty fine and imprisonment. The guilt will be even worse.
- Electrical safety
A yearly inspection is needed for all electrical appliances supplied with the property by an NICEIC contractor. Basically anything electrical will need to be examined and passed by the NICEIC contractor.
So it’s quite obvious - keep the number of electrical items to a minimum! The fewer electrical items you supply the less there is likely to go wrong. This limits the reasons why your tenant can ring you up telling you about a problem. You don’t need your tenant ringing you up at 6am complaining about the kettle not working.
There is no certificate issued but an inspection will cover you from being sued if any electrical appliance were to harm your tenants or their guests.
- Fire resistance
All upholstered furniture must comply with the Furniture and Furnishings (fire) (safety) Regulations 1988. You can tell if the furniture is compliant because there will be a label in the cushioning. Any furniture purchased after 1990 will automatically comply with all fire regulations.
Although not a legal requirement, I would recommend that smoke alarms be installed in rented properties to cover you against any negligence claim if you were to be sued.
You will also be legally bound by the normal all-encompassing laws of the land. This includes:
- The law of tort - negligence and personal injury.
- Criminal law.
We are all bound by the above two laws even if you are not a property investor.
- The law of tort
Even though you may have all the safety records in place you still owe a duty of care to your tenant and anyone that enters your property. If it can be shown that you were negligent in any way then you could be sued and ordered to pay damages.
As a landlord you are liable for any damages if all of these conditions are satisfied:
- Your tenant or anyone entering your investment property were to suffers an injury; and
- You owed a duty of care to the person entering your investment property who suffered the personal injury; and
- You breached that duty of care.
So for example if Zak, the landlord, failed to fix the cooker socket in the kitchen and the tenant’s guest, Liz, suffered an electric shock burn then Zak would be liable to compensate Liz for her injury.
This is because:
- Liz suffered injury;
- Zak owed a duty of care as it is realistically expected that a tenant would invite a guest into their property;
- Zak breached that duty of care, as he did not fix the socket when asked to by the tenant.
- Criminal law
Even if your tenant hasn’t paid you any rent for two months you cannot ‘send the boys round’. Threatening your tenant or being violent to your tenant because he hasn’t paid you any rent is no justification for your behaviour in the eyes of the law. Investing in property can sometimes challenge your ability to remain calm and situations can become quite heated.
Remember, it’s only money! This is the phrase I say to myself when I get stressed when a tenant ‘does a runner’ and leaves me with £1,500 owing. Like I said in my introduction, you have to be a responsible person and realise that if you want to take investing in property seriously then you have to act lawfully in every way.
- REFERENCE CHAPTER
In this chapter you will find all the addresses, phone numbers and web sites you will ever need to get started in property investment. This chapter covers:
|i) 100 per cent LTV mortgage providers|
ii) List of buy-to-let mortgage providers
iii) List of property web sites
iv) Mortgage brokers
v) List of accommodation projects
vi) List of hotspots
vii) List of freephone/lo-call providers
viii) List of credit checking agencies
ix) Guaranteed rent & maintenance providers
x) Letting agents
xi) Management software providers