The legal aspects a landlord faces can be split into three broad categories:
- Contractual
- Regulatory
- All-encompassing
Contractual
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:
- Lender
- Tenant
- Insurer
- Letting agent
- Lender
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.
- Tenant
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 Agreement (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.
In the appendix is an example of an Assured Shorthold Tenancy Agreement.
- An eviction order
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.
- Non payment of rent
- Mortgagees wishing to repossess.
In the appendix is an example of a Notice of Intention to Seek Possession (Section 21).
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.
- Insurer
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.
- Letting agents
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.
Regulatory
There are there three 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 an annual 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 advisable, but not a legal requirement, 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.
All-encompassing
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:
- i) Your tenant or anyone entering your investment property were to suffers an injury; and
- ii) You owed a duty of care to the person entering your investment property who suffered the personal injury; and
iii) 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:
- i) Liz suffered injury;
- ii) Zak owed a duty of care as it is realistically expected that a tenant would invite a guest into their property;
iii) 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. You have to be a responsible person and realise that if you want to build a property pension seriously then you have to act lawfully in every way.
