The UK is a mature property market and over time the government has introduced legislation to protect the consumer, which in this case is both the landlord and the tenant. The landlord can rent and manage their own properties and as such have legal liabilities to the tenant, or they can use an agent. The agent will have responsibilities to the landlord, but the landlord can still be held responsible for the failings of their agent.
In recent years, the UK government has introduced legislation to protect landlords from unscrupulous agents. Previously, it was normal for agents to collect rent on behalf of the landlord and then, less the agent's fees, forward the payment to the property owner. Unfortunately, numerous cases emerged in which agents stole the rent and even the deposits of the landlords’ tenants.
The legislation now requires agents to be registered with a property redress scheme (Ombudsman) that deals with and awards compensation for complaints. When you are choosing an agent, check that they are registered with a property redress scheme. The government has two approved schemes, The Property Ombudsman and the Property Redress scheme. On these sites, you can search for the agent to confirm they are registered.
In addition to belonging to a property redress scheme, all letting agents must be registered with a Client Money Protection scheme (known as a CMP). This is insurance to protect against the theft of rent and deposits. For membership, the agent must provide detailed, audited client bank account records to be accepted into a scheme and be regularly audited.
For Client Money Protection, the following six schemes are approved:
https://www.clientmoneyprotect.co.uk/ https://money-shield.co.uk/ https://www.propertymark.co.uk/professional-standards/rules/cmp.html https://www.rics.org/uk/upholding-professional-standards/standards-of-conduct/client-money/ https://safeagents.co.uk/ https://www.ukala.org.uk/ukala-benefits/what-is-client-money-protection/
Should an agent be unable to provide proof of their membership with an approved property redress scheme and an approved CMP scheme, you should not engage or do business with them. It is wise to check on the websites to confirm that they are registered with the schemes they say they are.
In addition, there are industry organisations that agents can voluntarily become a member of, and they can also undertake academic qualifications. It is worth asking agents which trade organisations they belong to and if they or their staff have formal UK real estate qualifications. The leading one in the UK is www.propertymark.co.uk
Choosing the right agent is essential to holding a hassle-free investment portfolio. Google reviews and Trust Pilot (www.trustpilot.com) reviews are good platforms to check and get feedback from.
From our experience, the best leasing/letting agents are part of franchise groups, such as the Property Franchise Group, which consists of brands such as Martin & Co, Hunters, CJ Hole, Whitegates, and Ewemove. The owners are business owners, and thus have a vested interest in making your investment work. Corporate agencies and big brands tend to try and get the economies of scale, grouping maintenance support into regional centres, meaning staff are often not near the property, nor have intimate knowledge of your investment.
The aim of these agencies is to reduce costs by using large contracting companies to handle multiple types of repairs which are more expensive. Furthermore, understaffed call centres can lead to customer service issues. An agent that is close to your property is better placed to use the most cost-effective contractor, which will reduce your costs. The same applies to inspections and related property management tasks. There is a risk of loss of continuity about the knowledge of your property with a large agency, as generally it is not the same member of staff who will complete the check-in, mid-term inspections and the check-out.
Once you have selected your agent you will need to agree to the service, and if you are based overseas (and have no UK-based, trusted family or friends living near the property) you will need a full management service agreement. With this, the agent will do everything on your behalf but will communicate and liaise with you about your property.
While the management agreement will detail the arrangements and agreements, it is important to note that it does not shift any liability from you to your agent. (See further information below). You must ensure that you understand your legal obligations, as below, and that the agent is managing these on your behalf, as per the law. You cannot claim ignorance or declare that the agent is responsible. At best, you will both be prosecuted should there be any criminal proceedings.
The agreement will cover maintenance, stipulate how much authority the agent has, and set a cost limit on repairs, after which you must be informed and grant permission. The agent's fees should be transparent and easily accessible; displayed on their website and in their offices. However, this does not mean you cannot negotiate. You must also ensure that you check all the fees, as these vary from agent to agent. Some may have higher management fees and lower tenant search and move-in fees, for example. Full management fees usually start at 10% of the rent, but depending on the rental figure, you may be able to negotiate this down. London-based properties have much higher rents, and you should get fees closer, if not lower, than 5%. However, you should always bear in mind the point made above: make sure you consider the quality of the agent. Incompetent agents will end up affecting the value of your asset, and will not be maximizing the rental income, which only exposes you to additional fees and risks.
Before you can rent/lease your property, you must by law ensure that it is safe and that certain checks are carried out. These checks and safety requirements are:
Your agent will advise you on all the above and on the costs associated with each item. It is important that your property is compliant with the latest safety requirements. If a tenant dies or becomes injured due to negligence by you or your agent, you can be held criminally responsible.
In addition to the safety requirements, there is also legislation in place to ensure that the tenants are legally able to reside in the UK (Right to Rent checks) and rent a property. The government requires agents and landlords to check the legal documents of the tenant and ensure they have a right to live and work in the UK. Failure to do so may result in the tenants being detained as illegal immigrants. This will lead to a fine for both the agent and the landlord.
UK legislation also makes it a criminal offense to charge a tenant or prospective tenant any fees towards their application, for the signing of a tenancy agreement, or during the term of their tenancy and subsequent move-out. All fees charged by an agent must be made out to the landlord. This is done because it is the landlord who chooses which agent to use, and in the past, agents have charged the landlords very little to secure the property to rent, but then charged the tenants an exorbitant fee. As such, you must ensure that your agent does not charge the tenant any fees.
Upon your instruction, the agent will advertise your property, arrange viewings, and receive applications from potential tenants. The agent should carry out credit checks, employment, and income checks, and follow up on previous landlords’ references. It is important to get the full picture of your prospective tenant’s circumstances. Agents in the UK will use third-party companies to do this and provide a full report. The agent should share and discuss all information with you and receive your approval to offer the tenancy.
Once the prospective tenant has passed all the relevant checks your agent can provide a rent and legal guarantee (an insurance) on the tenant. Should their circumstances change and be unable to pay the rent then this insurance will pay the rent and legal fees should the tenant need to be evicted. These are generally cost effective and not too expensive. Depending on court times, it will take around six months to evict a tenant, and several thousand pounds in legal fees.
Rent is usually paid monthly by standing order or direct debit, as the tenant instructs their bank to pay the rent to your agent's client account. The agent must have a separate bank account to receive the rent. This is known as a client account, and it can be audited. Note that the UK does not generally use cheques anymore.
Rents are sometimes paid in advance if the tenant has a poor credit rating, or, for example, is an overseas student. If the rent is paid in advance, ensure that payment is passed to you. You can leave some money on account with the agent to cover any unforeseen maintenance issues during the tenancy. Once used, you can top up the deposit, as the agent will not be receiving a monthly rent to deduct any maintenance fees from. Should anything happen to the agent during the tenancy, then you have received the rent already.
Another important thing to note is that if your property is a house (detached, semi-detached or a terrace) you will need to have specialist insurance as a landlord (this is different to owner/occupier) because you will have tenants living in your property and additional risks such as accidental damage or a tenant being injured due to poor maintenance. Tenants could deliberately damage your property or steal things, and you can insure against this. It is worthwhile to discuss this with a specialist property insurance broker or your agent, to make sure you have the right cover. If you own an apartment, the insurance will be covered by the service charges, and you need to check the cover that will be detailed in the block management paperwork you receive when you purchase the property. Note that it will be updated each year. Likewise, take specialist advice if any additional cover is required.
Once you have secured your tenant and the agent has carried out the necessary safety checks, followed up the tenant’s references and right-to-rent checks, and you have copies of all certificates, clearance, and invoices, you should then give the agent permission to issue the tenancy and allow the tenant to move into your property. An agent cannot issue a tenancy agreement without your permission. In the UK, the agent does not need a power of attorney to sign an agreement on your behalf, just your consent is required, which can be included in the management agreement. Online digital signatures, via platforms such as DocuSign, are legal and acceptable for most documents in the UK.
To complete the agreements and move-in, there is additional legislation and protocol to be followed. Any deposit cannot be more than five weeks' rent, and the deposit must be registered and kept in a government-approved deposit scheme. Schemes are both insurance-based and custodial, whereby the deposit is held by a third party. Failure to register a deposit makes the landlord, not the agent, liable to repay the tenant an amount three times the deposit as compensation.
Again, this is important in the UK. In the eyes of the law, the deposit is the tenant’s money and should be viewed as such. It is the landlord’s responsibility to make sure the deposit is protected as per the legal requirements. If the agent fails to register a deposit or even steals it, the landlord must still pay this deposit back to the tenant, even if they never had it.
From a landlord’s perspective, schemes that are most secure are those that hold the deposit, meaning nobody can touch it. What's more, the schemes are free. The company makes its money from the interest on the deposits.
As mentioned above, the deposit is deemed to belong to the tenant. As such, any claim for the deposit at the end of the tenancy due to damage must be proven by the landlord. Additionally, any amount disputed by the tenant will be reviewed and adjudicated by the scheme's dispute resolution staff. These are usually legally trained staff or solicitors who are gaining experience.
To be able to properly justify any damage, you will need to have a full inventory of the property which must be completed just prior to the tenant’s occupation. This is signed by the tenant as a true and fair reflection of the state of the property when they took possession. In addition, you will also need a check-out report that notes any discrepancies with the inventory that was completed on move-in. This should also be signed by the tenant if possible.
Your agent should manage this for you as part of the terms and conditions in your management agreement, and the costs should be notified to you in advance. Any claim on the deposit should be handled with evidence and managed correctly to ensure you are compensated for any damages or unpaid rent.
Claims for damage are not dealt with on a new-for-old basis and must consider wear and tear and the life of the item. If the tenant was in the property for four years and the carpeting was new when they moved in and they damaged it, the calculation will be as follows: the expected life of the carpeting was eight years, and it was used for four years. Therefore, the landlord will be awarded 50% of the cost to replace the damaged carpet with a new one.
Should your agent improperly handle the move-in, move-out, or any other tasks covered in the management agreement, you have the right to raise this through the agents’ complaints procedure, which is stated in the agreement. Should you find their response inadequate, you can raise it with the property redress scheme that they belong to (See previous comment above). The redress scheme has the right to investigate and award compensation to you if the agent is responsible for any loss, you have suffered due to their action or lack thereof.
It is also worth noting that your agent should ensure that all legal requirements have been attended to with the tenant prior to the move-in. This includes providing all safety certificates mentioned previously, as well as checking that the safety equipment on the property has been installed properly and tested. The tenant should also receive the government “How to rent booklet” copy here. Again, failing to complete these mandatory requirements will have implications for the landlord.
Your agent should manage the tenancy and the tenant, deal with any maintenance issues, and keep you updated. Any required safety inspections they will schedule and manage on your behalf. They should carry out regular inspections to make sure the tenant is looking after your property and there is no damage. They will collect the rent and process it each month, and pay the amount, less their fees (and any agreed maintenance charges that they will pay to the contractors) to your bank account.
To receive the rent with no tax deductions you will need to register with the UK government as an overseas landlord, link here to the UK government site. It is highly recommended that you take advice from a tax expert prior to investing in UK property to ensure you have the most efficient tax structure (see our tax partners page here). Structures include individuals, companies and trusts and will take into consideration rental income, costs, and capital gains. Depending on your plans, you must ensure you have the most suitable structure from the start, as it is very difficult to change at a later stage without significant costs.
UK tenancy agreements are defined by UK legislation, and cannot be changed or altered, even if both parties agree. These are covered by the Housing Act 2004, as well as previous acts such as the Housing Act 1988. Tenancy terms have fixed periods and the shortest fixed term is currently six months. Even though a landlord and tenant can agree a shorter term, the landlord could not legally take possession until after six months if the tenant were to change their mind.
The fixed period can be longer, and when the term approaches expiry a new one can be agreed, or the tenancy can become periodic, meaning a month-by-month tenancy. Rent increases are generally covered in the agreement, occurring annually, and set against Retail Price Index (RPI) or a fixed percent increase. Your agent should manage the tenancy renewals and rent increases, and keep you updated on the requirements and changes in rent.
The type of tenancy, fixed or periodic, will determine what you can do should you want the tenant to vacate the property. At present, a notice, known as the Section 21, can be used to advise the tenant that you require them to leave. This is known as a no-fault possession and must be served more than two months prior to the end of the fixed period, or a minimum of two months from the day a rent is due for a periodic tenancy. A tenant cannot legally challenge this notice and must leave the property. If they do not leave, there is a quick possession route available through the courts, and bailiffs will evict the tenants.
A landlord cannot evict a tenant through any form of intimidation or threat or by changing the locks, for example. This is a criminal offence and landlords can be imprisoned.
There is, however, a review currently taking place within the UK government, and it is likely a no-fault eviction notice will be banned to provide tenants with more security when renting a home. Alongside this, government is making it easier for landlords to evict tenants who are not paying their rent or are engaging in anti-social behavior.
Note that this guide is by no means an exhaustive legal document. The UK Housing Act contains many sections and notices to manage a tenancy and bring it to an end. Your agent will be able to advise you and communicate any changes in UK laws surrounding renting your property. Also bear in mind that if you have the right insurances in place, such as a rent and legal guarantee, then any issues will be covered and managed properly.
If your tenant does decide to leave, they must give notice they will leave at the end of the fixed period, or a month’s notice if they are in a periodic tenancy. Your agent will advise you and will begin to re-advertise your property to find the next tenant. In the UK, it is legally acceptable to advertise and show prospective tenants your property whilst the existing tenant is still living there. The existing tenant should cooperate with the agent to do this, and the agent should work with the tenant to make sure everyone is happy with the arrangements.
Furthermore, if you are for any reason unhappy with your agents, this is also the most cost-effective and easiest time to replace them. You will simply advise them that you do not want them to re-advertise the property, that you will be appointing new agents, and thus will co-ordinate for them to collect a set of keys. However, your existing agents should still conduct the move out and deal with the deposit to bring the current tenancy to an end.
Whilst the UK laws and processes for renting your property may seem complicated and legally onerous on the property owner, there is a huge demand for rental properties. The UK suffers a chronic lack of property and not enough new developments are being built.
The demand for quality property is growing fast as "generation rent", the demographic of younger, working professionals, are choosing to rent to remain flexible and mobile in the current employment market. Compared to Europe, the UK has far less rented property available as a percentage of the housing stock.
The key is to finding good agent, of which there are many in the UK, to manage and mitigate the risks.
Magnate Assets is appy to assist you throughout the process. With us, you can be sure of making the most ideal investment for yourself. Speak to our Managing Director to begin the process of investing in buy-to-let property.
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