Landlords, how can You Survive the Regulatory Avalanche?

If you’re yet to read Richard Blanco’s top ten tips for making your property business more profitable, head over to our sister site Landlord News’ story here. This time, we’re covering Blanco’s advice for how landlords can survive the current regulatory avalanche…

As the London Representative for the National Landlords Association (NLA) and a landlord himself, Blanco has a wealth of knowledge and experience on what’s happening within the buy-to-let sector, and how to deal with it as a property investor.

Why is there so much regulation?

Firstly, Blanco addresses why landlords are facing so much regulation at present. He explains that a “small part of the sector” is underperforming; some landlords don’t treat their tenants well and offer poor property conditions. In order to drive this part of the industry out, the Government wants landlords to professionalise.

He warns that accidental landlords – those with one property – don’t engage with the community enough, and therefore don’t know enough about the regulations that they must comply with.

Letting agents, on the other hand, have been a “long-term frustration”, as many haven’t come up to the mark. If these rogue agents are addressed, it will have a bigger impact on the whole market, Blanco explains, as they manage “hundreds of properties”, as opposed to landlords, who may just operate a few.

There is also a nationwide housing crisis that Blanco believes is causing the Conservative Government to “tag along with Labour”, in order to win over younger voters.

Blanco’s top tip for understanding all new regulations is to “stay informed, join an association, come to talks and events, and have a business plan”.

So, what are the new rules that all landlords must know about, and what can you do to survive this regulatory avalanche?

New housing ministers 

You may or may not know that the UK Government has seen its fair share of new housing ministers over the past few years. Firstly, Dominic Raab MP was appointed Minister of State for Housing at the newly named Ministry of Housing, Communities and Local Government on 9th January 2018. On 30th April, James Brokenshire MP was named Secretary of State for Housing, Communities and Local Government.

In addition, Heather Wheeler MP is now the Minister for Housing and Homelessness, which includes responsibility for the private rental sector. Blanco notes this as a significant move from the Government.

Landlord redress scheme 

There has been a consultation over whether all landlords should be covered by a redress scheme, as letting/property management agents are. At present, tenants can complain about their agent, but have nowhere to go if they have an issue with their landlord. This plan would create a fairer playing field, Blanco believes.

However, he did pose several questions over how the scheme would be operated: Who should provide the scheme? Will there be a flat fee, or would landlords pay per complaint? Will there be a penalty for non-compliance, such as a fine or losing the right to serve a section 21 notice?

Landlords, how can You Survive the Regulatory Avalanche?There is also talk of a new housing court, which could speed up the possession process for landlords. Currently, it can take 42 weeks from a claim to possession, which means that the landlord does not receive rent for a significant period of time.

Regulatory change for agents 

The Government is considering bringing in a compulsory regulatory code for letting/property management agents, which would include qualifications, a transparent service regarding charges, Client Money Protection (CMP) and dispute resolution. A new regulator would have the ability to amend the code and manage the qualifications.

CMP is already scheduled to become compulsory from April 2019. Blanco notes that 60-80% of agents are already voluntary members of a CMP scheme. If your agent isn’t, then you could lose any money you’ve handed over to them if they go bust. Blanco insists that you must use an accredited letting agent, as they will have CMP in place.

Lettings fee ban 

You will likely be aware that letting agents will be banned from charging upfront fees to tenants (except for tenancy management charges, such as if the tenant loses their keys) from, at the earliest, spring 2019, which coincides with Brexit. This will include fees for referencing, and will apply to both agents and landlords. The bill is currently going through Parliament, so continue checking Landlord News’ dedicated page for updates.

The bill will also include a cap of six weeks’ rent on security deposits, which has been amended from the previously suggested four. This could affect tenants with pets, as landlords typically require a higher deposit from them.

Local authorities will be able to fine landlords/agents £5,000 for charging fees illegally, while the Government’s £30,000 civil penalties will still remain in place.

TOP TIP: Blanco advises landlords to review their charges policy now and to consider whether it will be beneficial to put their rent prices up if using a letting agent (as the agent may pass on higher costs to landlords). Nevertheless, he also notes that it is now more difficult to get tenants, as they are “much choosier”, so avoid “huge rises”.

Utilities 

Gas safety 

New gas safety rules are proposed for landlords, which will enforce an MOT-style renewal, whereby you only need to have your certificate renewed within two months of the renewal date. Blanco says that this is a “welcome, practical change”. However, landlords are reminded to stick to the current regulations while they are in force, which include giving your tenant a copy of the gas safety certificate within 30 days of them moving in.

Electrical safety 

A consultation on new electrical safety regulations ended in April this year. It proposes five-yearly reports, which are already compulsory in Scotland and for Houses in Multiple Occupation (HMOs). The rules will require all remedial work on fixed electrical installations to be complete for a certificate to be issued. Landlords must also conduct visual checks between tenancies. “This has been coming for quite a long time,” Blanco points out. With 2.5m landlords now in the UK, he also notes that electricians will be extremely busy. However, there will likely be a long lead-in time for the regulations to come into force, and a check is expected to cost just £95.

Carbon monoxide alarms

Eddie Hughes MP has been campaigning for carbon monoxide alarms to become compulsory in all private rental properties, as they are currently only required in rooms with solid fuel burning applies. As 50 people die every year from carbon monoxide poisoning, Hughes believes that properties should have alarms for any fuels. Blanco expects the Government to take this up, as carbon monoxide can also seep into a home from adjoining properties, so it doesn’t always matter whether you’re a good landlord or not.

TOP TIP: You can buy a carbon monoxide detector from Amazon for under £20, so “buy one now!”

New legislation 

You may have heard of the Fitness for Human Habitation Bill, which has been circulating in the media since Karen Buck MP introduced it a number of years ago. Under the proposed law, it will be classed as a breach of contract if the property is unfit for human habitation, although we don’t know what the definition of this will be yet.

If the bill becomes law, tenants will be able to take their landlord to the county court. Social tenants will have the ability to take the council to the county court as well.

Housing and Planning Act

The Housing and Planning Act 2016 continues to be implemented in stages. One of the more recent measures it introduced was the database of rogue landlords and letting agents, which shares the details of those with housing convictions with local authorities.

Updated guidance has also been issued on civil penalties and rent repayment orders, which prevent a rogue landlord/agent from being taken to court, but require them to pay a fine to the council instead. The council then uses this money for greater enforcement in the future. You could be handed a rent repayment order if you fail to licence, for example. Blanco believes that giving a landlord a £1,000 fine won’t bother them, whereas this change “hits them where it hurts”.

HMO licensing 

“This could affect a lot of you,” Blanco warns.

From 1st October 2018, all houses with five or more occupants from two or more households will come under HMO licensing scope (the rules currently also cover three storeys or more). The new regulations will also enforce a minimum room size – landlords will have 12 months to comply. In addition, the property must have adequate waste facilities, so landlords should look to work with their local authority to ensure that these are in place.

You will be pleased to know, however, that any additionally licensed properties will be automatically passported into the scheme, so landlords won’t have to pay any more.

TOP TIP: Blanco suggests developing a policy on not getting a fifth tenant if you wish to avoid the changes; landlords or their tenants mustn’t move someone else into the property. Regardless, he advises risk assessing whether it is possibly worth applying for a licence anyway and turning the property into a mandatory licensable HMO.

Richard Blanco explains what's coming up

Richard Blanco explains what’s coming up

Onward march of licensing and Article 4

At the time of speaking to Blanco, 22 London boroughs were considering selective and additional licensing, the latest of which was Hackney. The NLA did campaign against this, however, Blanco notes that boroughs can only bring 20% of their total area into selective licensing.

Meanwhile, eight London boroughs have Article 4 directions, and the whole of east London is being encouraged to bring them in. These rules prohibit landlords from letting to sharers, meaning that you can only let your property to related individuals without getting planning permission (which is often refused).

Visit londonpropertylicensing.co.uk to find out more about licensing in the boroughs that you own properties in.

TOP TIP: Factor licensing and planning permission into your financial planning.

If you were thinking of making a planning permission application due to an Article 4 direction, you must be aware that your local authority can charge you £462.

You may have also heard the story of Paul Brown, a landlord in Accrington, who brought a case against the council for trying to implement electrical safety and carbon monoxide alarm rules under its licensing conditions. It was ruled that local authorities cannot require conditions that go above and beyond the law. Blanco warns: “Some local authorities are trying to make new laws through licensing.”

Minimum Energy Efficiency Standards (MEES)

Earlier this year, we made a lot of noise about the Government’s new MEES, which require all rental properties to have an Energy Performance Certificate (EPC) rating of E or higher in order for a new let to be granted (even to existing tenants). This will apply to all tenancies from 2020 and could carry a £5,000 fine if you do not comply.

There are some exemptions, for instance, if you cannot get improvement works funded, and you will only be required to pay up to £2,500 to bring your property to the mandatory standard. If your tenants won’t allow you to make changes to the property, you can also apply to go onto the exemptions register.

It is thought that around 280,000 properties will be affected. However, Blanco highlights that EPCs are now not as harsh on solid wall properties as they once were, meaning that some Victorian homes are now not much lower than a D rating.

Regardless, Blanco expects another minimum standard of D in 2025 and C in 2030.

TOP TIP: If you haven’t already, Blanco encourages you to review your property’s EPC.

General Data Protection Regulation (GDPR) 

As of 25th May 2018, a new GDPR is in force under EU law. As the rules are quite complicated at first glance, the NLA has produced a guide.

Blanco reminds landlords that they are data controllers and, as such, must register with the Information Commissioner’s Office (ICO), which commands a fee of £40.

Under the new rules, you must review:

  • the data that you currently hold
  • how you collect, hold and use data
  • all data processors that you work with (such as builders)

You may also handle tenants’ data that you do not realise is encompassed by the new laws, such as: names, addresses, phone numbers and details contained within referencing reports.

You should implement a policy as to how you are going to handle tenants’ data going forward, and be aware that they can submit an information request to you, which will require you to disclose all of the data that you hold on them.

In the press

Furthermore, Blanco explains that many other rules, regulations and stories are being reported across the property industry constantly.

The Labour Party has expressed its desire for tenants to have the right to have pets, which 50% of landlords currently refuse. Blanco believes that it’s an unfair contract term to ban pets outright, instead, he suggests that the tenancy agreement should state: “Permission won’t be unreasonably refused, but will be assessed on a case-by-case basis.”

A female tenant, Rosie Keough, also won an out of court settlement regarding her landlord’s policy on no DSS tenants. She claimed that this was sex discrimination, as it is more likely to affect single women with children.

And, as ever, the Right to Rent scheme has been slammed by the Chief Inspector of Borders and Immigration, who says that the Home Office does not understand the implications of the policy for landlords. The High Court has subsequently agreed to a judicial review of the scheme. The Mayor of London, Sadiq Khan, has also been critical of the system, calling it discriminatory.

We thank Blanco for his in-depth analysis of how the regulatory avalanche will affect landlords, and how you can be best prepared to deal with it.

©2018 Just Landlords

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