RENTING OUT A PROPERTY – GUIDE FOR LANDLORDS
People explore the buy-to-let market for a range of reasons, the most common being to make profitable revenue. While investing in property is a popular way to generate a passive source of income and enable financial freedom, with the many rules and regulations involved, it can be daunting too.
UNDERSTANDING YOUR LEGAL OBLIGATIONS
As a landlord, you have many legal obligations to ensure the safety of your tenants:
FIRE SAFETY
- A smoke alarm must be installed on each floor of the property and all alarms should be in good working order at the start date of each new tenancy.
- A carbon monoxide alarm must be provided in any room with a solid fuel burning appliance such as a coal fire or wood stove.
- All furniture should meet fire safety standards and should display the appropriate labels.
GAS AND ELECTRICAL SAFETY
All gas and electrical equipment should be safely installed and maintained by a Gas Safe registered engineer. It is also recommended that all appliances are checked annually via Portable Appliance Testing (PAT) to ensure you are meeting your legal safety obligations.
By law, landlords must also get a Gas Safety certificate every year and ensure a copy of this is provided to new and existing tenants within 28 days of the check.
ENERGY PERFORMANCE CERTIFICATES
An Energy Performance Certificate (EPC) gives the property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years.
It is a legal requirement to have a valid EPC for a property when marketing it for lettings, and from April 1st, 2018, any property which does not have a minimum rating of E on its EPC, will be unfit for rental accommodation.
Any rented property which breaches this requirement could find its owner facing fines of up to £4,000.
RIGHT TO RENT
As well as abiding by a range of health and safety obligations, landlords are also responsible for checking that their tenants are legally allowed to reside in the UK. Failure to carry out these checks could result in an unlimited fine and up to 5 years in prison.
Landlords must also provide their tenants with a copy of the Government's How to Rent Guide, which gives practical advice about renting in England.
PROTECTING YOUR TENANT'S DEPOSIT
As a landlord, you must protect your tenants’ deposit with a UK Government-approved deposit protection scheme.
These deposits must then be returned in full at the end of the tenancy, unless there is a dispute about unpaid rent or damage caused to the property. There are three such schemes in England and Wales:
The above legislation is by no means an exhaustive list; more details about the legal obligations of landlords can be found on the GOV.UK website.
FINDING THE RIGHT TENANTS
For many landlords, new or experienced, it can be tempting to accept any tenants who show an interest in your property, however, failing to enforce a screening process on prospective tenants can increase the risk of financial loss through property repairs or legal action.
CARRY OUT TENANT CHECKS
Proper tenant checks should be carried out before a tenancy agreement is established. These thorough checks will help to unearth any issues with credit or previous landlords and should include:
- Financial documents – These are documents that prove that the tenant can afford to pay rent and may include: an employment contract, recent bank statement, pay slip or a letter from an employer confirming they are currently in work.
- Credit checks – Credit checks are a common way to establish the financial behaviour of prospective tenants and will show any outstanding loans and debts as well as any missed or late payments. In order to carry out credit checks, you’ll need to pay a small fee to platforms such as
- References – Once you know a tenant has the financial means to rent your property, obtaining references from previous landlords can help to confirm the tenants’ reliability.
SECURE A GUARANTOR
A guarantor is responsible for paying rent on behalf of a tenant should they not be able to pay it. Obtaining a guarantor for your tenants can be useful if they do not have a credit history or are renting for the first time.
Whilst guarantors are usually a relative or close friend of the tenant, this is not a necessary measure - the important thing is that they have a good credit history and savings above a certain amount.
COLLECTING RENT
Once contracts are signed and the tenant has moved into the property, you will need to ensure that rent is collected each month. There are a number of ways in which you can choose to do this:
- Cash – Cash payments are relatively rare in the property world and are not recommended due to the lack of paper trail should disputes arise. It is also time consuming to collect rent each month, particularly for landlords with large property portfolios and can cause tax implications if not properly managed.
- Standing Order – A standing order is the preferred method of many landlords as it is easy to set up, manage and track. Set up via the tenant’s bank, a standing order ensures that a fixed amount is sent to your account every month, running indefinitely until it’s cancelled.
- Direct Debit – Direct debits can be tricky to set up yourself and are often managed by third party agencies, however, it does ensure the money will be automatically deducted from the tenant’s account each month and can be especially useful for landlords with multiple properties and due dates.
FINANCIAL RESPONSIBILITIES
As you are making a financial profit, you must pay income tax on any rental income, minus your day-to-day expenses.
You will also need to pay Class 2 National Insurance if your profits from rental accommodation are £6,515 a year or more and if renting out your property counts as running a business. Renting out property will count as a business if all of the following apply:
- Being a landlord is your main job
- You rent out more than one property
- You are buying new properties to rent out
MANAGING THE PROPERTY
Once your tenants have signed a contract and moved in, your obligations do not end – you must maintain the property, ensuring it is kept in good condition, and any gas or electrical systems continue to meet specified safety standards.
You are also responsible for repairs to the property, including:
- The structure and exterior of the property, including the walls, roof, foundations, drains, guttering and external pipes, windows and external doors.
- Basins, sinks, baths, toilets and their pipework
- Water and gas pipes, water tanks, electrical wiring, boilers, radiators, gas fires, fitted electric fires or fitted heaters.
If you refuse to carry out repairs, tenants can take legal action and in cases where hazards are involved, the council may be asked to inspect your property under the Housing Health and Safety Rating System (HHSRS) and take any action that is necessary.
Another relatively new obligation for private landlords is to understand the obligations of any licencing schemes in their area. If they have 3 or more sharers in the property, the licenses fall into one of numerous categories depending on the area and number of occupants.
PROPERTY MANAGEMENT SOLUTIONS FROM ABODE
Our property management services are designed to support you at every stage of renting out your property. Our fully managed service includes sourcing reliable tenants on your behalf, collecting rent, and handling all communications and property maintenance, so you can rest assured your property is in safe hands.