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LANDLORDS ADVICE ON TENANTS |
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> Advice to landlords about tenants |
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Introduction
Methods for securing, selecting and vetting tenants differ
according to the type of tenant that may be attracted to your property. A few
examples relating to the most common types of tenancy are detailed in this
section.
Securing Tenants
Professionals
This term is frequently used for potential tenants who are
seeking private rented accommodation for job related reasons. They may be on
short-term employment contracts or requiring temporary accommodation whilst they
search for a permanent home in the locality.
Methods that could attract potential tenants include newspaper
advertisements, circulating details of the property to local employers or
erecting a 'to let' sign outside the property if it is (for example) located on
a main road.
Advertisements should always include a brief description of
the accommodation on offer, its' location, monthly rent and contact phone
number. The date from which the accommodation is available could also be
included if it is not available for immediate occupation.
If literature is to be circulated to local companies, consider
using photographs of both internal and external forms.
Students
Many universities and colleges offer registration schemes for
properties in the private rented sector. The main purpose of this service is to
ensure that accommodation offered to students via these schemes meets certain
minimum standards.
The minimum legal standard of a landlord's gas safety
certificate is always required, as is usually a certificate of electrical
safety. Other features requested are usually related to safety (e.g. heat
detector, smoke detectors, fire doors etc.) and differ widely across the
country.
Many landlords let their properties through recommendation,
where their tenants recommend the property and its' landlord to another group.
Students are now starting to use services such as the Internet to look for
available properties and your local Landlords Association may offer this
service.
Housing Benefit
This is normally done through direct contact with the local
authority that services the area in which the property is located.
Again, minimum standards relating to gas and electrical
safety, condition of the property and other factors will be considered by the
local authority.
For more information regarding rent levels and procedures, please read the section on 'letting to tenants on housing benefit'.
Selecting Tenants
It is advisable for landlords to list their criteria for
vetting applications from prospective tenants. This may be to exclude tenants
with children or pets, students, or those on housing benefit.
Note however, that a landlord cannot exclude anyone on the
grounds of race, disability or gender without contravening current legislation.
It is essential to carry out thorough reference checks on
prospective tenants and the sort of information that a landlord may ask for
(depending on circumstances) is as follows:
• Personal details (age, occupation, married/single
etc.)
• Current address (and previous if less than three
years)
• Current employment details (or details of last
employer)
• Bank details (address, sort code and account
number)
• Name of someone who could give a character
reference
• Details of any previous county court judgements
(CCJ's)
• Details of offences relating to alcohol or drug
addiction
• Whether a tenant is in receipt of (or believes
themselves entitled to receive) housing benefit
Sample information forms are included at the end of this
section.
Holding a Retainer
There may be a delay between a prospective tenant agreeing to
take a property, reference checks being carried out and the tenant moving in.
Both to protect the landlord's interests and to ensure that
the tenant does not renege on his verbal agreement, it is usual for the landlord
to ask him for a non-refundable holding retainer. This should neither be
referred to, nor considered as a deposit, since a deposit is an amount held by a
landlord against damage to his property and is therefore potentially refundable.
Should the proposed tenant eventually not sign a tenancy
agreement or his references do not prove to be satisfactory, then the landlord
can legitimately keep either the full amount or part of the retainer, to cover
both his advertising costs and the loss of rental income whilst the property is
being re-advertised. However, if circumstances arise that prevent the landlord
from proceeding with the agreement, then the retainer must be returned in full.
If the potential tenant signs the agreement, then the retainer
becomes either part of or the full deposit, depending on the sum of money
involved, for the term of the agreement.
Vetting Tenants
Landlords should use the information provided by prospective
tenants to take up references, financial and character checks as appropriate.
This should never be taken lightly as once a bad tenant gains
possession of a property, it can take many months to remove him legally. Careful
records should be kept of all information provided by the tenant as the Housing Act of 1996 introduced ground 17 to protect landlords against false
or misleading information provided by tenants, and this ground can be used by
landlords to seek possession of the property.
Landlords should consider the following vetting procedures:
References
Check at least two references, employer, bank, character, or
previous landlord as appropriate.
Employer's references - These
help to establish that the prospective tenant is currently employed and is
earning the necessary income to pay the rent. It should also be established that
the employment is either regarded as permanent and secure or, if for a temporary
contract, it is for the term that the tenant has stated.
If the tenant is not currently employed or is new to an
employer, then a reference from their previous employer may well be useful.
Knowing the identity of the company that a tenant works for is
also useful in case there is ever any financial dispute regarding rent monies
owing. It is possible for a court to enforce repayment of debt using an
'attachment of earnings' order should the tenant leave with money owing.
If the potential tenant is self-employed then it is equally
important to determine whether he has a steady income or is likely to be able to
maintain one. This is a more difficult situation for the landlord but he can ask
to see the tenants account books, or ask for permission for the landlord's own
accountants to vet them.
Bank references - Procedures vary
form bank to bank but the landlord can either ask his own bank to carry out a
reference on his behalf (for which a fee is payable) or he can write to the
prospective tenant's bank asking for a reference.
The landlord should provide the following information:
• Consent from the prospective tenant for the
information to be released.
• Name and address details of the tenant and his
account number
• The amount and frequency of the rent to be paid
• Landlord's own name and address
Again, a fee will be payable to the bank. The banks' response
will often be very unspecific but will give either a positive or negative
statement regarding the reference. You may well need to 'read between the lines'
for an interpretation!
However, always be aware that a bank reference represents an
opinion at a particular moment in time.
Credit Checks - A number of
companies can now carry these out and they can very quickly check both the
credit history of the individual or that of any address that he has given to
you. They will usually identify if the individual has any CCJs against him.
Based on a credit rating, the credit referencing company can
then advise on the overall credit worthiness of the individual. Your local
association can recommend credit reference agency and advise of costs.
Character reference - The value
of this reference depends on the status of the individual who is supplying it
and should be considered the least reliable of all reference checks. Those of a
Doctor, Magistrate or ex-Teacher will be more of use than those of a close
friend. Generally the reference should seek to find out:
• The relationship with the potential tenant
• How long and in what capacity they have known him
• How reliable and trustworthy he is considered to be
Guarantors - These are
particularly useful where students or young people with no employment history
are seeking to become tenants.
Guarantors will be legally obliged to accept responsibility
for any rent arrears or other non-adherence to the tenancy agreement. Because
they are taking on this responsibility, the landlord may then need to carry out
vetting procedures on guarantors to satisfy himself that they are in a position
to fulfill their obligation.
Note that this form and the tenancy agreement must both be
dated the same.
Section 4
– Creating a tenancy
Assured and Shorthold Tenancies
All tenancies created after 28th February 1997 are now
shorthold tenancies unless specified otherwise. They were introduced in their
current form by the Housing Act (1996).
They are the usual form of letting if:
• You are a private landlord and your tenant is a
private tenant
• The tenancy began on or after 15 January 1989
• The house or flat is let as separate accommodation
They do not apply if:
• The tenancy began before 15 January 1989
• It is a business or holiday let
• No rent or a very high / low rent is charged
• You are a 'resident landlord'
The main differences between Shorthold and Assured
tenancies are:
If you let on a Shorthold Tenancy you can regain possession
provided you grant a six month tenancy or less, or a periodic tenancy from the
commencement of the tenancy. If however you grant a tenancy for a period
exceeding 6 months, possession can only be obtained by giving a minimum of two
months notice, at least two months before the expiry of the fixed term.
You should consider a shorthold tenancy if you think
that you may need to regain possession of your property at some time.
Many mortgage lenders may insist on this.
If you let on an Assured Tenancy your tenant has the
right to remain in the property unless you can prove to the court that you have
grounds for possession. If a problem occurs, then it may take a long time before
a landlord regains possession and he may consequently lose a great deal of rent.
You should therefore only consider an assured tenancy if you
are certain that you want to let the property indefinitely to the same tenant.
However the following tenancies cannot be shorthold:
• A tenancy replacing an earlier assured tenancy with
the same tenant
• An assured tenancy which the tenant has succeeded
to on the death of the previous regulated (pre-1989) tenant
• An assured tenancy following a secure tenancy
(public sector to private landlord)
• An assured tenancy arising automatically when a
long leasehold tenancy expires
How do I set up a Shorthold Tenancy?
Tenancies set up on or after 28 February 1997 are
automatically shorthold tenancies unless special steps are taken to make them an
assured tenancy.
For tenancies created before this date, landlords would
have had to issue a section 20 notice to notify tenants that the tenancy
was to be shorthold.
How do I set up an Assured Tenancy?
You must either give the tenant a notice at the beginning of
the tenancy, which says that the tenancy is not a shorthold tenancy, or
include a simple declaration in the tenancy agreement. There is no specific form
for this.
Does a tenancy have to run for a set period?
An assured or shorthold tenancy may either:
• Last for a fixed period (a fixed term tenancy - The initial period can be now be fixed for less than six months duration)
• Run indefinitely from one rent period to the next (a
contractual periodic tenancy)
However, the choice you make will specifically determine your
rights to regain possession (see section on gaining possession).
Does the tenancy agreement have to be in writing?
It is in your best interests to have a written tenancy
agreement, as this will make it easier to resolve any disagreements, which may
occur, and to regain possession.
You cannot use the accelerated possession procedure operated
by the county courts without a written tenancy agreement.
Any tenant with a shorthold tenancy starting on or after 28
February 1997 has the right to ask for a written statement on the main terms of
the tenancy (i.e. date tenancy began, amount of rent payable and when, length of
any fixed term agreed etc.)
Is there a standard tenancy agreement?
Great care needs to be taken when drawing up your own
agreement that the terms do not conflict with the legal duties of a landlord
which will automatically override anything that you may agree with the tenant.
It is therefore recommend that you purchase a standard form
available from legal stationers or one produced by a landlords association. Most
NFRL member associations have agreements available for purchase.
Stamp Duty
The law says that a short tenancy is a stampable document and
has to be stamped, however it does not apply to all tenancy agreements (e.g.
contractual periodic). Perhaps surprisingly it is the responsibility of the
tenant, not the Landlord, to have the agreement stamped and to pay the duty
along with any fines or penalties for late payment. This is because the tenancy
agreement belongs to the tenant and the counterpart (or copy) to the Landlord.
Furnished Accommodation
Provided that a reasonable standard of comfort is offered,
there is a fixed duty of £5 on a property let furnished provided that it is let
for less than one year and the rent is more than £5000 p.a. (no duty is payable
if the rent is £5000 or less).
The agreement must be for a stated period of time and must
include a notice period.
If a letting period exceeds 364 days, then duty will be
payable at 1% of the annual rent.
Unfurnished Accommodation / Indefinite Length Leases
An agreement for unfurnished accommodation will be treated as
if it were a lease. In both the above cases stamp duty will be payable at 1% of
the annual rent. (subject to a £5 minimum)
There is a 30 day time limit for getting documents stamped. If
documents are submitted late you will be charged a penalty. Up to 1 year late
the maximum penalty will be an amount equivalent to the duty or £300 (whichever
is less). For more than a year it will be whatever is the greater of the two amounts. A standard rate of interest applies (available from the
Inland Revenue)
The stamp duty payable on the Counterpart (the copy
held by the Landlord) to the tenancy agreement will be stamped at a fixed fee of
£5 regardless of the period of the tenancy and whether it is furnished or
unfurnished. A penalty of £5 will be charged on counterparts stamped after one
month and within one year and £300 may be charged over one year.
Please note that a counterpart must be signed by the tenant
only. If both copies are signed by all parties, then the stamp office will not
be able to tell which copy is
which.
Circumstances where stamp duty does not apply:
• The agreement is for not more than 7 years and
• The average annual rent or total rent for the
period if under a year is £5000 or less
• The premium is £60,000 or less and the document
contains a £60,000 certificate of value.
Source: Inland Revenue Guide SO 899
Should I provide a rent book?
You are only legally obliged to provide a rent book if the
rent is payable on a weekly basis.
However you should keep a record of all rent payments and
provide receipts for rent paid to avoid potential disagreements.
Company Tenancy
This type of tenancy is outside the Housing Act 1988. The
terms of the tenancy will be fixed by both parties thus giving maximum
flexibility. The tenant company has security of tenure for the fixed period
only, providing that they comply with all terms of the contract.
The advantage to the landlord is that there are likely to be
fewer problems with this kind of tenancy and little likelihood of any difficulty
in gaining possession at the end of the tenancy. However it is advisable to
investigate the financial position of the company to ensure that it is sound.
Premium Leases
A 'premium lease' means a tenancy for a property where the
rent is paid in advance in one lump sum. Premium leases are granted for a
minimum of two years. The rent is paid in advance (called a premium) and there
is no break clause in favour of either party during the tenancy.
Additionally there is a nominal ground rent (usually £1) paid
on an annual basis.
The words lessor and lessee appear in the agreement instead of
landlord and tenant.
Implications for the Landlord:
The landlord need not worry about the tenant defaulting on the
rent as the rent is paid in advance. Also if a tenant leaves, a landlord is
guaranteed to keep the premium paid at the start of the lease.
However, as all the income is received in year 1, there will
be no income to offset expenses against in the subsequent years of the lease.
Tax advice should be sought, as it may be possible for the tax
office to agree that the rent could be spread across the full period of the
tenancy. Otherwise, the expenses of subsequent years must be carried forward
against future rent or current loans for other properties that the landlord may
own.
Note however that landlords who take more than 7 weeks rent as
a deposit run the risk of unintentionally creating a premium lease.
Implications for the Tenant
The tenant is usually a company, which can claim the rental
payment as a capital sum paid by them. The employee housed in the property has
to declare the 'benefit in kind' to the tax authorities on form P11D, which will
be considerably less than the rental payment converted into an annual amount.
This provided big tax savings to both the company and the employee.
However if the employee leaves or is transferred to another
location, as there is no break clause in the agreement, the company will have to
negotiate with the landlord to replace the original tenant.
Leases for fixed periods of three years or more must be drawn
up as a deed usually by a Solicitor.
Deposits
What is a Deposit?
A deposit is a sum of money paid by the tenant, but held by
the landlord, to be used to pay for any damage to the property or its contents,
identified against the original inventory of contents / schedule of condition
drawn up at the commencement of the tenancy. It is good practice for this to be signed by both parties but this is not compulsory. The deposit can also
be held against loss of items or rent.
How much money should I ask for?
It is usual to ask for one month's rent as deposit and in
occasional circumstances, six weeks. Care must be taken not to ask for more than 7 weeks rent or it could be regarded as a premium which will give
the tenant the rights associated with this type of tenancy.
Who 'owns' the deposit?
At all times during the tenancy, the deposit remains the
property of the tenant.
However deductions can be made either during or at the end of
the tenancy, the amount and the circumstances having preferably been agreed with
the tenant, and notified in writing. Estimates or receipts should be provided
where appropriate. If a deduction is made during the tenancy, then the tenant
should make up the deficit.
Where should deposit monies be held?
It is advisable to keep the deposit in a separate bank account
so that it can be returned at the end of the tenancy unless circumstances arise
where an amount needs to be withheld. Again the tenant should be notified of
this in writing and receipts provided where appropriate.
What procedure should be followed to Avoid Disputes?
Deterioration occurs in a property during the duration of any
tenancy and allowance for `fair wear and tear' should always be given.
At the start of a tenancy, the tenant should be given an inventory of contents of the property together with a schedule of their
condition. Tenants should be given time to check this and should sign the
document to say that they agree with its contents.
As part of the checkout procedure at the end of the
tenancy, the landlords should check the property (preferably accompanied by the
tenant) against the original inventory / schedule of condition.
Any minor damage or breakages should be noted and a
replacement cost agreed with the tenant.
If there is any major damage, then estimates should be
obtained and shown to the tenant.
All damage, replacement costs and the amount to be
deducted from the tenant's deposit should be notified to them in writing (with
supporting receipts)
It should also be agreed that the full or remaining portion of
the deposit will be returned to the tenants once they have fulfilled the terms
of the tenancy agreement.
What is the difference between a deposit and retainer?
A deposit is an amount held by the landlord against damage or
loss to his property or effects. A retainer is a non-refundable amount, paid by
a prospective tenant, to secure a property pending satisfactory references being
obtained and/or the commencement of the tenancy. Retainers are discussed in a
little more detail in section 3.2
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