Investing in buy-to-let property certainly has its upsides, especially in times of rapid house price growth like we have experienced in the past 18 months. A successful property portfolio often outperforms other asset classes and offers landlords a great opportunity to achieve a generous return on their investment.
However, building and running a successful and, more importantly, legal property portfolio is far from a piece of cake. There are numerous rules and regulations that a property has to adhere to before it can be legally let and failing to do so can result in landlords being fined thousands of pounds – a sure dent to any profits.
If you’re a landlord, we’ve listed some of the most common legal obligations for you below, but always check with your local authority and do your research.
Gas and Electrical Safety
Landlords are responsible for the maintenance and servicing of any gas appliances, fittings and flues and electrical equipment. Prior to being let, all rental properties must be electrically tested by a qualified electrician and PAT testing must be carried out annually. An annual gas safety check must also be carried out by a Gas Safe registered engineer and such records must be provided to tenants within 28 days of the work being completed and to new tenants when they move in. You should also make sure that tenants know what to do in the event of a gas or electrical emergency.
All landlords have legal obligations with regards to fire safety, but different legislation applies to different kinds of rented accommodation. Houses in Multiple Occupation (HMOs) will require far higher levels of fire safety regulation than other residential properties for example. But, at the very least, landlords should carry out fire risk assessments for each property and ensure that there are adequate means of escape and smoke detectors fitted. Fire doors may also be required in some properties. To find out what’s required for your type of buy-to-let, visit the RLA website.
Energy Performance Certificates
Most types of property will need an Energy Performance Certificate (EPC) and failing to produce one when required can result in a fixed penalty. From April 2018, all rental properties will need an energy rating of Band E or higher, otherwise they will be unlawful to let. An EPC is not required however when a house or flat is rented by a number of tenants on individual agreements who have exclusive use of their bedrooms but share communal areas, such as an HMO.
Lodging a tenant’s deposit
Since the tenancy deposit regulations came into force in April 2007, landlords in the UK are required to put tenants’ deposits into a protected scheme and serve a document called Prescribed Information at the start of each new tenancy if they let their property on an assured shorthold tenancy agreement. You are only excluded if you are a live-in landlord or have individual tenancies with rent over £100,000 per year.
Landlords need to protect their investment properties in the same way that they would protect their own home. Buildings insurance is a must-have, but not any old product will do. You’ll need specific landlords insurance and furnished properties will also need contents insurance. Landlords who carry out refurbishments or conversions prior to tenants moving in would also need several different types of policies. Landlords should also consider the risks associated with renting out a property and look at ways to mitigate those risks. This could be legal expenses and rent guarantee insurance to safeguard against tenant disputes.
Without knowing it, many landlords, especially those who fall into the ‘accidental’ category, could be committing mortgage fraud. It is essential that landlords have a specific buy-to-let mortgage if they are renting out a property and not living in it – even if this is a property they used to live in. There are also single tenancy and multiple occupation products depending on the type of rented property. Depending on the lender, fraudulently using a residential mortgage for a buy-to-let property could mean that the lender requests that the loan is repaid immediately. It would most certainly invalidate any insurance you have too.
Landlords may require a licence depending on the type of properties they rent and where they are located. In areas where there are selective licensing schemes in place, all private landlords must obtain a licence. The purpose of this is to ensure minimum standards are met and rogue landlords are deterred. Landlords of HMOs may also need to apply for an additional licence and the rules and requirements differ from one local authority to the next. Failing to obtain either of these licences when required could result in hefty fines or even prosecution. Landlords should always check the requirements with their council.