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Landlord Headaches and How To Solve Them PART TWO
There are often simple remedies to life’s problems, though we may not always realise what they are until it’s too late – and that can be expensive, if you just happen to be a landlord. In the second part of this article I give five more commonsense tips on how to make your lettings easier to manage, run smoother and be more profitable.
6. An Alarming Mistake
One simple mistake made at the start of tenancy can create an irritation that costs landlords dearly. Many homes these days come complete with an alarm system already installed. If they are key operated, then keeping the original and issuing the tenant with a copy is easy enough (though you would be amazed how many fail to undertake even this most basic of tasks). Needless to say, if the copy is lost, the landlord can have another copy made at the tenant’s expense and all is well again.
However, if the alarm system operates through a personal code number, things can become much more complicated and substantially more expensive – and the basic mistake made by many landlords is in giving the tenant the original or a copy of the alarm system instruction booklet. As most UK landlords should know, it is a legal requirement to provide tenants with either a copy of the manual or written instructions for all supplied appliances and installations. Many simply stuff appliance manuals in a kitchen drawer, believing they have then complied with the law. And indeed they may well have complied with the law, but they may have also created a headache for themselves for the future.
First, tenants have a bad habit of instantly losing anything made from paper that is given to them, unless it happens to be cash. Tenancy agreements, inventories and appliance manuals are all too often destined to become scrap paper the second they are handed over, only to be used to record the week’s shopping list or the address of a new website someone has told them about. To prevent this happening to you, make sure you only ever supply a duplicate copy of appliance manuals – including the one for the alarm system.
Secondly, when copying the alarm manual, omit to provide the section that tells them how to change the code-number. Tenants understandably often wish to improve their level of security by putting their own code number into the system. Unfortunately, they rarely tell the landlord what this new number is. This ultimately results in the landlord or their agent having to call in an alarm engineer to reset the system back to the manufacturer’s code when a new tenancy begins – and the average cost for this is, ironically, all rather alarming in itself.
This tip is not rocket science, but you would be amazed at how many landlords make exactly the same expensive error over and over again.
7. Keep an Eye on Future Trends and Changing Legislation
While we may not have a crystal ball to see the future, we can keep abreast of changing fashions and regulatory reform and plan for any repercussions. Landlords sometimes sign over an investment property to an agent and then take a back seat, leaving the entire asset in their (hopefully) capable hands. Most will assume all is well, unless they hear otherwise. The only consistent involvement that many have with their investment is when they check their bank balance each month, just to ensure rent is being paid.
This lack of direct interest in the management of their lettings can work against landlords in the long term. A little like the ostrich that buries its head in the sand and fails to see the predator heading towards it. Landlords that maintain interest and adapt to changes often succeed, while others fall by the wayside.
A good example of this is the recent introduction of HMO (Houses in Multiple Occupation) licensing that has taken place in the UK. People ‘in the know’ recognised as soon as the proposal went before parliament, it was likely to become law over a two year period – and the cost to owners of this type of property was going to be enormous. Not only were there going to be fees associated with licensing, but there were also going to be various new minimum standards introduced. Savvy HMO owners sold their properties and moved into less onerous markets. When regulatory reform took place, those that were ignorant of the impending changes lost a fortune through having to finance additional expenses and structural property enhancements.
The same scenario occurred in the buy-to-let arena. Experienced investors could predict what implications oversupply would have in some inner city areas. They realised the rate of construction and extraordinary volume of apartments being produced would lower prices, increase competition and eventually bring about a shortage of tenants. Indeed, that is exactly what happened – and those that failed to predict it fell into serious mortgage debt, ending up with empty properties that were reducing in value and (worse) ones they couldn’t even sell, because buyers were running scared.
The point here is, it’s no good buying an asset and expecting a third party to truly look after your interests. Landlords and all other property investors should maintain some level of association with the dwellings they own and keep an eye on what is happening locally and nationally. Being forewarned is to be forearmed, as they say, and knowledge is a powerful weapon against the pitfalls of being a landlord.
8. Beware of Using Out Of Date Forms
Life would often be a whole lot easier if things stayed the same, but as we all know, the world around us constantly changes – and often without us being aware of it happening. This is even more prevalent when it comes to matters involving the various laws and regulations involved in letting property.
Landlords, letting agents and solicitors employ a myriad of what are known as ‘prescribed’ forms. These are documents that contain certain wording and/or a layout demanded by Acts of Parliament. Forms that are not up-to-date with recent changes can be thrown out of court when submitted as evidence, because they no longer comply with what the law demands. This can occur, for example, with tenancy agreements and possession claim forms (and pre-possession Notices), which might be bought in bulk and stored for later use or which have been purchased off-the-shelf from an unreliable source.
There is nothing worse than going through the process of a longwinded possession claim, only to have it made void at the last minute – and all due to a technicality. Some judges are forgiving, but others follow the strict doctrine of law and landlords that take the risk end up playing a financial game of roulette with their hard-earned cash.
Before you complete any letting form, double check it complies with current legal and regulatory requirements. If you are uncertain, ask a solicitor familiar with letting and housing law to inspect it and approve its use.
9. It’s Not Worth Trying to Hide from Your Tenants
It is perfectly understandable why so many landlords want to prevent their tenants gaining knowledge about their name or home address, as many fear they will be harangued by nuisance tenants or suffer them knocking on the door during unsocial hours.
While this may be understandable, it isn’t always preventable. The law provides for tenants to be issued with the landlord’s name and address, unless he or she has a managing agent (in which case, the agent’s business address will normally suffice). If a landlord employs an agent to ‘tenant-find’ only, they will not be able to avoid the release of personal details to their tenant. The Landlord and Tenant Act 1985 goes slightly further than the provision issued by the Housing Act, as it states the tenant can write and demand information about the landlord’s address from the letting agent. Once such a request is received, the information must be released within 21 days. Some agents interpret the law in favour of their landlord client, and consequentially issue their own agency address, which they purport to be the landlord’s business address (an option the 1985 Act allows for). Unfortunately, this doesn’t always go down well in the eyes of certain courts, so much depends on how a judge interprets the legal situation, and the opinion of judges often differs from court to court.
In short, while landlords might want to hide their personal details from their tenants, it is not always possible, so unless they have a legitimate business address for their letting and property investment operation, a divulgement sacrifice might have to be made … and as the penalties for avoidance or delay or subterfuge are substantial, it’s really not worth taking the risk.
10. Don’t Let Rent Levels Stagnate
As a seasoned investor and longstanding landlord, I get asked more questions about rent levels and how to increase the rent than anything else. Quite often, novice landlords seem to leave this all-important aspect of their operation until the very last minute, when it can be too late to make the crucial provision that should have been made at the start of tenancy.
The tenancy agreement should always stipulate when rent can be increased and – importantly – how it should be increased. In recent years, it has become commonplace for fixed-term tenancies to be created in six or twelve month periods. This is often because letting agents want to have the ability of charging their client landlords for the creation of a new tenancy (period), even when it is to the same tenants. In this scenario, raising the rent is no great problem, because a new rent level can be specified in the new tenancy agreement.
Problems can occur, however, when the first tenancy issued is for a fixed-term of more than a year. Some landlords (and some tenants) understandably want the security and certainty of a prolonged tenancy term and the law provides for this, assuming all parties agree. However, if the tenancy agreement fails to address the issue of annual rent reviews, the tenant does not have to accept any such proposal by the landlord at the end of the first or any subsequent yearly period.
Landlords can then face the prospect of having a secured tenant for two or three or more years, without being able to offset inflation or take advantage of higher local rent levels by raising the rent to this specific tenant. Some tenancy agreements adopt a formula-based rent review clause, and this has proved very successful in most cases (though some judges have objected to badly worded or poorly drafted formulas). Before approving a particular tenancy agreement and before taking-on a particular agent, ask for confirmation that the agreement style adopted includes a rent review clause and seek to obtain clarification that the clause is legally compliant. If you are uncertain about your position after acquiring this information, consult a solicitor familiar with letting law.