AN INTRODUCTION TO RENTING YOUR PROPERTY
A CHOICE OF STREET RENTALS LETTING SERVICES
‘Letting Only’ Service
‘Letting and Management’ Service
RULES & REGULATIONS
Furniture & Furnishing (Fire) (Safety) Regulations 1988
Gas Safety (Installation & Use) Regulations 1994
Electrical Equipment (Safety) Regulations 1989
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LETSURE LEGAL PROTECTION INSURANCE
The Comprehensive Cover Includes:
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BUILDINGS & CONTENTS INSURANCE
Are You Properly Covered?
Buildings Cover
Accidental Damage Cover
Contents Cover
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TAXATION OF RENTED PROPERTY
Income Tax
Landlord Resident Abroad
Capital Gains Tax
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RECOMMENDED CONTENTS FOR RENTED
FURNSHED PROPERTY
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IMPORTANT INFORMATION FOR LANDLORDS
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Introduction
AN INTRODUCTION TO RENTING YOUR PROPERTY
Whether you are someone looking to let your property for a short term whilst working away from home or wishing to set up a permanent rental agreement this guide is sure to give you some help. The prospect of letting a property is a new experience to many and it is our aim to try and make the complexities a little easier to understand.
This guide contain advice on furnishing your property, tips on taxation, a brief insight into the responsibilities of the Landlords and Tenants under the 1988 Housing Act together with a note of our fees and services.
We pride ourselves on our personal service and so we would naturally be pleased to meet with you to discuss your plans – just give us a call or e-mail us to arrange an appointment.
Types of Tenancy
The decision as to which type of tenancy to use is determined by a number of different factors – we will be pleased to advice on individual circumstance on request. The principal choices are between a CONTRACTUAL TENANCY (used mainly for lettings to Companies) and ASSURED TENANCY and an ASSURED SHORTHOLD TENANCY.
The ASSURED SHORTHOLD TENANCY offers the tenant little security of tenure but gives the tenant the right to refer the rent to a rent assessment committee if he feels that it is too high. It should be pointed out that a rent assessment committee has to show that a tenant is paying substantially above the rent paid for similar properties in the area before ordering a reduction in rent. In practice we feel that with an increasing number of properties on the market it is unlikely that a Landlord would secure tenants if his rent was too high and therefore few tenants will wish to refer rents to the COMMITTEE. The original 1988 legislation laid down important procedural steps which had to be followed to ensure that a legally binding tenancy was created but the process has been greatly simplified by amendments introduced in the 1996 Housing Act. There is now no minimum time period for an assured shorthold tenancy, although a Landlord cannot obtain a court order for possession of the property within the first six months of the tenancy. For this reason we usually recommend that the tenancy agreement is for a minimum fixed term of six months; this binds both the Landlord and tenant to this period of time. Please note that an assured shorthold tenancy cannot be guaranteed where the Landlord is resident on the premises.
The ASSURED TENANCY gives the tenant considerable security of tenure (i.e. it is difficult for the Landlord to regain possession) but gives little power to contest the rent once it has been set, this type of tenancy is principally used by housing associations or other long term landlords and we would not usually recommend this type of tenancy to a private landlord.
The CONTRACTUAL TENANCY is used when the letting is to a Company or where the annual rental exceeds £25,000. In both cases the letting falls outside the scope of the Housing Act and particular procedures apply to regaining possession and enforcing contractual terms. Our staff will be pleased to advise further if necessary.
“HOW DO I EXTEND OR END A TENANCY?”
Under the terms of the assured short-hold tenancy the Landlord has the right to regain possession of the property at the end of the fixed term PROVIDING that a notice requiring possession has been served at least two months before the end of the term. If we act as managing agents we will serve the notice on instructions from the Landlord, if we are not managing the property we will gladly provide the Landlord with a blank copy of the relevant notice.
At the end of the fixed term if possession is not required the Landlord has two choices. With the agreement of the tenant the tenancy can be extended for a further fixed period. There is no limit to the number of times that a tenancy can be renewed and the advantages to the Landlord of renewing in six month blocks are that he is certain of having a tenant for the next period and that if necessary he has the facility to increase the rent twice a year. In normal circumstances we would, however, recommend that rent increase are restricted to one a year.
As an alternative to extending for a further fixed period the tenancy can be allowed to lapse into a STATUTORY PERIODIC ASSURED SHORTHOLD TENANCY. In this case the tenancy would continue under the same terms and conditions as outlined in the original Agreement except that now the tenancy will continue until one party gives notice. Should the Landlord require possession he must give two months notice (on a prescribed form) whilst the tenant can give one months notice of his intention to leave. In either case the notice must expire at the end of a completed period of the tenancy.
Whether or not you instruct us to manage your property Street Rentals will be pleased to advise on any aspect of your tenancy and can organise tenancy agreement renewals or provide possession notices on request.
STAMP DUTY
The Tenancy Agreement that we can produce for you takes the form of an original, and a Tenant’s counterpart. The original is for you to sign, and the Tenants do likewise with the counterpart. Once both copies are signed, they are then exchanged so that each party holds a copy signed by the other party. However, before the documents can be exchanged, some Tenancy Agreements need to be stamped the Inland Revenue. In fact, stamping it is not compulsory, but in the case of disputes, county courts can refuse to accept the agreement as evidence if the duty has not been paid. If the rental value (the sum total of the rent for the duration of the fixed term) of the Tenancy Agreement is less than £5,000, the document is exempt from stamp duty. If however, the value is £5,000 or more, duty of 1% is payable on the original agreement, and a flat £5 duty is payable on the counterpart. If duty is payable on your tenancy, we will arrange to have the counterpart stamped on your behalf and this charge is included in our fee for producing the document. Once is has been stamped, we will forward it to you for safe keeping. It is the responsibility of the Tenants to have the original stamped as they see fit. We will advise the Tenant of the cost and reasons why the agreement should be stamped and how to go about getting it done.
Our Letting Services
A CHOICE OF Street Rentals LETTING SERVICES
At Street Rentals we aim to be as flexible as you need us to be. In order to provide you with the service that best suits your requirements we offer a number of methods by which we can assist you to rent your property – our “Letting Only” and “Letting and Management services.
“Letting Only” Service
* Your property will be inspected by one of our experienced negotiators and its rental value assessed. Any queries that you have can be discussed at that time and we will advise you on all aspects of letting your property.
* Your property will appear on our website – www.cityhomeslondon.co.uk, our popular site attracts hundreds of hits each week and is fast becoming a major promotional tool.
* Street Rentals advertises widely in London publications at no cost to you.
* We interview all prospective tenants before sending them to your property or accompanying them on a viewing. Full details are taken of individual’s circumstances to assess their suitability as tenants.
* Upon finding a suitable tenant, we will negotiate an acceptable rent.
* Satisfactory references will be sought and obtained PRIOR to the commencement of the tenancy and your approval will be gained before drawing up the Tenancy Agreement.
* We collect the first month’s rent and security deposit and will forward the balance to you after deducting our fee.
* We can prepare the appropriate tenancy agreement tailor made to your individual requirements and circumstances.*
* The Tenant can be checked into the property by our inventory clerk using our professional inventory or one supplied to us by the Landlord.*
*Please note that tenancy agreements, inventories and check-ins are subject to an additional charge.
“Letting and Management” Service
In addition to the services detailed above our Letting and Management Service includes:
* We will hold the security deposit on your behalf.
* We will collect the rent monthly and account to you on that basis. Funds can either be paid to you direct or into your bank account, (please note due to delays in the banking system it can take up to 7 working days from the day the rent is due to the day it is received in your bank).
* We will arrange for the Tenant to transfer the gas, electricity and telephone supplies into their name at the commencement of the tenancy. In case it is not possible to arrange for the relevant Boards to read the meters, our Inventory Clerk always takes meter readings at the check-in which are then forwarded to the Boards. Your Termination Account can either come to us for payment or be forwarded to your home address. At the termination of the tenancy, the utilities will usually be disconnected unless the Landlord has made special arrangements with the relevant Boards. Again, final accounts will be forwarded to the tenant’s new address.
* Repairs during tenancy – we will organise any minor repairs and obtain estimates for more serious work. In this instance, we will always report to the Landlord before executing work. We will buy any new machinery that is necessary with the Landlord’s consent. Any repair or work that is required because of negligence or misuse by the tenant, is payable by the tenant. In all other cases, the Landlord is responsible. It is our normal practice to organise minor repairs (less than £100) without prior consultation with the Landlord. For repairs above £100 we will arrange for 2 written estimates from reputable tradesmen and forward these to the Landlord for approval before authorising work. Should you require prior notification and estimates of minor repairs let us know at the start of the tenancy.
* We will forward any mail received at the property that is addressed to you or your immediate family, although to ensure that mail does not go astray, we do recommend that you take advantage of the Post Office redirection scheme which, for a small charge, will direct mail for you from the sorting office. We do not normally charge for redirecting mail although we do reserve the right to charge a small fee if significant quantities of post are still being received after 2 months.
* We carry out a regular 3 monthly inspection of your property upon which you receive a written report. We would not normally carry out a full inventory check at this stage but rather are looking for any obvious damage or signs that tenants are not observing the terms of their agreement.
* If you are resident abroad then we will operate the new scheme for taxing the UK rental income of non-resident Landlord. We only deal with tax and allowances on monies which pass through our account although we are pleased to advise you on additional allowances you may claim.
* Should the property become vacant we will, of course, on your instructions, organise the re-letting of the property. We will always try to ensure the property is unoccupied for the shortest possible time.
Rules & Regulations
RULES & REGULATIONS
There are a number of legal requirements concerning, primarily, the health and safety of the tenant which directly affect Landlords who are considering letting their property. These are summarised below and we strongly recommend that you familiarise yourself with the regulations and ensure that your property complies with them as the penalties for non-compliance are severe. The rules are very largely a matter of common sense and it is likely that you will find that your property already meets the required standards. Our representative will be please to answer any queries that you may have.
Should you favour us with your instructions to let or manage your property we will ask you to sign a declaration that you both understand the regulations and will ensure that your property meets them.
Furniture & Furnishing (Fire) (Safety) Regulations 1988
This legislation defined certain standards and tests which were applied to (mainly) foam filled furniture and applied to manufacturers and importers of furniture from 1st November 1988. From 1st March 1990 the legislation extended to retailers of new furniture and from 1st March 1993 to retailers of second hand furniture.
An amendment to the regulations in 1993 made it an offence to hire out non-compliant furniture in the course of business and this includes Landlords letting furnished accommodation. Any furniture that you supply must therefore meet the fire resistance requirements.
If your furniture was manufactured or imported new since 1st November 1988 it will almost certainly comply and should bear a green edged label with a picture of a cigarette and a match to confirm its fire resistance. Furniture manufactured prior to this date may or may not comply and will probably not bear a label. If you are unable to obtain confirmation of its fire resistance from the manufacturer you should remove it from the property prior to the commencement of the tenancy.
Furniture and furnishings to which the regulations apply include beds, mattresses, headboards, suites, seat pads, cushions, pillows and loose or stretch covers.
Failure to comply with the regulations may lead to a prosecution with penalties of imprisonment or fines up to £5,000.
Gas Safety (Installation & Use) Regulations 1994
Regulation 35 of the approved code of practice imposes a duty on landlords to ensure that any gas appliances in a rented property are maintained in safe condition to prevent risk of injury to any person. More particularly each gas appliance must be checked for safety at intervals of not more than twelve months by either the Gas Board or a CORGI Registered gas fitter.
Landlords should maintain a record of when each gas appliance was checked, the defects found (if any) and the remedial action taken. This record is in the form of a “Landlords Gas Safety Certificate” and should be made available to the tenants on moving in to the property and within 28 days of the annual inspection being carried out.
PLEASE NOTE that under our terms of business we consider that it is the Landlords responsibility to ensure that these safety checks are carried out and we accept no liability should you fail to do so. However, we have been able to negotiate favourable rates with a local CORGI registered firm and, on receipt of your WRITTEN instructions will be pleased to arrange safety checks on your behalf.
Should you have a Gas Board star service contract (or similar) this will cover one annual inspection of the boiler. These contracts do not, however, cover gas cookers or fires and you will still need to arrange for these appliances to be safety checked. The basic 3 Star Contract does not include provision of a Landlords Gas Safety Certificate, although the Gas Board can provide this at an additional cost.
Failure to comply with these regulations may lead to a prosecution with penalties of imprisonment or fines up to £25,000.
Electrical Equipment (Safety) Regulations 1989
These regulations cover all mains voltage household electrical goods including cookers, kettles, vacuum cleaners, washing machines, immersion heaters etc. and impose an obligation on the Landlord to ensure that the goods are safe so there is no risk of injury or death to humans or pets or risk of damage to the property.
In practice, unless you are aware of any particular fault with an appliance, it is difficult to ensure that it is safe. In general, though, you should remove any item with damaged or frayed wiring, badly fitted plugs etc. and ensure that instruction booklets necessary for the safe operation of any appliance are available for the tenant’s use. You should avoid purchasing second hand appliances for the property or, if you do, should have them checked by a qualified engineer. Any non-working appliance should be removed from the property prior to the commencement of the tenancy.
There is currently no obligation upon the Landlord to provide a smoke alarm. However, where one is provided the Landlord is required to ensure that it is maintained in working order at all times.
Failure to comply with the regulations may lead to a prosecution with penalties of imprisonment or fines up to £5,000.
Insurance Issues
LETSURE LEGAL PROTECTION INSURANCE
Letting your property is the simple answer to many problems. High interest rates make it uneconomical to leave your property vacant for any length of time and the added security problem of an empty property is always a worry. Unfortunately there is always a certain element of risk involved in arranging a tenancy however thoroughly the Tenants are vetted by the Managing Agent. Job loss, a lengthy illness or serious matrimonial upset can soon become a problem for a perfectly respectable and financially sound Tenant with good references.
Street Rentals has a solution to this problem – the LETsure Legal Protection Insurance Policy which is underwritten by Royal & Sun Alliance plc.
The Comprehensive Cover Includes
* Legal costs in disputes with tenants or other unauthorised occupants over unpaid rent or damage to the building or contents and will also cover the removal of squatters.
* The cost of hotel accommodation up to the limit of £50 per day for you and your family for up to 30 days whilst legal action to remove the tenant or squatter is started. LETsure pays all legal fees up to £50,000 per claim to protect your legal right.
* A legal service for the recovery of any outstanding rent or damages. In all cases the minimum amount in dispute must be at least £250 at all times.
* LETsure Legal Protection Insurance premium is only £85 per annum.
BUILDINGS & CONTENTS INSURANCE
Are You Properly Covered?
Under the terms of the tenancy agreement it is usually the case that the Landlord is responsible for insuring the buildings and personal contents whilst the Tenants would be expected to arrange cover for their own belongings. It is not uncommon for your current insurers to offer you restricted cover and/or a higher premium as it is deemed to be a higher risk.
If the property that you are considering letting is a flat then it is most likely that the Freeholder will arrange the building insurance and charge the cost proportionately to each Leaseholder. It is very important to check your policy wording to ensure that there are no restrictions whilst the property is let.
We are able to provide quotations and insurance cover for your buildings and contents via LETsure, specialists in insurance products for the letting industry. They have developed LETsure Gold Landlords Household Insurance which provides the widest cover available at a competitive premium which reflects the security provided to insurers through the use of a professional firm of Letting Agents. Cover is available either for building or contents or both sections can be included in one policy. A reduced contents cover is also available to Landlords who let their property on a part furnished or unfurnished basis.
Buildings Cover
The main features of cover are:
* The risks of loss or damage by fire, explosion, lightning, earthquakes, riot, malicious damage, storm, flood, burst pipes, theft, impact and subsidence are covered.
* Theft and malicious damage by Tenant
* Damage by falling radio, TV or satellite aerials or masts.
* Accidental damage to underground services
* Accidental breakage of fixed glass and sanitary fittings
* Property owners liability
* Loss of rent/cost of alternative accommodation up to £25,000 following fire or other insured peril.
* Full cover whilst the property is unoccupied provided it has been left sufficiently furnished for normal habitation.
Accidental Damage Cover – As an optional extension, the buildings and/or contents sections may include Accidental Damage subject to a £50 excess. This extension provides cover for damage arising from an unexpected or unintentional cause.
Contents Cover
The main features of cover are:
* Sums insured of £10,000, £20,000 or £30,000 may be chosen – whichever is adequate to cover the replacement cost of your household contents.
* Alternatively, for Landlords letting their property on a part furnished or unfurnished basis a reduced sum insured of £5,000 may apply. In these circumstances the contents must comprise of carpets, curtains and interior sun-blinds, light fittings and domestic kitchen appliances only.
* The risks of loss or damage by fire, explosion, lightning, earthquake, riot, malicious damage, storm, flood, burst pipes, theft, impact and subsidence are covered.
* Accidental damage to TV, radio and audio equipment.
* Public liability
* Loss or rent/cost of alternative accommodation up to £25,000 following fire or other insured peril.
* Full cover whilst the property is unoccupied.
For further information, please contact Street Rentals.
Taxation Issues
TAXATION OF RENTED PROPERTY
The following is intended as a rough guide to the taxation liabilities which may arise from the letting of furnished accommodation by a private Landlord. It must be stressed that the rules surrounding this subject are extremely complex and that an individual’s personal circumstances can greatly affect their liability to tax. This is only a basic guide and should not be relied upon to provide definitive information. Street Rentals can accept no responsibility for any losses arising from so doing.
We strongly recommend that a qualified accountant should be consulted who will examine each individual case in detail and ensure that the amount of tax paid (if any) is reduced to a minimum. (We will be pleased to recommend a reputable firm if required). Alternatively, your local tax office can provide you with booklet IR150 which supplies detailed information.
Income Tax
Rent received from rented accommodation is taxable. The taxable income is arrived at by calculating the rent received during the tax year and deducting allowable expenses.
Expenses which are allowable include such items as:
* Ongoing maintenance, repair and redecoration (but not improvements) of the property and garden.
* Any rent payable by the Landlord (e.g. Ground rent on a leasehold property).
* Property Insurance premiums.
* Agents managing fees.
* Accountancy fees and certain legal fees.
* Renewal of furniture and equipment (not initial purchase) OR you may elect for a “wear and tear” allowance calculated at 10% of the annual rent received (less water rates).
* In certain circumstances interest payable on loans or mortgages to finance the purchase of the property.
Landlord Resident Abroad
A Landlord is non-resident for tax purposes if he is living outside the UK for a period of more than 6 months.
On 6th April 1996, a new scheme for the taxation of the rental income of non-resident Landlords came into force. Street Rentals, if appointed as managing agent, is obliged by law to deduct tax at the basic rate, unless we have received a certificate from the Inland Revenue giving us approval to pay rents gross. There are no exceptions to this. To obtain this approval it is necessary to submit a form NRL1 to FICO (Financial Intermediaries & Claims Office) declaring that:
* Your UK tax affairs, including payment of tax, are up to date; or
* You have had no prior UK tax obligations; or
* You do not expect to be liable for tax
You also have to undertake to:
* Notify the Inland Revenue if you return to live in the UK.
* Comply fully with your UK tax obligations i.e. submit tax returns & pay tax on time.
* Notify the Inland Revenue without delay if you expect to have to pay UK income tax.
If a property is jointly owned, each joint owner (even husband or wife) who is non-resident should complete a separate form.
For those Landlords who wish to apply for this approval themselves Street Rentals can supply the necessary form or they can be obtained from FICO (address and phone number below).
Certificates can be applied for before a tenancy commences and we strongly recommend that any Landlord going overseas applies as early as possible. These certificates are not transferable so if a certificate has been obtained previously naming another letting agent a new application will have to be made.
For those Landlords who do not obtain an approval certificate the regulations impose a considerable administrative burden on the letting agent as each quarter the tax has to be calculated on the rent received less any allowable expenses and the tax paid over the Inland Revenue. A certificate of tax deducted also has to be provided to the Landlord for each year ended 31st March. There are stringent regulations for record keeping and these records must be available for Inland Revenue inspection at any time. There are also strict time limits for payment of tax which can lead to large interest payments if they are not met.
Because of this additional administrative burden we will charge any non-resident Landlord who has not got an approval to receive rents gross, £50 plus VAT for each quarter that no approval is held to cover our additional costs.
If Street Rentals do not manage the property and each individual tenant pays more than £100 per week in rent then the Landlord must operate this scheme. The Inland Revenue produces several leaflets which explain the above scheme and other aspects of taxation in more detail, these are:
* IR20 – Residents an non residents, liability to tax in the UK
* IR58 – Going to work abroad
* IR138 – Living or retiring abroad
* IR140 – Non-resident Landlords, their agents and tenants
These can be obtained from any tax office or from:
FICO (Non-Residents)
St John’s House
Merton Road
Bootle
Merseyside
L69 9BB
Tel: 0151 472 6208/6209
Fax: 0151 472 6067
Capital Gains Tax
In general, property which is used for letting will become liable to Capital gains Tax when sold. However, in the case of an individual letting a property which has at some time been used as his/her only or main residence, extensive reliefs and allowances are available and in most cases it is unlikely that a liability to capital gains tax will arise.
Tax is payable on the “gain” i.e. the difference between the price for which the property is sold and the price for which it is purchased – (amended by certain allowable expenses and an indexation allowance).
Again the legislation surrounding this subject is very complex and we recommend that you consult an accountant or professional advisor to establish any potential liabilities.
RECOMMENDATIONS
RECOMMENDED CONTENTS FOR FURNISHED PROPERTY
There are many interpretations of how well furnished a rented property should be. Experience has shown us that the following items are expected by tenants who seek
furnished accommodation:
LOUNGE/DINING ROOM BEDROOMS
Comfortable seating, sofas, armchairs etc Wardrobes
Dining table & 6 chairs Drawers
Coffee Table Bed
Shelving Units or sideboard Mirror
KITCHEN GARDENING EQUIPMENT
Cooker Lawnmower
Fridge/freezer Fork & Shovel
Washing Machine Edging/hedge shears
Dining table & chairs (space permitting) Weeding implements
SUNDRIES
All rooms must have curtains or blinds
Electric fires/convector heaters where there is no central heating
Light Shades
Floor coverings as appropriate
Vacuum cleaner
On occasion where we arrange a Company Let, the furnishings are far more comprehensive. Remember that the Tenant Company may be providing accommodation for overseas personnel who will bring with them very little in the way home furnishings. We will be happy to discuss with you the individual requirements in these circumstances.
If you are letting your property unfurnished many tenant may still expect floor coverings, curtain/blinds, and kitchen appliances.
Important Information
IMPORTANT INFORMATION FOR LANDLORDS
Mortgaged Property If you property is mortgaged, you will need the approval of your mortgagee, a copy of which should be sent to Street Rentals.
Leasehold Property Leases should be checked for stipulation against letting the property out.
Insurance It is the responsibility of the owner to insure the structure of the building and the contents therein. Details of insurers should be given to Street Rentals. All insurers must be notified that the property is to be let. Tenants will be advised to arrange adequate insurance cover for their own personal possessions.
Legal Fees If any breach of covenant or arrears arises, any resultant legal action will be taken only after first discussion the situation with you and your solicitor. Any legal fees that should arise will be your responsibility.
Rental Any rental quoted to the tenant by Street Rentals on your behalf is inclusive of all outgoings for which you are responsible with the exception of gas, electricity, telephone services and water charges.
Furnishing & Décor Furniture should be of a good standard and décor should be as plain and light as possible. High standard properties attract good quality tenants.
Pictures & Plants Properties always look more “homely” if a few pictures are left hanging and possibly a few plants remain. It is advisable to remove all personal ornaments, books etc.
Television It is not necessary to leave a television although some Company Lets would expect one. The tenant is responsible to the licence in all cases.
Telephone It is usual practice for a working telephone to be connected for the use of the tenant at the commencement of the tenancy.
Cleaning The property should be thoroughly cleaned prior to the commencement of the tenancy. If Street Rentals feels that a “Spring Clean” is necessary at the termination of a tenancy, in between lets, we will arrange a cleaner at the previous tenant’s expense.
Inventory An Inventory of the contents and condition of the property must be drawn up for the incoming tenants.
Water Charges In most cases the water charges are payable by the tenant throughout the tenancy.
Council Tax The Council Tax will remain the responsibility of the tenant throughout the tenancy. Some properties such as those occupied entirely by students will be exempt.
