An update for landowners on residential tenancies

The legal landscape for residential tenancies has changed significantly in recent years, and navigating the pitfalls and challenges is a cause of concern for our landowner clients. Whilst it’s tempting to deal with problems if/when they arise, our advice is to get on the front foot and head off potential problems before they lead to complications requiring technical advice. Summarised below are some of the key developments and challenges.

Granting an Assured Shorthold Tenancy: Key considerations

AST vs agricultural occupancy:

Assured Shorthold Tenancies (AST) are the most common form of residential tenancy for private renters. The distinction between private renters and agricultural workers is important, the tenant must not be an “agricultural occupier” – an occupier who has worked in agriculture for the landowner as their employer. If the definition of agricultural occupancy is met, then the tenancy held by the tenant may not be an AST and the tenant may have an assured agricultural occupancy – meaning special statutory protection and lifetime security of tenure may apply to the tenancy. It is possible to prevent this occurring if a Form 9 notice, served in the prescribed form, is served on the tenant before the tenancy is entered into.

Tenancy documentation:

Prior to commencement of an AST, the tenant must be provided with copies of the Energy Performance Certificate (EPC), How To Rent (HTR) guide and – if there is gas at the property – the Gas Safety Certificate (GSC). Landlords who have failed to provide the EPC are liable to pay a penalty charge. Failure to provide these documents also has implications in relation to the landlord’s ability to end the tenancy by serving a Section 21 notice. A Section 21 notice cannot be validly served until after the EPC, HTR guide and GSC have been served on the tenant. The correct version(s) of the HTR guide must be served on the tenant.

Safety checks

From 1 July 2020 an Electrical Safety (EICR) Check must also be carried out by landlords every 5 years, and smoke and carbon monoxide detectors must be fitted appropriately at the property. Furniture must be fire resistant and, since 2015, landlords are required to assess the risk of legionnaire’s disease. For simple water systems, this might involve flushing out the water system regularly. The assessment for more complex water systems should be more involved. Landlords are also required to assess the asbestos risk and, if asbestos is present at the property, ensure that this poses no risk to health.

Deposit protection

If the landlord has received a deposit from the AST tenant, the total sum of this cannot usually be greater than 5 weeks’ rent. The deposit must be registered with a recognised deposit protection scheme, and the prescribed information relating to the tenancy deposit must be provided to the tenant, within 30 days of when the deposit is received by the landlord. If the deposit is not protected or is protected late, the tenant is entitled to claim a compensation sum up to 3 times the value of the deposit.

“Right to Rent” and HMO’s

In addition to the above requirements, private landlords are expected to ensure that their tenants have the “right to rent” before granting a tenancy by carrying out checks on the tenant’s immigration status. If the tenanted property meets the definition of a House of Multiple Occupation (HMO) then it must be licensed with the local authority.

Tenant Fees Act 2019

In addition to the 5 weeks’ deposit cap referenced above, the Tenant Fees Act introduced various limitations on fees that can be charged to tenants – essentially any fee that does not qualify as a “permitted payment” is a banned fee under the legislation. Banned charges include cleaning fees, fees for gardening and servicing of boilers. Any form of cleaning or servicing cannot be charged to the tenant – this includes septic tanks and chimneys.

MEES Regulations

The Government’s net zero target has brought about the introduction and tightening of energy efficiency legislation, including the domestic Minimum Energy Efficiency Standard (“MEES”) regulations. As a result of the MEES regulations, from 1 April 2020 landlords cannot let properties that have an EPC rating of less than E, unless certain exemptions apply. Exemptions include:

  • Improvements will not change the rating from below E;
  • The cost of improvements would exceed £3,500 including VAT;
  • If the only improvement that can be made is wall insulation, a written expert report may be obtained confirming that the wall insulation would negatively impact the fabric or structure of the property;
  • If consent from a third party (such as a tenant, lender or planning authority) is required and cannot be obtained, or conditions for consent cannot be complied with;
  • An independent surveyor who is a member of the Royal Institute of Chartered Surveyors (RICS) has advised that the improvement works would reduce the market value of the property by more than 5%.

Some of the above exemptions may apply to older character buildings but care should be taken to ensure that a relevant exemption has been triggered and, where improvements can be carried out, these works are carried out before the property is let. In relation to listed buildings, an EPC is required if: (i) improvements can be made that would not result in unacceptable alterations to the appearance of the building and (ii) none of the above exemptions apply. Where the position is unclear/not obvious in relation to a listed building, advice should be taken.

The future for residential tenancies

The most significant change on the horizon for residential landlords is the Renters Reform Bill. The draft bill is currently awaiting the Report stage, during which amendments are debated and voted on. Further stages include a third reading and then it begins a staged process in the House of Lords, following which amendments are considered and then it receives Royal Assent and becomes law. Given the likely timeframe for the further stages, it is possible a general election will be called before it becomes law.

The bill aims to level the playing field between landlords and tenants by ensuring tenants can stay in properties unless they choose to leave, or their landlord has a good reason to ask them to leave. Key changes proposed by the bill include:

  • Abolishing Section 21 ‘no fault’ evictions;
  • Reforming grounds for possession, including ‘mandatory’ grounds for the possession if the landlord wishes to sell or move into the property;
  • Introducing open-ended tenancies, bringing about the end of fixed-term AST’s and meaning that all AST’s will become periodic/rolling tenancies with no specified end-date.
  • Controlling rent reviews and increases – landlords will only be able to increase rent once per year.

Staying on top of the changes

Residential tenancies have become a minefield for landowners to manage and early advice on how to let a property under an AST is recommended. Thorough checks should be carried out on prospective tenants. Throughout the tenancy, records of compliance with the legislative requirements should be kept and inspections should be carried out at the property. If the landlord decides to end the tenancy, and there is any uncertainty as to the grounds and basis for termination, early advice should be taken.

How Moore Barlow can help

We have considerable experience advising rural landowners on managing their residential portfolios, and while taking advice at an early stage is recommended, our rural and real estate disputes teams are able to assist with remedying any issues that might arise.