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Renting Out Your Property Rentals Index

Rentals INDEX: Tenancies

Renting out a property for the first time can be a daunting prospect. There's a lot of questions you'll want to ask, so this section is here to answer as many of the common ones as we can in a simple straightforward way. If you want more information we would direct you to the LandlordZONE web site where you will find lots of comprehensive information on letting property and the UK's busiest Question and Answer Forums on Landlord / Tenant Problems.

What type of rental property is it best to buy?

You need to think about your target market and the amount of work/involvement you want. A smaller house or flat, let to working or professionals - single or couple - is about the easiest to manage and gives an excellent return on your money. Lager houses for families and those at the upper end of the market give lower returns because the rental income does not always compensate for the extra cost of a large property. The most profitable lettings involve the lower end of the market such as students and multi-lets or even holiday lets. Some of these will involve DSS tenants, more stringent and expensive safety procedures and much management work and time involvement.

Should I renovate a buy-to-let property?

Buying older properties for renovation can often be a cheaper and less risky option (if you can get the mortgage) than going for new build or even Off Plan. Buying the worst house in a street in a good area is always preferable to buying an outstanding house in a poor area. You've got to be prepared to put in a lot of hard work yourself and have some basic DIY skills (unless you can pay for the work to be done) in the early stages, but renovating property to-let can pay off handsomely.

How can I reduce my risks when I'm starting off?

There are many risk reduction strategies you can use when your risks are at their highest - when you're starting off with your first property. It's a really good idea to own your own home before you start to let additional properties, so why not consider taking on lodgers? It might be inconvenient, but there are benefits and we all have to make sacrifices if we want to get on. Another option is renovating run-down properties which can be bought cheap - perhaps at auction, repossessions, or distress purchases.

What legal obligations am I taking on?

There's quite a lot of legal stuff involved with letting so you need to get used to the idea of reading-up a bit on this, unless you can afford to pay others to do all your management for you - it'll cost about 15% of your rental income annually for an professional agent to manage it for you.

Basically as a residential landlord you're responsible for all repairs, known in the letting agreement as repairing covenants or obligations. The Landlord and Tenant Act 1985 covers this and says that the landlord must maintain the structure and exterior, roof, drains, gutters and all the internal installations (gas, electricity, water, sanitation and heating). If the landlord fails to provide these adequately the tenant can all in the local environmental health officers who will enforce the landlord to make repairs or replacements. The tenant would be responsible for cleaning and minor maintenance such as looking after any yard, sheds, garden and minor repairs such as a blocked sink or changing light bulbs.

Insurance - It's very important that the landlord has adequate insurance cover for the property and that the cover is for the full replacement value. Also for landlords risks or third party liabilities. This tenant is responsible for their own contents. The landlord should be certain his insurance policy is suitable for rented property - his normal household insurance generally will not be. Check the terms of the policy carefully, as some policies exclude cover for lettings to some types of tenant. The agreements included in the Residential Lettings Kit allow the landlord to give the tenant a copy of the insurance policy. This is so the landlord can hold the tenant responsible if he does anything that voids the insurance or causes the landlord's premiums to increase.

Electrical Systems and Equipment - Unlike gas, there's no law at present that says landlord must have an annual check. However, landlords are still responsible if things go wrong. If tenants are injured or worse because of faulty equipment the landlord could be held responsible, so it makes sense to have electrical equipment and the systems checked before the tenancy begins and at regular intervals later.

Furniture & Furnishings - There are some strict regulations that say landlords must provide furniture and soft furnishings which are made of fire resistant material. You must be able to show that any furniture you provide meets the safety standards, so buying second hand furniture is out, unless you can prove it's safe.

The Gas Safety Regulations state that a landlord must have the gas equipment checked prior to the tenancy and then at 12 month intervals by a Council for Registered Gas Installers (CORGI) registered heating engineer. A certificate will be issued, a copy of which must be given to the tenant, and one retained by the landlord.

Covenant of quiet enjoyment - means the tenant should be able to live without interference or harassment. A landlord is not entitled to enter the premises without permission. The landlord should give tenants at least 48 hours notice of requests to enter for any inspection, maintenance or repair work. If the tenant refuses, there's not a lot the landlord can do, except in an emergency. The landlord must not harass the tenant in any way, even when the tenant is in breach of contract. A landlord doing anything to affect the tenant's rights like stopping services to 'persuade' the tenant to leave would find themselves in serious trouble.

Where a landlord has more than one tenant in a property, such as a block of flats, he or she has a duty to the other tenants in terms of quiet enjoyment. For example, if a tenant is a nuisance, other tenants can look to the landlord to take action, evicting if necessary.

Is there enough rental demand to give me a steady income - enough to always cover my mortgage?

In most areas of the UK tenant demand is good. Socio demographic changes, immigration, the increase in student numbers and the price of property keeping first time buyers from entering the property market means that generally there is a health demand for lettings. You still need to be careful where you buy and your should research your market carefully. Whether the rental income is sufficient to cover your mortgage will depend on how much you borrowed. If your are highly geared (say a 90% mortgage) you will now find that the rents are struggling to cover the mortgage payments as interest rates rise.

Should I use an agent to do my letting and management for me?

If you live a long way from your property, or even abroad, you will have no choice but to use a professional managing agent to look after the tenancy and to periodically re-let to new tenants. If you do this always use an agent that's a member of one of the professional agent's associations like ARLA, NAEA or NALS. These agents carry insurances and bonds to cover your deposits should anything go wrong with their business.

Using an agent costs up to 15% of your rental income per annum, so this is potentially an area you can make big savings if you learn to manage the tenancy yourself. However, this is not a task you should take on lightly. There's a lot to learn to become a proficient DIY managing landlord so perhaps it's a good idea to use the services of a professional agent at first. However, many experience landlords mage several properties themselves, and many of them have a full-time career as well. A web site like LandlordZONE is designed to help and there are many books around which will guide you.

What type of person makes a good landlord?

You need to be fairly confident at dealing with people from all walks of life and a fairly good judge of character. It helps if you have some good DIY skills, especially in the early days when money is tight, but later on you can pay others to do the minor maintenance and decorating for you. You also need reasonable administration skills to account for income and expenses and keep books in order for the Revenue and Customs.

You need to be able to take a reasonable amount of risk and handle problems without too much stress. You will always get the odd problem when you are a landlord, whether this is a people problem with a tenant, agent, tradesman of local official, or a technical problem like a heating boiler that fails to ignite on a cold winter's evening. The trick is to learn to take these things in your stride, learn lessons from your mistakes and move on.

What should I do to my property to make sure it lets easily?

Generally, rental properties need to be clean, tidy and well maintained from the outside so that they have "kerb appeal" when prospective tenants drive past. Inside, again they need to be clean and tidy with a good standard of furniture and furnishings, decorated in neutral colours for all coverings, soft furnishings and carpets so that they appeal to most tastes. Don't let your tenants change this unless they are willing to pay for re-instatement. Tenants look for good facilities like showers, baths, central heating, dish washers etc, so don't skimp on these otherwise you could find yourself having trouble letting against the competition. Budget for regular up-grades and decoration between lettings to keep the place sparkling, but don't over furnish. Many tenants prefer to bring their own furniture. Don't set the rent too high. Being a little under the competition may just mean you let that little bit quicker and ain more in the long run.

Do I need to get any sort of permission before letting?

The main permissions from others you will need include: your freeholder if you own only the leasehold, your insurance company to make sure you are covered for landlord's liabilities, not just household risks, your finance company if you have a standard mortgage. In some letting situations such as where you have multi-occupiers (HMO) you may need planning permission and a landlord's license to operate.

Will I need a licence for the local authority before I can let?

Only under certain specific circumstances. For example, if you let to multi-occupiers such as students and bed-sits you may need a license depending on the number of people and the number of floors in your property. Contact your local authority's environmental heath department for details.

What about income tax - will I need to pay it?

You most certainly will need to inform the Revenue and Customs once you start to let out your property. You will then need to account for all your income and expenditure and declare this on you annual self-assessment tax return. In the early days you may not make much so your tax bill will be low on non-existent, but in time your income will increase and you will have to pay tax on it at your margin rate. See Taxation

What other taxes might I be involved with?

The old saying, "the only certainties in life are death and taxes", were never more true than with property. You should start your tax planning before you invest, because a lot of the taxes to be paid are those when you sell. As well as income tax you pay annually from your rental income you will find that you may pay Stamp Duty when you purchase and Capital Gains Tax when you sell. And of course, if you are successful, which you should be, Inheritance Tax will raise its ugly head as you get older. Do your homework and read-up about property taxes. If necessary, get some professional advice. See Taxation

What sort of tenancy agreement will I need?

Tenancy agreements on residential lettings are almost always Assured Shorthold Tenancies (AST) these days. There are by far the safest from the landlord's point of view because you are guaranteed to get your property back after the fixed term if you want to. Unless you specifically set-out to create something different the residential tenancy always defaults to the AST. If you were letting commercial property, that's a different matter. You will need a good solicitor to prepare a lease for your tenancy.

Do I need to have a witness when the agreement is signed?

Generally, there is no need to have a witness to your tenancy agreement in England and Wales if the tenancy agreement is for a term of less than three years. If you have a guarantor however, it's a very good idea to have the guarantor's signature witnessed. In Scotland it's different, you should have the tenancy is witnessed, as it then becomes self-proving.

What about deposits - will I need to take one?

You don't have to take a deposit if you don't want to. But it's a good idea to as it reminds the tenant of his obligations to keep things in order, not to damage the property and not to get behind with the rent.

The Tenancy Deposit Scheme commences on the 6th of April 2007. Any deposit taken for an Assured Shorthold Tenancy (AST) will need to be protected by the scheme and disputes in future will be handled, not by the courts, but by a process known as Alternative Dispute Resolution (ADR) set-up in the schemes.

Landlords can choose between a single custodial scheme, run by an appointed governement agency (Deposit Protection Service) and two insurance schemes: (1) Tenancy Deposit Solutions Ltd (TDSL) run jointly by the National Landlords Association and Hamilton Fraser Insurance and (2) The Tenancy Deposit Scheme (TDS) run by The Dispute Service.

The custodial scheme will involve the landlord in lodging deposits in the scheme and is free to the landlord. With the insurance schemes the landlord will retain the deposit as at present, but will need to lodge it with the scheme in the event of a dispute. The landlord will pay an annual premium to belong to one of the insurance schemes.

Will I need to do an inventory?

Again like deposits you don't have to do one by law. However, with the new deposit scheme it's vital that you have one to give you good evidence to put forward to the scheme if there's a dispute. There are many independent inventory companies now operating, which is by far the best option, or failing that you can do your own. Photographs, clearly market with the date on the back and signed by both parties art the outset are very useful. See the Landlord Directory - Inventory Services for inventory companies in your area.

Will I get my property back if thinks go wrong?

Yes, under the terms of a Shorthold Tenancy you can get your property back after the initial fixed term (6 months minimum) if you serve a Section 21 notice giving the tenant 2 month's notice. Be prepared for a wait if you have a bad tenant and need to seek possession. It's vital to have all your paperwork in order, but it can take several months as the courts move very slowly. In that time a bad tenant can do a lot of damage and owe a lot of rent.

How do I go about selecting my tenants to ensure I avoid bad ones?

Screening and selecting tenants is probably the most important part of a landlord's task. Get this wrong and it could cost you dear. You may even lose your property if there's no rent coming in for a long period and you can't keep up your payments on the mortgage. Read 20 Steps to Successful Letting and Tenant Screening Tips on the LandlordZONE web site before you attempt to let you property yourself.

Should I get a guarantor in case the tenant defaults?

Its a very good idea to have your tenant find a guarantor if you have any suspicions about your tenant's ability to pay the rent, though it is questionable whether you should take on a tenant is you have doubts, unless you are have great difficulty finding other tenants. It's also prudent to insist on guarantors where your tenants are young, particularly students. Here it's usually quite easy to get parents to stand surety in this way.

Precautions are need with guarantors, such as ensuring the guarantor has read and approved the tenancy agreement beforehand (get proof of this) and having a valid guarantor agreement signed and witnessed.  You should take up references and do credit checks on guarantors just as you would with a tenant.

What paperwork will I need when letting?

When letting a property it's vital that you have all your paperwork in order. Ordinarily you might never need it, but if you have problems with your tenant and you need to trace the, you need to evict them or you need to sue them, you will find it's almost impossible to do it successfully without complete documentation. These are the most imortant documents to have:

  • The rental application form - this gives you all the background information you need on the tenant if you need to trace them later, and it also forms the basis of your credit check, giving you permission to do this. There's some very confidential information on this form so landlords must keep this record secure in accordance with the principles of the Data Protection Act.
  • The tenant check - this gives you a good idea whether the tenant has been managing credit - paying bills on time - properly by way of a credit check report and a credit score. It's a good idea to follow up references as well. All the information you need to do this is on you tenancy application form.
  • The inventory document - this inventory document records the exact condition of the property at the start and end of the tenancy. So, if there is a dispute you have some good evidence to argue your case. Of course the inventory protects both parties. It's a good idea to include photographs with this document, and the are now lots of independent inventory clerks operating in all parts of the country who will do this for you. In the case for commercial property the equivalent of the inventory is known as the schedule of condition for ingoing, and the schedule of dilapidations for outgoing.
  • The inventory document should also include meter readings, smoke alarm checks and a list of all keys provided.
  • A Check-in Form which is really a check list of all the documentation and checks to do when the tenancy starts.
  • The Tenancy Agreement - this forms the basis of your contract between the landlord and tenant. Although there are statutory rules which govern many aspects of a residential letting, nevertheless your agreement with your tenant is very important. It determines things like, who repairs what, who maintains the garden etc.
  • The Standing Order Mandate - this enables you, with your tenants agreement, to set up a standing order payment for rent.
  • The Landlord's and Tenant's Gas Check Certificate - you must present your tenant with a completed and current gas check certificate issued by a CORGI registered fitter on entry to a residential  tenancy.
  • The Property Manual - every tenanted property should have a manual giving details of emergency procedures and contacts, locations and instructions for isolator switches and taps for water, electricity and gas. It is mandatory to supply contain copies of operating instructions for ALL equipment and appliances. It's also a very good idea to provide information about local amenities for new tenants: schools, restaurants, shops, thing to see etc.
  • Check-out Form - which, along with the inventory check out is a check list of all the things to complete and the checks to do, such as keys, meter readings, forwarding address etc.

What's involved in evicting a bad tenant - can I do it myself?

Bad tenants and those that don't pay rent are a landlord's worst nightmare. If you've done your screening and selection property you should minimise your chances of getting stuck with a bad tenant but it's inevitable that you'll get one some day if you rent out long enough. To be fair, some tenants get themselves into difficulties through no fault of their own, such as redundancy etc, so you need to show some sympathy and try to help out when you can.

However, many tenants in this situation, unfortunately, fail to cooperate - they become "unobtainable" through telephone, letter and knock on the door contacts. You then have no choice but to act quickly and take court action to evict and recover your losses if you can. The main thing is to evict as quickly as you can (not always a quick process through the courts) and the main thing is having all your paperwork in order.

You can handle evictions yourself providing you are willing to do a fair amount of paperwork. Alternatively there are some very good eviction specialists which will handle is all professionally for fixed fees. See the LandlordZONE Directory for these companies - Eviction Services

What if my tenant wants to leave early - before the contract ends?

You signed a legally binding contract with your tenants so they owe the rent to the end of the term. However, you have several options:

  • You can release them without further obligations, or you may be able to come to a cash settlement.
  • You can ask them to find another suitable tenant (the landlord can object if the replacement is not suitable) and they pay for the admin costs of re-letting.
  • You can ask the tenant to pay for the re-letting costs and any loss of rent for a vacant period.
  • The tenant may just walk away. In which case the landlord has a right to sue for his losses. However, the landlord is obliged to minimise his losses, ie she must re-let as soon as she can. She would then be entitled to charge the tenant for all the re-letting expense plus any loss of rent for a void (vacant period). If the landlord fails to re-let the tenant may well be asked for all of the rent.

What if my tenant stops paying rent?

This is a landlord's worst nightmare, especially if you don't have a lot of properties and you are relying on the rent from this one to pay your mortgage. This is why screening and credit checking you tenants is such a vital exercise for landlords.

If you're a landlord, or in any other business, sooner or later someone will owe you money. Whilst we can sympathise with those in financial difficulties, it's often futile to prolong the agony; the banks certainly don't, so why should you?

Yes, we should try to investigate. Maybe your tenant is going through a difficult trading period, or your residential tenant has been made redundant? You may be able to re-schedule rent payments and/or advise on Housing Benefit claims.

But tenants in debt don't always communicate well: in fact they often fail to communicate at all, not responding to telephone calls, letters or even knocks on the door.

With commercial tenants we can use the short-sharp shock of bailiffs, or even the forfeiture procedure, but there are situations where it's preferable not to force the issue. A wiser course may be to encourage your tenant to sell-up and assign the lease, thus releasing funds to pay the debt: this way you end up with no debt, a viable tenant, no void period and no letting expense!

The rent arrears claims procedure with residential tenants is fraught with difficulties. Sometimes it's better to go for possession at the end of the 6-month fixed-term and chase the debt later.

Making a claim through the Small Claims Court can be a very effective way of doing this. The court system grinds along at a snail's crawl pace but it can achieve the desired result in the end.

The main thing is to get back possession as soon as possible and re-let so you have some rent coming in again. You can then deal with any debt matters later.

What sort of money return can I expect from a buy-to-let investment?

Returns vary, and generally the yields you can get from rental property vary between around 5 to 10%. If you are not too highly geared (LTV below say 70%) then you should find your rental income can cover your mortgage payments, leaving any capital appreciation on the property to top-up your total returns to a very satisfactory investment long-term.

Can I borrow all the money to buy, or will I need capital of my own?

Although some property people will tell you that you can buy property with "no money down" its by far the exception rather than the rule, invariably involving some "shady dealing" and not something we would advise you to rely on.

The more money you can put into a deal yourself initially, the safer your investment will be in the short-term. Long-term as your resources (and equity stake) increase you can afford to take a little more risk.

We recommend this book - a corny title but a very comprehensive guide to renting out property based on years of experience. It's well worth spending a few hours reading and planning before you rent out your property. Renting Out Your Property for Dummies These are a couple of LandlordZONE  and TenantVERIFY pages you should definitely read:

Information here is general only & believed to be correct, though we cannot guarantee it, nor do we accept any liability if you act or fail to act on this information. Always seek professional advice before making decisions. Investments can go down in value as well as up over  time.