Changes to HMO regulations

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From the 1st of October 2018 mandatory HMO licensing in England is changing.

Here are the key points:

  • The three storey rule is being scrapped
  • Landlords who fall under the new regulations must apply for a license by October 1st
  • Minimum room sizes are being introduced

What this means…

Scrapping the three storey rule

The requirement for a property to have three storeys to need a license is being scrapped. That means any HMO occupied by 5 or more individuals (who aren’t all related) will need a licence. This occupation requirement isn’t changing.

Applying for a license

Landlords of HMOs that fall under the new definition must apply for a license (or temporary exemption) by the 1st of October 2018. If they don’t they’ll be committing a criminal offence.

The government originally announced there would be a grace period of sixth months but that isn’t happening now. All landlords affected must apply for a licence by the 1st of October 2018.

If your property is already licensed under mandatory or additional licensing then your existing licence applies until its expiry date. The new minimum room size requirements will apply from the renewal of your licence.

Minimum rooms sizes

From the 1st of October 2018, local housing authorities must also impose minimum
bedroom sizes for the HMO. Any room smaller than the specified size mustn’t be used as a bedroom.

The minimum bedroom sizes are:

  • 6.51 m2 for one person over 10 years of age
  • 10.22 m2 for two people over 10 years of age
  • 4.64 m2 for one child under the age of 10
  • Any area of the room with a ceiling height less than 1.5m can’t be counted
    towards the minimum room size.

It’s important to note these are statutory minimum sizes, not the optimal room size.

Local housing authorities must give landlords time to comply with the new room size standards. The maximum period they can specify is 18 months, but a local authority can choose to shorten this.

To get started with your HMO licence application follow this link.

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Referencing tenants – How far should you go?

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I received a text from one of our let only landlords earlier in the week asking what she needed to get to carry out a credit check on a potential HMO tenant. After requesting the information from the tenant (and of course consent) she received an awkward response;

“From what I know from my previous landlord knowledge, there is no legislation on credit checks for tenancies. With the new GDPR law there are limits on what data can and cannot be collected. Moreover, if I allow you to check my credit it can temporarily lower my score and it will always be on my record that you have checked it.”

If you were in her shoes and keen to get a tenant, would you skip the credit check or would you still insist one is carried out? What other checks, if any, do you do?

I advised our landlord to insist that it was part of her application procedure. What tenant’s don’t realise is that referencing and application procedure starts from the initial call, not just from when they want to move in. How they are on the phone, how responsive they are to calls, how prompt they are for an appointment etc. This all forms part of the overall picture you get for a tenant and affects your verdict to whether or not you would accept them as a tenant. A lot of landlords go on gut feel alone, but what happens when your gut turns out to be wrong?

Last week we had a tenant apply for one of our HMO rooms. Pleasant chap, fairly quiet and father as guarantor, perfect!. He is moving to Newark for work after graduating University so looking for a shared property. As part of our referencing process we carry out a credit check, work reference and previous landlord reference. All standard stuff and on this basis he would have passed with flying colours. But… we also request 3 months bank statements. The tenant was a little hesitant on providing these as he was in the process of moving accounts however we had to insist that this was part of our referencing process. They were provided and instantly we could see why he was a little hesitant. Despite not having an income he was a frequent gambler and depositing as much as £200 a day. Money was coming in from a relative along with benefits but was quickly disappearing. Gambling is fine in moderation. I have the odd flutter if I’m feeling lucky, or unlucky! However, to this excess indicated an addiction and has the potential to cause issues amongst other house mates. Without the bank statements we would have probably passed the tenant. He may have been absolutely fine but we aren’t willing to take that risk.

If a prospective tenant has a pet we’ll even go to their current property to see how it’s being kept. We find this is the best way to judge (see and smell) how they are going to look after your property.

Our referencing process is thorough and designed to keep away those that have something to hide. Our landlords provide great quality properties and it’s our job to ensure we have great quality tenants in them. Don’t cut corners when referencing as a bad tenant can cost a lot more than an empty property.

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How letting a 3 bed terrace could land you a £30,000 fine in October

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After catching up with one of our let only landlords last week I had to warn her that in October this year she could be facing a £30,000 fine if she didn’t take action with her current tenants.

6 months ago we moved a lady and her two cousins into the 3 bed, 2 bath terraced property. Whilst the rent has been paid in full and on time and the house has been well looked after, a partner of one of the tenants moved in and more recently the downstairs front room has become a bedroom for another friend. The landlord is fairly relaxed about this given how they are looking after the property, as I’m sure most would be. However what she wasn’t aware is that from October the rules on defining a HMO are changing (along with other legislation).

Where previously a HMO is classed as 5 or more people forming 2 or more households over 3 or more stories. The new laws do away with the requirement for 3 stories. Therefore a bungalow with 5 or more people forming 2 or more households would require a licence. Operating a HMO without a licence would be punishable under the civil penalties (powers given to local authorities 12 months ago) where the maximum fine per offence is £30,000.

So how do you stop your property becoming an un-licenced HMO? Regular visits to your property should give you an indication on how it is being used and you can see any suspicious activity. Remind tenants of their obligations and agreement under the tenancy.

Ultimately if you suspect that there is unauthorised occupancy in your property you need to take action to ensure you don’t fall foul of legislation. You are expected to keep up to date with changes in legislation and claiming that you were unaware is not an acceptable defence.

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Nottingham City Selective Licensing Clinics

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East Midlands Property Owners are hosting support clinics to give advice and guidance around the upcoming selective licensing scheme due to be implemented across Nottingham City in August this year.

The clinics will last for 2 hours and the objective is to provide a step-by-step explanation of exactly what landlords need to do to initially get their properties licensed, along with the ongoing requirement to manage and maintain their properties within the scope of the scheme.

There will also be a Q&A session and attendees will leave with a full practical understanding of what is required in time for the August 1st deadline.

The dates and venue are as follows;

Wednesday 2nd May
11-1pm
1.30-3.30pm
4.30-6.30pm

Monday 18th June
11-1pm
1.30-3.30pm
4.30-6.30pm

Tuesday 10th July
11-1pm
1.30-3.30pm
4.30-6.30pm

Castle Cavendish Works, Dorking Road, Nottingham, NG7 5PN.

The cost is £10 per delegate or FREE for EMPO members.

To reserve your place call 01159 502639.

Join EMPO =>> www.empo.co.uk

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Protect Your Property From Fraud

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Six months on from the launch of Land Registry’s award-winning Property Alert service more than 12,000 people have signed up to the free service which provides an early warning of suspicious activity on someone’s property.

An example where Property Alert could have raised the alarm earlier

Mr Q rented out his property using letting agents while he lived overseas. His letting agents were approached by someone claiming to have bought the property. This was a surprise to them, so they contacted Mr Q.

Mr Q then contacted Land Registry’s property fraud line. Upon investigation, it was found that an application to transfer Mr Q’s property into the name of a buyer had been received. A staff member also spotted discrepancies between Mr Q’s signature and previously scanned documents. We sent a letter to the buyer’s solicitor requesting confirmation of the steps taken to verify Mr Q’s identity.

Mr Q’s solicitor also contacted Land Registry to confirm that he had known the family for over 20 years and that Mr Q had not sold his property. He referred the matter to the police on Mr Q’s behalf.

As we had not received sufficient evidence from the buyer’s solicitor in respect of the signature verification for Mr Q, we cancelled the transfer application and the sale wasn’t registered.

If Mr Q had signed up for Property Alert he would have received an email alert when Land Registry had first received notification that a transfer of ownership would be arriving. He could then have looked into the matter sooner.

What is property fraud?

Property fraud can happen in many ways. For example, fraudsters may steal someone’s identity and attempt to acquire ownership of a property by using forged documents. The fraudsters may then raise money by mortgaging the property without the owner’s knowledge before disappearing with the money, leaving the owner to deal with the consequences.

Land Registry has stopped fraud on properties worth more than £66 million in the last five years. In a recent case, two fraudsters managed to pocket £50k by selling an empty home they didn’t own. Staff at Land Registry spotted the fraud before it was registered but the fraudsters got away with the money and are still wanted by police.

How Property Alert works

  • you will need to set up an online account with Land Registry which is free
  • you will be able to monitor up to ten properties
  • email alerts will be sent when Land Registry receives an application to change the register as well as for official searches (which can be sent to us up to 30 working days before the application is sent and ‘freeze’ the register until the application is received). You can then judge whether or not the activity is suspicious and if you should seek further advice

For example, if you receive an alert that a bank has lodged a search on your property but you haven’t applied for a mortgage, you may want to seek legal advice, contact Action Fraud, or contact the bank in question to tell them you are the owner and have not applied for a mortgage. Investigations into the authenticity of the mortgage application can then begin much earlier in the process.

Properties most likely to be at risk from property fraud:

  • tenanted properties – for example where the landlord lives elsewhere, a tenant might try to mortgage or sell the property without the landlord’s knowledge.
  • empty properties – such as where the owner lives abroad or is in a care home
  • where there are family disputes. For example, in a relationship break-down someone could try and mortgage a property without their partner knowing
  • properties without a mortgage

Other measures to help protect yourself against property fraud: • Make sure your property is registered. If you become an innocent victim of fraud and suffer financial loss as a consequence, you may be compensated • Once registered, ensure Land Registry has up-to-date contact details so we can reach you easily. You can have up to three addresses in the register including an email address and/or an address abroad. The more information you provide, the more chance we have of reaching you if we need to • Owners can make a request to have a restriction entered on their property. This is designed to help prevent forgery by requiring a solicitor or conveyancer to certify they are satisfied that the person selling or mortgaging the property is the true owner.

More property fraud advice

Source

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Changes to HMO licensing announced

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Last week Heather Wheeler MP has laid regulations for the change to HMO licensing to be implemented in October 2018. You can read them here.

So after all this time, the net effect looks to be that from October landlords will need a licence if their HMO houses five or more people, forming two or more households – regardless of the number of storeys in the property.

It will also bring flats above or below commercial premises into the scope of licensing.

Interestingly, regulations regarding minimum room sizes, which were included in the succession of consultations, and other new mandatory conditions on waste are still to be passed.

As per the Government’s response to the consultation, it intends for the new requirements to be introduced in two phases.

There will be a 6 month grace period where licences will be required but enforcement action will not be taken. However, Section 75 of the Housing Act 2004 will remain in force meaning that any Section 21 notices issued will be invalid if the HMO is unlicensed.

What is Clause 24 and will it affect me?

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Clause 24 was implemented in April 2017 but still not many landlords are aware of the changes and how it might affect them. This might be because we’re still in the current tax year and returns wont be due for another 6 weeks or so. By the time your tax return is submitted you may find that Clause 24 is causing you some real pain. So what is Clause 24 and will it affect you?

What is Clause 24?

Section 24 of the Finance (no. 2) Act 2015 might mean that over half of UK landlords will be pushed into a higher rate of tax despite their income not having increased, and some might end up renting at a loss.

Until now, landlords have been able to deduct the full cost of their mortgage interest payments on their rental properties before they pay tax. Since April 2017, mortgage, loan and overdraft interest costs will not be considered in calculating taxable rental income.

The changes will be phased in gradually over 4 years, starting from 5th April 2017. By 2020, 100% of finance costs will be restricted to 20% tax relief only.

The change will be introduced gradually over the next 4 years and could see many landlords with interest costs affected and end up paying more tax on their property income. In addition, landlords could be pushed into higher tax brackets which in turn could affect child tax credit assessments and student loan repayments, leaving landlords even more out of pocket.

Who will be affected?

Essentially, anyone with a mortgage or that claims any kind of finance costs will be affected in one way or another.

What can I do about it?

There are a number of ways you can limit the impact this legislation has on you and it will all depend on your personal situation. Speak to your accountant about your personal situation or come to our Clause 24 seminar on 6th March and hear from Duncan & Toplis Accountants.

Nottingham’s licensing scheme has been given the green light

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It has been announced that the Government has given Nottingham City Council the green light for the proposed lincensing scheme. The scheme will be introduced on 1st August 2018 and discount will be given to DASH approved landlords. The full press release is as follows;

Private tenants in Nottingham will benefit from better quality accommodation and greater protection from rogue landlords after the Government approved a new licensing scheme.

The City Council scheme covering over 30,000 privately rented homes in Nottingham is the largest outside London to be given approval by the Secretary of State.

A report by the BRE (Building Research Establishment) Group estimated that 21% of Nottingham’s private rented properties are likely to have ‘Category 1 hazards’, examples of this type of hazard could include exposed wiring, a dangerous boiler, cold bedrooms, a leaking roof, mould on walls or ceilings and vermin infestation. Selective Licensing will help ensure these issues are addressed.

Extensive consultation with landlords, tenants and other interested parties took place on the proposed scheme which will mean that in selected areas of the city, landlords will need to obtain a licence from the Council and meet certain obligations to ensure tenant safety and good management of the property.

Money raised through the scheme will help to cover the cost and the Council hopes to be able to introduce the scheme from summer this year. Between now and the scheme coming into effect, landlords should find out if it will affect them and what they should do to prepare for this. Over 90% of privately rented houses and flats – around 31,000 properties – are estimated to benefit from this scheme.

Councillor Jane Urquhart, the City Council’s Portfolio Holder for Planning, Housing & Heritage, said: “I’m pleased that Nottingham’s selective licensing proposal has been approved by the Government. In areas that are covered it will help to improve standards for private tenants and landlords will know exactly what they must do to be able to rent their properties out.

“Having a Selective License will allow landlords to demonstrate that they provide good accommodation for tenants. The cost of licensing will be reduced for responsible landlords who gain Nottingham Standard Accreditation via DASH or Unipol. Tenants will also be able to check on both licensing and accreditation which will help to drive up private rented standards.

“This is a major step forward in improving living standards for many city residents.”

Accredited landlords can use the Nottingham Standard accreditation mark to show that they adhere to the standards required.

This will be a further tool to help tackle rogue and criminal landlords who operate poor housing and don’t manage their houses well, having a negative impact on the tenants and neighbourhoods.

The proposed cost of the licence is to be confirmed and is subject to final approval by the Council’s Executive Board. However, it is likely to be less than £2 per week, per property for accredited landlords and no more than £3 a week for non-accredited landlords.

Landlords can find if their property is covered by Selective Licensing at geoserver.nottinghamcity.gov.uk/myproperty/. There is also a link to more information including a list of FAQs and a short landlord good practice guide.

The Council recognises good landlords who go above the legal minimum, and those who are members of the Nottingham Standard accreditation scheme (DASH and Unipol) will receive a discount on the licence application fee. There is information about the Nottingham Standard at https://www.nottinghamcity.gov.uk/nottinghamstandard

Source

Clause 24 and How to Beat it!

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We are pleased to invite you to our evening seminar at the Newark Beacon Tuesday 6 March.

Speakers will discuss Clause 24 and the impact it will have on landlords, but more importantly how you can plan most efficiently and make the most of your income/reduce tax liabilities.

The Ins and Outs of Property Tax – Simon Shaw, Director for Duncan & Toplis

As someone who advises many private landlords, Simon will look at various issues effecting the taxation of property income including the impact of the new rules for interest relief and the alternatives available.

3 Top Tips for Maximising Rental Income – Daniel Otton, Managing Director for Buttercross Estates

Find out how you can implement 3 simple tips that will increase your rental yields and help to combat Clause 24.

Timings for the event:

5.30pm: Arrival with Refreshments
6.00pm: Seminar begins with an introduction from Duncan & Toplis Director Caroline Cleary
6.05pm: Tax Changes from Duncan & Toplis Director Simon Shaw
6.20pm: Top Tips for Maximising Rential Income from Buttercross Estates Managing Director Daniel Otton
6.35pm: Q&A and networking
7.30pm: End

The event is free to attend but booking is essential. Click here to register.

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The Most Common Mistakes of a DIY Landlord

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I’ve just finished banging my head against the wall after that last call. A landlord has phoned asking some advice regarding a Section 21 notice. I had spoken with her a couple of weeks previously as she was unsure which version of the Section 21 notice to send to their tenants. After serving the correct notice, the tenants had sent her a well formed letter informing her the Section 21 notice was invalid and that they would like £1,350 from her as compensation. Tenants aren’t daft and unfortunately with the ever changing laws surrounding tenancies it’s quite easy to slip up.

Here’s my run down of the most common mistakes of a DIY landlord;

Not Protecting The Deposit

A deposit received for an Assured Shorthold Tenancy must be registered with one of the three Government approved deposit companies. Failure to do so invalidates a Section 21 notice and if it hasn’t been done within 30 days of receiving the receiving the funds the tenant can seek compensation up to 3 x the value of the deposit from the landlord. Those of you who followed the fallout from Greenberry Lettings will know that the agent did not register a lot of deposits but it is still the responsibility of the landlord to ensure it has been done. We would recommend the MyDeposits insured scheme as it leaves you in control of the money (if there are any disputes at the end of the tenancy).

Not Issuing The How To Rent Guide

Two weeks ago the Government’s How To Rent Guide was updated and new tenancies must be issued with this. Failure to provide this will also invalidate a Section 21 notice and you will need to evidence that this was served to the tenant. If emailing, make sure you have got consent from the tenant to issue this via email.

Not Conducting An Inventory

If a tenant moves out and damages the carpets or decor and you attempt to claim compensation from your registered deposit how are you going to prove the damage without an inventory? This will be the first thing a deposit company or judge will ask for. Without one you are likely to lose. There are apps you can download and do yourself but there are plenty of independent inventory clerks who will carry one out for £60-90.

Not Inspecting A Property

It’s easy to let sleeping dogs lie. Especially if the sleeping dog is paying rent by standing order. However, to ensure you don’t have problems at the end of the tenancy (wear and tear, unauthorised occupancy etc) it’s best to pop in at least twice a year to make sure all is well. If a tenant decides to move a friend or partner into the house and they do not have the right to work here in the UK then you as the landlord could be prosecuted under the right to rent legislation. Even if you knew nothing about it.

If you’re not doing any of the above I suggest you review your policies immediately. I am still shocked that deposits are not being registered in this day and age. Ignorance is not an excuse and will only anger authorities if you try and go down that route. It’s no wonder more and more landlords are opting to employ a letting agency as good ones are worth their weight in hard-drives full of Bitcoins. Don’t cut corners when building your empire or it may all come crumbling down.

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