The new proposals shaking up buy-to-let investments and how they will affect you!

Time for change.

Changes to legislation in the Buy-to-let sector, including Right to rent checks & minimum energy efficiency numbers

Those of you keeping up to date with the latest developments concerning landlords will have spotted a series of changes to policy and legislation governing the buy-to-let sector. This is a structured move by the Government to improve standards in the private rental sector and an attempt to free up housing stock in a market becoming increasingly dominated by buy-to-lets. Here we take a look at the changes and how they will affect you as landlords…

SDLT

The Chancellor announced in his 2015 Autumn Statement that higher rates of Stamp Duty Land Tax (SDLT) would come into effect from 1 April 2016 for the purchase of additional residential properties, such as buy-to-let investments and holiday homes, including those abroad.

The higher rates will be 3% above the current SDLT rates and will apply to all completions that take place on or after 1 April 2016. If you have entered into a contract with completion due after this date, the higher rates will not apply to you as long as exchange took place on or before 26 November 2015.

Band

Existing SDLT rates

New additional SDLT   rates

*£0 - £125,000

0%

3%

£125,001 - £250,000

2%

5%

£250,001 - £925,000

5%

8%

£925,001 - £1,500,000

10%

13%

£1,500,000 plus

12%

15%

*This is only applicable to purchases over £40,000.  For purchases on or under this value, no SDLT is due. 

A trap to watch out for - if you are purchasing a property to live in and plan to rent out your existing property to a tenant, the higher SDLT rate will be payable on the new property irrespective of the fact that you intend the new property to become your main residence. 

Right to Rent Checks

From 1 February 2016 all private landlords in England will be required to make ‘right to rent’ checks.  This involves checking prospective tenants have the right to be in the UK before renting a property to them. 

Landlords should check that all adults (anyone aged 18 and above) living in the property as their only or main home, have the right to be in the UK. This applies even if they are not named on the tenancy agreement and regardless of whether the tenancy agreement is written, oral or implied.

Landlords need to ensure they:

  • Check adult tenant(s) if they live in the property as their only or main home;
  • Ask tenant(s) for the original documents that show they have the right to be in the UK;
  • Check the documents are valid with the tenant present; and
  • Record the date that the check is made and arrange to make and keep copies of the documents for the duration of the tenancy and for twelve months after the tenancy ends.

Further checks following the same procedure should be conducted where the original documents indicate that the tenant’s right to be in the UK will expire during the tenancy.

Landlords do not have to check the right to rent of existing tenants where the start of a tenancy pre-dates the scheme being introduced.

The scheme does not apply to children. However, landlords should satisfy themselves that minors are under the age of 18 at the time the tenancy begins and keep evidence of this. Landlords do not need to conduct additional follow-up checks when the child turns 18. Where further checks are required, the now adult should be checked at the point these further checks fall due.

Under these new rules, landlords who fail to check a prospective tenant’s ‘right to rent’ will face civil penalties of up to £3,000 per tenant.

Make sure to utilise the handy guidance note produced by the Home Office when making your checks.

Minimum Energy Efficiency Standards

As it currently stands landlords must ensure that an Energy Performance Certificate (EPC) is produced for the property they intend to rent out. Landlords must also make sure their tenants receive a copy of the EPC. Over the next four years a series of changes will affect this position:

  • From 1 April 2016, residential tenants will be able to request their landlord’s consent to carry out energy efficiency improvements to privately rented properties. This is in an effort to improve the state of England and Wales’ current housing stock which happens to be ranked as some of the leakiest and draughtiest in Europe! The landlord will not be able to unreasonably refuse consent but will be permitted to propose alternative energy efficient measures where relevant. It will be the responsibility of the tenant to fund the works unless the landlord agrees a discretionary contribution. 
  • From 1 April 2018, it will be unlawful for a landlord to grant a new residential lease or tenancy of a property with an EPC rating of less than ‘E’.
  • From 1 April 2020, the EPC rating change will be rolled out to affect all residential leases or tenancies, therefore capturing both new and existing rentals.  

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 is the instrument that has brought the above changes in to force, a copy of which is available here. It is believed that the Secretary of State will review this position every five years, with the ultimate goal of further tightening to the minimum standard in order to tackle what is currently deemed to be a poor stock of national housing. Although the regulations do not come in to force for a few of years, landlords would be wise to conduct initial investigations now to ascertain whether their properties would fall below the ‘E’ rating and therefore warrant improvement works.

Smoke Alarms and Carbon Monoxide Detectors

From 1 October 2015, residential Landlords are required to have at least one smoke alarm installed on every storey of their property and a carbon monoxide detector in any room containing a solid fuel burning appliance (e.g. a coal fire, wood burning stove etc).The devices need not be wired into the mains but can be battery operated.

Thereafter, landlords must make sure that the alarms are working at the start of each new tenancy.  There is no obligation to continue checking throughout the tenancy – unless the tenant makes the landlord aware that the alarm is no longer working.

The requirements will be enforced via the Local Authority. If a landlord is in breach of the regulations, the Local Authority will issue a remedial notice requiring the landlord to fit and or test the alarms within 28 days. If the landlord fails to comply, the Local Authority can arrange for the alarms to be fitted and or tested and serve a penalty notice of up to £5,000 on the Landlord.

There is no grace period for the above regulations and landlords are expected to have been compliant from 1 October 2015 onwards.

Government Checklist

All private landlords must provide their tenants with ‘prescribed information’ in the form of the 'How to rent: The checklist for renting in England' guide produced by the Department for Communities and Local Government. This needs to be served at the beginning of new tenancies that start on or after 1 October 2015.You can provide this to your tenants either as a printed copy or via an electronic link, provided the tenant has agreed email can be used for the service of documents. 

Final Points

It is important for all private landlords to note that as a minimum they must provide their tenants with the following:

  • A copy of the ‘How to rent’ guide;
  • A gas safety certificate;
  • Deposit paperwork; and
  • A copy of the EPC.

Landlords must provide these documents and indeed cannot evict their tenant until they do so. 

For further information on buy-to-let properties and the implications of the impending changes, please contact Anna Spriggs or Greg Begy on 01733 882800 or via email as detailed below:

Anna Spriggs  
Partner and Head of Commercial Property
anna.spriggs@hcsolicitors.co.uk

Greg Begy
Team Leader, Residential Conveyancing
gregory.begy@hcsolicitors.co.uk

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.