We are delighted to announce that Alice Fortune has passed her NFOPP level three exams and achieved a Technical Award in Residentail Lettings and Property Management. Alice is a highly valued member of our lettings team and we are very proud to have helped her achieve this rigorous professional qualification.
The Deregulation Bill
The Deregulation Bill came into effect on 27th March 2015.
The clue to what it is all about is in the name. The law surrounding deposit protection in particular had become intractibly complicated so that even the judges could no longer agree what it all meant. The courts were overturning each others ruling forcing ever more expensive judgements from the Law Lords and great uncertainty while Landlords and tenants waited for rulings. A whole new industry blossomed around penalising landlords for the smallest mistake in the registration of a tenants deposit. Intent was no longer a defence - a clerical mistake was sufficient to generate a financial penalty. It was clear that the original law to protect tenant's deposits needed sorting out from the truly incredible muddle it had got itself into - hence The Deregulation Act 2015.
The Act contains a number of measures which will affect Landlords of residential tenancies in different ways over the coming 3 years.
The principle areas it affects are:
1. Energy Performance Certificates
2. Tenancy Deposit Protection
3. Section 21 Notices and Disrepair issues
Not all the measures come into force immediately. Landlords will need to make some changes now, and be prepared to make some other changes in the future.
1 Energy Performance Certificates
The new rule comes into effect on 1st July 2015. From then on all Landlords will need to provide tenants with an Energy Performance Certificate (EPC) and a Gas Safety Certificate before the tenancy begins. Previously there was no requirement to demonstrate that either certificate had been given to the tenant - it was sufficient to leave a copy in the property. From 1st July onward a Landlord will need to prove that the tenant has been provided with an EPC and a Gas Safety Certificate if he wants to serve Section 21 notice. As with Tenancy Deposit Protection (see below), the Landlord will be prevented from serving a section 21 notice unless he can demonstrate service of these two certificates.
2. Tenancy Deposit Protection
The Deregulation Bill clarifies the muddle created by the Superstrike case and Ng v Charalambous cases. The bill recognises and addresses different scenarios.
SCENARIO 1: A fixed term tenancy which started before April 2007 and then went periodic after April 2007 – (the Superstrike position)
RESPONSE: If a landlord has not protected the deposit nor served the prescribed information on the tenant – he must now do so. He has up to the end of 23 June 2015 to do this without penalty. If he does not do this before 23 June 2015 then he will not be able to do it afterwards and he will have to return the deposit to your tenant in order to serve a s21 notice.
SCENARIO 2: A fixed term tenancy which started before April 2007 and went periodic before April 2007 – (the Ng v Charalambous position)
RESPONSE: A landlord must protect the deposit and serve prescribed information (PI) on the tenant before serving a section 21 notice. He can protect the deposit and serve the PI at any time and there are no penalties for late compliance, but it has to be done before a s21 notice can effectively be served.
SCENARIO 3: A fixed term tenancy which started after April 2007 and has been subsequently renewed or went periodic
RESPONSE: Provided the landlord protected the deposit and served the PI during the first term, he no longer has to re-protect the deposit or re-serve the PI. If he did not protect the deposit and serve the PI during the original term, then he will need to return the deposit to the tenant before he can effectively serve a s21 notice.
3. Section 21 notices
There are two main changes to section 21 notices – one in relation to the form and length of the notice and the other in response to so called retaliatory evictions - which I will deal with in a different article.
Form of Notice
Currently, there are two types of notices – a s21(1)(b) which you use during a fixed term tenancy, and a s21(4)(a) which you use during a periodic tenancy, or when a fixed term becomes periodic. Going forward, if the tenancy originated with a fixed term, you can now use one type of notice regardless of whether it is currently fixed or periodic. – THIS COMES INTO EFFECT ON 1 JULY 2015
In addition to the changes in the types of s21 notice you can use, s21 notices now have a limited life span. Currently there is no limit to how long after the notice is served it can be relied on in possession proceedings. Going forward, from 1 October 2015, you will not be able to serve a s21 notice during the first 4 months of the originating tenancy. Furthermore, the notice only lasts 6 months from the date of service. If you don’t issue possession proceedings during the 6 months from the date of service, you will need to serve a fresh notice and then wait for it to expire. THIS COMES INTO EFFECT FROM 1 OCTOBER 2015 FOR ALL NEW TENANCIES CREATED AFTER THAT DATE AND WILL APPLY TO ALL TENANCIES (REGARDLESS OF THE DATE THEY STARTED) FROM 1 OCTOBER 2018
I hope this brief explanation of the new Act helps but if you need to discuss your particular situation then please do not hesitate to call us.
Buoyant Sales Market.
Senior Sales Negotiator
Historically the run up to an election shows property prices either levelling off or slightly dipping. This year however the market seems to be bucking the trend with sale prices strengthening month on month. Undoubtedly the lifting of the artificial stamp thresholds has helped. If a property's real value is say £505,000 then it can now be marketed at that price and as a result of the accurate pricing it will sell quickly. Before the artificial thresholds were lifted the same house would have had to be marketed at £525,000 and as a result would have remained on the shelf until the market came up to it. Having to pay less stamp duty on any purchase below £937,000 is also helping.
Although the criteria for securing a mortgage remains difficult to fulfil, the actual availability of different types of mortgages has increased with an increasing number of lenders offering high loan to value products at reasonable rates. Spring is also clearly in the air and the mood of the market always seems to improve with sunshine. If you are having difficulty finding a mortgage for your purchase please do call us.
All in all we think the sales market is very buoyant and likely to strengthen further despite the election. If you are thinking of selling your house now is an excellent time to do so.
New Stamp Duty Rates
Dale Vickers FNAEA
Head of Sales
Most buyers will be acutely aware of the changes the Chancellor recently made to Stamp Duty Land Tax (SDLT). This is a tax levied on the purchase of every property in the UK and paid by the buyer.
Under the old system of stamp duty the entire cost of a property was taxed according to the highest band it fell into and there were sharp increases at each threshold. For example, someone buying a home for £250,000 would pay £2,500, or 1%, in stamp duty. But if the price was £1 more, they would pay an extra £5,000, as they would then have to pay 3% on the whole purchase price. Buyers therefore were very reluctant to offer over the £250,000 mark and agents responded to this "artificial ceiling" in price by offering houses at either £250,000 or jumping up to £270,000. Agents were reluctant to market at, say, £256,500, or £261,000 which might well have been accurate pricing because they knew that buyers would always offer only up to the £250,000 threshold. The same problem occcured at £500,000 where the rate increased from 3% to 4% and at £1m where the rate went to 5%.
From midnight on 3rd December 2014, the new rates of stamp duty came into effect. Under the new rules the duty will only apply to the amount of the purchase price that falls within the particular duty band, making it more like income tax. In other words, someone buying a house for £200,000 will pay nothing on the first £125,000, and then 2% on the next £75,000, giving them a bill of £1500. Previously they would have paid 1% on the total purchase price, giving them a bill of £2,000. Thus although the percentage rates appear higher in some cases, the overall charge will mostly be lower.
The new rates are:
- Up to £125,000 : 0%
- £125,001 to £250,000 : 2%
- £250,001 to £925,000 : 5%
- £925,001 to £1.5m : 10%
- Above £1.5m : 12%
Someone buying an family home for an average price in England and Wales will now pay £4,500 less in stamp duty. The new system will also smooth out the steps - or sudden jumps - in existing stamp duty thresholds because only the proportion of the price that falls within a rate band will be taxed at the rate. For example someone buying a property for £500,000 will pay £15,000 in stamp duty. While someone buying for £501,000 will pay just £50 more in stamp duty. Under the old system they would have paid £5000 more, so some buyers are making very significant savings. According to the Chancellor 98% of all buyers will benefit from the new rules. Only those paying £937,000 or more will be adversely effected.
Dales Vickers FNAEA
On The Market
As many of you will no doubt be aware a new property portal called "OnTheMarket.com" was launched in January. It aims to compete with Rightmove and Primelocation (Zoopla) but in order to be listed on OnTheMarket an agent must give up either Rightmove or Zoopla. It is not possible to be on all three. For that reason this agency has elected to remain with Rigthmove and Zoopla for at least the time being. OnTheMarket will clearly take a few years to get established and we felt that giving up either Rightmove or Zoopla at this early stage would not be in our clients interest. Ensuring that we provide maximum market exposure for our landlords and vendors is our primary concern and so we will monitor the progress of OnTheMarket. If it grows to a point where it is providing wider exposure than either Rightmove or Zoopla then we will reconsider.
Looking back over 2014 we clearly had a period, probably from about April to June where house prices were "white hot" reminiscent of 2007. House prices were rising by the week causing viewing numbers to rocket with buyers trying to close deals at the viewing in order to stop the next viewing from taking place. It was clearly a situation that could not last and the Mortgage Market Review (MMR) had an immediate dampening effect when it came into force. Under the terms of the MMR lenders are obliged to apply even more strict criteria to borrowers than they had previously been applying. Buyers who had previously agreed borrowing where told after MMR that they would no longer be able to borrow as much. Deals that had been agreed just a day ago collapsed because the asking price could no longer be reached. In our view the second half of 2014 saw the market adjust itself to the new stricter lending requirements and consequently prices softened a little. Looking ahead to the New Year both enquiries and viewing numbers are up so we suspect that buyers have adjusted their financing, increased their deposits and are once again ready to go. Although we have to be wary of the General Election the early indications for 2015 are very positive with prices moving ahead steadily.
Inventories are crucial
Many Landlords question the need to commission an inventory / schedule of condition for a property, or seem unsure about having a formal check-in and check-out process at the start and end of a tenancy.
It’s true that there are costs involved, and there is no legal requirement to have this done.
However; it is vital to have thorough and accurate information recorded in a formal report as when the tenancy ends, there needs to be something against which the property’s condition can be compared.
It is clear from case studies (available from several of the deposit dispute resolution services) that when a formal check-in and check-out takes place supported with a detailed report, there is far less ambiguity, and therefore far less likelihood of a dispute being lodged in the first place.
Feedback also indicates that reports produced by specialist independent companies are usually far more reliable than those produced by an agent or the Landlord himself. It takes a great deal of experience to make sure the report focuses on the right aspects, and the added advantage of being completely objective gives the report greater credence.
Ultimately it minimises the risk of a Landlord incurring unwarranted or avoidable expenses for remedial work which could far outweigh the cost of the inventory, and don’t forget… it’s tax-deductible!
Simon Sheffield MARLA
Where do Landlords stand regarding Smoke Alarms in rented property?
There is currently no legal requirement for landlords to provide fire/smoke alarms in single occupation tenanted properties if the property was built before 1992. Fire alarms are required for houses of multiple occupation regadless of when they were built. Neglecting the installation of smoke alarms could mean that the Landlord is failing to ensure that the property provided is safe, which is his duty under common law. We always therefore, strongly advise Landlords to have smoke alarms installed, and wherever possible, to have a mains -operated alarm fitted for the utmost safety.
Any house built after June 1992 automatically has a mains operated smoke alarm with battery back-up installed on each floor, as part of the current building regulations. Regarding rented properties of any age, all three or more storey houses must have their ceiling mounted alarms interlinked (hardwired or radio interlinked) so that all floors alarms sound simultaneously in the event of a fire, giving residents occupying the upper floors, a better chance of escape.
Currently a medium sized two storey house (with no extensions) can be fitted with two ceiling mounted independent mains operated alarms (not interlinked at this stage, however this may well change in the future, once the new regulations are in use and alarms may well then require to be linked) and can be hard wired in to the existing lighting circuits, thus being a fairly inexpensive task. Flats and bungalows of small to moderate size just need one ceiling mounted alarm, centrally positioned for maximum effect.
Every day in the UK there are around 150 house fires which kill some 500 people and injure a further 11,000. Many of these deaths and injuries could have been avoided if people had been warned and been able to get out of the building in time.
Where do I put my smoke alarm? Ceiling mounted alarms operate far more effectively when placed in a horizontal position, so avoid vertically and diagonally positioned alarms.
Once fitted, most alarms are guaranteed for 10 years, giving the agent, landlord and the tenant peace of mind and security. Always check the test button on the alarm prior to a tenancy starting, then the tenancy agreement should demand that the tenant performs weekly checks on the alarms throughout the tenancy to ensure their correct functioning.
Maintenance: Smoke alarms require minimal maintenance. However, tenants should:
- Test the alarm by pressing the test button until the alarm sounds once a week.
- Replace the batteries when necessary
- Open the case and remove dust from the sensors twice a year.
- Report any malfunctioning to the agent/Landlord immediately.
New fee policy regulations
Under the new CAP regulations (Committee of Advertising Practice) all agents are now required to prominently declare all "fees" that an applicant or future Tenant is going to incur if they apply to rent a property. We have always declared our fees in advance in any case so this is not new to us. We have however added a section to our website where applicants can read our full fee policy. We are entirely in support of legislation that makes fees transparent as it allows the applying party to reach a much more informed decision prior to applying and we think it will consequently reduce the risk of an applicant taking on a property they cannot comfortably afford.
Slow but steady improvement in housing market leads to growing rental market
The UK housing market's recovery will be a "long and slow" process, according to an industry expert.
Mark Harris, chief executive of mortgage broker SPF Private Clients, believes any improvement in the coming months will be gradual, despite new figures from Halifax revealing there has been a slight rise in house prices.
The organisation's latest House Price Index found the cost of homes in the three months to July was 2.1 per cent higher than in the preceding quarter and 4.6 per cent more than in the same period in 2012.
Martin Ellis, Halifax housing economist, said that along with signs of improvement in the economy, these figures suggest consumer confidence is increasing.
"Greater confidence is likely to have underpinned the increase in housing demand", he added.
However, Mr Harris believes there is still a way to go before the UK housing market can return to the levels seen before the onset of the financial crisis.
"Much ground has been lost and transactions and lending levels are running at a fraction of what they were at the height of the housing boom," he stated.
Mr Harris claimed government schemes such as Funding for Lending and Help to Buy are having a positive impact and said this should continue when a mortgage element is introduced to the latter in January.
Should house prices continue to rise, it may lead to an increase in the number of people renting and using the services of letting agents. A new study by Rightmove has revealed 60 per cent of tenants cannot afford to buy their own home and this figure may grow should costs increase further.
The organisation's research also found a surprisingly high number of these "trapped" renters have owned a property in the past, with just under a third (31 per cent) having done so.
Rightmove director Miles Shipside claimed this trend of former homeowners returning to the rental sector will ensure the number of tenants continues to grow in the near future.
Latest ruling on pre 2007 deposits
This ruling will be relevant to any Landlord who still has an ongoing tenancy that started before April 6th 2007.
In January 2007 the landlord (and respondent to the appeal), Superstrike Limited, granted a one year assured shorthold tenancy agreement to the tenant, Mr Rodrigues (the appellant). A deposit was paid by the tenant but at a time when the relevant provisions of the Housing Act 2004 had not yet come into force. There was accordingly no regime which compelled the landlord to protect the deposit in any way.
However, when the fixed term tenancy expired on 7 January 2008 the tenant held over and remained in occupation. This meant that a statutory periodic tenancy was created by virtue of sections 5(2) and 5(3) of the Housing Act 1988, importing the same terms as the expired fixed term. Nothing was done about the deposit at that time, which the landlord continued to hold, because the 6th April 2007 legislation introducing deposit protection was not retrospective.
In June 2011 the landlord served a notice requiring possession under section 21 of the Housing Act 1988. Upon expiry of that notice, accelerated possession proceedings were commenced in the County Court. An initial order for possession was later set aside on the basis that certain transitional provisions in the 2004 Act (effective May 2012) had not been complied with by the landlord but on appeal to the Circuit Judge the order for possession was restored, the judge ruling that there was no statutory regime was in force affecting the deposit when it was paid. The Claimant was unhappy with the restoration of the original ruling and went to appeal.
The Court of Appeal’s approach
The origianl and restored decision has now been overturned by the Court of Appeal. In a decision on what Lloyd LJ termed “a problem which is of some importance”, the court ruled that, notwithstanding that the Housing Act 2004 did not apply to oblige the landlord to protect the deposit when it was paid in 2007, upon the tenant holding over under section 5 Housing Act 1988 in 2008, a new statutory tenancy was created by which time the deposit protection regime had come into force. The court found that there had been a notional fresh payment and receipt of the deposit at the time the statutory tenancy was created, notwithstanding that the landlord simply continued to hold the deposit that had been paid a year earlier. It followed that the deposit had to be protected under the Housing Act 2004 and because the landlord had not protected the deposit within the (then) required 14 days after the creation of the statutory periodic tenancy, the section 21 notice was invalid (by reason of section 215(1) Housing Act 2004). Therefore the landlord was not entitled to an order for possession and the tenant’s appeal was allowed accordingly.
The effect of the Court of Appeal’s ruling
Landlords who created a fixed term assured shorthold tenancy before 6 April 2007, whose tenant paid a deposit and who held over after the fixed term expired, have real cause for concern. Unless those landlords took the prudent step of subsequently protecting the deposit under one of the statutory schemes, any attempt to now serve a notice requiring possession under section 21 Housing Act 1988 will prove futile. Such a notice will be invalid.
The position is compounded by the changes to the Housing Act 2004 introduced by the Localism Act 2011. The transitional provisions obliged defaulting landlords to comply with the deposit protection provisions by 5 May 2012 (regulation 16 Localism Act 2011 (Commencement No 4 and Transitional, Transitory and Saving Provisions) Order 2012). Deposits paid after the 6 April 2012 must be protected within 30 days of receipt.
It follows that the only way landlords who are caught in this time trap can serve a valid section 21 notice under the Housing Act 1988, is to return the deposit to the tenant (section 215 (2A) (a) Housing Act 2004), unless a tenant’s application under section 214(1) Housing Act 2004 has been disposed of by the court, a position recognised in the Court of Appeal’s judgment although Lloyd LJ makes clear that it forms no part of the decision.
It is not yet clear how many tenancies will be caught by the Court of Appeal’s decision but there will undoubtedly be quite a few. In practical terms, the impact may not be quite so great. Landlords who have trusted their tenants to remain in occupation for years after a fixed term assured tenancy has expired may feel little real hardship in returning the deposit to the tenant before serving a section 21 notice, although those landlords may feel aggrieved at having to do so. It is also worth noting that returning the deposit to the Tenant prior to serving a section 21 notice may not be sufficient to guarantee possession. It is therefore essential that landlords take proper legal advice before attempting to serve a section 21 notice.