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Be Clear and Transparent

Published: 26/04/2019   Last Updated: 26/04/2019 22:25:55   Tags: Landlords, Agency

Director Christopher Toynbee discusses transparency threats within the industry.

In recent articles, I have written about the increasing legislative backdrop we, as letting agents, now operate in. Part of our role is to ensure compliance with a raft of laws, which have added many layers of complexity to what we do. And it’s easy in such an environment to lose sight of what I believe is one of the most important aspects of our role: managing complexity and communicating it in a clear, concise manner to our clients. In other words, despite what’s going on behind the scenes, we must remain clear and transparent.

Transparency has long been one of RAH’s USPs and is a defining reason landlords trust us and stay with us (our longest-serving client has been with us all 27 years). We take pride in the fact we offer a simple and concise service. Simple doesn’t mean basic. Concise doesn’t mean lacking in detail. We should be able to provide in good conscience a clear link between service and value.
Lack of transparency manifests itself in a number of ways. Multiple offerings without obvious boundaries, loose definitions of scope of services, complex ‘menus’ of fees with bolt-on costs for this or bolt-on costs for that and, too often, hidden or unjustified costs.

It’s this final threat to transparency that I wanted to explain further. One of the most controversial hidden costs is that of contractor commission. If you have not come across this before, contractor commission is a process whereby an agent earns income from the contractor charges to landlords. Believe it or not, a practice commonplace across our industry.
While the official line may be that this is an agreement between contractor and agent, and that it has no bearing on the invoice to the landlord, in most cases the value of the commission is directly derived from – and added to – the value of the invoice.

The greater the value of the invoice, the greater the value of the commission from contractor to agent. A £50 call out may cost the landlord £60, a £500 job may cost the landlord £600, to take into account the commission arrangement. The two are inextricably linked, and the moral hazard this creates is blindingly obvious.

Agents become financially incentivised to actively find maintenance works to charge to their landlords, and works of a higher value. They become financially incentivised to go with contractors willing to accept the highest negotiated commission rates, and not with the contractors who are the most qualified, insured or those that provide the best service or fair value. Fundamentally, agents who operate a contractor commission structure are no longer working in their client’s best interests and, once you lose that, what do you have left?

The connection between service and value becomes unrecognisable. The level of transparency of such a practice differs from agent to agent. Some put it clearly in their terms, some less so, and others may even be completely silent on it (which is in contravention of agency law, incidentally).

We are very clear. We don’t do it and we never have. It’s not a practice that feeds transparency and nor one to be used as an alternative avenue of income generation. Our clients should expect more, I believe. They should expect a measured approach to disruptions in the market. They should expect that it goes without saying that we work in their best interests. They should expect our services and our fees to be well thought-out and justifiable, and not the path of least resistance, nor a complex menu. They should, despite increasing complexity behind the scenes, expect transparency.

I hope that’s clear!

What does the future hold for the Cambridge rental market?

Published: 11/04/2018   Last Updated: 24/04/2018 11:50:33   Author: Charlotte Biggs    Tags: Lettings, Rental Market, Landlords

The Cambridge rental market is seen as very buoyant, a place where rents increase and demand always outweighs supply. Is this still the case?

Over the past 10 years, buy-to-let investors have flocked to Cambridge in the expectation of strong rents and impressive capital growth, driven by huge tenant demand and lack of supply.  However, while rents have remained strong over the past year, we have seen a slow down in the rates of capital appreciation.  Investors chasing a fast buck are likely to be disappointed. This doesn’t mean the Cambridge BTL market is broken, it just means a short-term investment strategy is no longer a viable option.

According to the most recent Home Track report (February 2018) values in Cambridge have dropped 1.5% year on year, but will this have an affect on the rental market? In the immediate short term, likely not, but if this becomes and ongoing trend, those property owners considering selling up, may hold off until prices see an increase. This in turn will affect the stock of properties to purchase, possible pushing people to rent until they find their ‘dream home’ but also pushing buy to let investors in purchasing while prices are down.
The average rent in the East of England, at the end of 2017 was £909pcm, in Cambridge this was £1202pcm (Landbay, Rental Index Report). Cambridge is still a microclimate, offering a unique setting for the housing market. So why does Cambridge stand out and what part do Landlords need to play in keeping these rents at this level?

Over the next three years, around two million sq ft of office and laboratory developments will be delivered in the Cambridge market. This is on top of the multinational companies, such as Astrazeneca, Google, and Microsoft who have already called Cambridge their home.
The increased investment in infrastructure is also increasing the rental demand as more areas of the City become popular for commuters; such as the Cambridge North train station, improvements to A14 between Cambridge and Huntington and proposed plans for a Cambridge South train station.

New developments such as Ninewells and Eddington, together with some impressive high spec refurbishments of existing stock has improved the overall standard of properties in Cambridge. Older properties can start looking more dated in comparison to the newer developments so keeping up with maintenance is key. Larger companies in the City are attracting affluent young professionals and families who expect their homes to be well-presented and maintenance free in exchange for the high rents they are being asked to pay. Landlords must keep up with these expectations to ensure the strong rents continue. As Letting Agents, we need to ensure our clients' property stands out from others on the market, giving the best possible chance of achieving the expected rent level, with a minimum void period.

Looking ahead, we expect clearer answers to the key questions. Will the changes to stamp duty for first time buyers reduce the young professional renters or the length in which they rent? Will the changes with tax relief on mortgage payments reduce the buy to let investors and therefore rental stock, ultimately leading to an underpinning of rental prices as supply drops but demand remains steady? Will the uncertainty with Brexit hold people back in buying and push them to rent until the landscape is more certain? Only time will tell, but what we do know is the Cambridge market continues to need supply to meet the demand. This supply just needs to be of a higher standard, to meet the increased expectations of tenants.

Rogue Landlords and Banning orders

Published: 11/04/2018   Last Updated: 24/04/2018 11:56:42   Author: Christopher Toynbee    Tags: Lettings, Rental Market, Landlords

The Housing and Planning Act 2016 came into force on the 6th of April 2018 and it includes the introduction of a ‘Rogue Landlord’ database. This will list every landlord who has been prosecuted or fined by a Local Authority. Further, the regulations also provide the Local Authority with the power to pursue Banning Orders against landlords. If imposed, these orders will prevent the landlord managing any property for a set period of time, as well as their name appearing on ‘Rogue Landlord’ national database. The implications of this could be quite severe for some.

In previous cases, fines against landlords end up in the pocket of HM Treasury. For these new regulations, any fines imposed on landlords will be for the Local Authority to keep, the hope being, that with a direct financial incentive, LAs will be focussed on outing the issues.

Given how early we are into the new regulations, their success at improving standards remains to be seen. However, it’s the latest of a number of ‘sticks’ the government have been using on landlords and one that could have a severe impact.

A database such as this isn’t new, as a similar one has already been introduced into the London property market by Mayor Sadiq Khan. This database allows anyone to check whether their current or prospective landlord has been prosecuted or fined by a number of London Borough Councils. Just type in the landlord/agent name and the property address and away you go. The database proposed by the Housing and Planning Act 2016 is currently not intended to be publically available, unlike the London database, and more as a tool for Local Authorities. The offences that can lead to being on the database or being faced with a Banning Order include but not limited to:
  • Unlawful eviction or harassment
  • Failing to comply with an improvement notice
  • Offences in relation failure to comply with HMO Licensing requirements
  • Fire and Gas safety failures
The Banning Order powers that Local Authorities will now possess will prevent landlords from managing their properties, if any of these offences have taken place. A Banning Order can also be pursued if the landlord has failed to undertake what the Local Authority consider to be ‘necessary’ remedial works. Remedial works does not necessarily mean urgent repair work. The Regulations do not accurately define this and potentially leave it open for Local Authorities to enforce their opinion of ‘necessary’ works. If the landlord refuses to undertake this work for whatever reason (such as legitimate lack of funds), they are liable to be taken to a tribunal by the Local Authority in order to impose a Banning Order. This could result in either imprisonment (unlikely?) or a fine of up to £30k.  

Local Authorities therefore have two wins from the introduction of these regulations. Increasing standards of rental properties as landlords wish to avoid a Banning Orders, or receiving fines from those landlords who do not undertake these works. If a Landlord fails to pay the fine, a charge is put on the property.

This is indicative of the general theme running through the industry at the moment where there are many more examples of government using ‘stick’ rather than ‘carrot’ regulations to encourage desired behaviour from landlords. There of course would not be any argument against the move to improve standards, but the proposed set up has the potential to affect all landlords and not just those with genuinely poorly maintained properties.  

Obligations for repair and maintenance

Published: 10/04/2018   Last Updated: 17/04/2018 08:57:47   Author: Christopher Toynbee    Tags: Lettings, Rental Market, Landlords

A fundamental obligation of a landlord, and one governed by legislation as well as contract, is the obligation to repair and maintain certain aspects of the property. Landlords who fail to adhere to this obligation could face penalties such as fines, prosecution and the inability to obtain possession.
Section 11 of the Landlord and Tenant Act 1985 details the scope of the obligation and helps define who is responsible for what repairs and maintenance. This should also be detailed in the assured shorthold tenancy agreement (AST) between the two parties.
Section 11 breaks down the landlord’s obligation to repair and maintain:
  • The fabric and structure of the property – This includes the roof, walls, ceilings, gutters, downpipes etc.
  • The supply of services to the property, including sanitary ware – this includes electrical wiring, gas pipework, baths, basins, sinks etc.
  • The supply of space heating and hot water – The landlord is obligated to maintain boilers and appliances that supply heat to the property, as well as hot water
In order to fulfil this obligation, the landlord has an implied right for access in order to repair and maintain as necessary. This is backed up by section 11 (6) of the Landlord and Tenant Act 1985 which confirms the landlord is allowed access for these purposes. Note, however, the tenants right to deny access overrides the above, and if the tenant refuses access the landlord must not attend and must seek court permission to do so.
The Landlord is expected to repair the property, or replace items, bearing in mind the age and condition of the property, or the item to be replaced. The tenant cannot expect betterment, nor should they be expected to accept a replacement that is of lesser quality or specification than the original item.
It’s not an uncommon occurrence when there are disputes between the two parties for Landlords to hesitate to undertake repairs – almost as a bargaining chip. This is a fundamental breach of section 11 and could have serious consequences going forward. It will leave the landlord in a much worse and weaker position.
Of course, there are obligations on the tenants as well, usually detailed within the AST. These include obligations not to damage the property, maintain any gardens, repair or replace any items they have broken or damaged etc. Tenants are further expected to behave in a “Tenant like manner” which is a description put forward by Lord Denning in Warren v Keen 1954. There is a little confusion regarding what exactly this means, but basically it means that there will be certain things that a tenant is expected to take on as part of being a tenant – changing lightbulbs, unblocking sinks, mowing the lawn i.e. everyday remedial issues.

Tenants are also obliged to report any issues as soon as they arise. If the tenant fails to report faults when they knew, or should have known, about them, and as a result the property is further damaged, the tenant would be responsible for the extra cost of repair. This damage is known as ‘permissive’ damage’.
Similarly, tenants should not be withholding rent in the event of repairs that they perceive to be necessary not being undertaken. Rent payment is a fundamental obligation of the tenant and knowingly failing to fulfil this – for whatever reason – could actually cause more problems later on.
If both sides are fully informed and aware of their rights and obligations prior to entering an AST, then its far less likely that there will be issues or disputes between the parties.

Getting Section 21 Right

Published: 19/02/2018   Last Updated: 20/02/2018 16:12:44   Author: Christopher Toynbee    Tags: Renting, Letting, Landlords

A section 21 notice is one of two ways in which a landlord can seek possession of their rental property back from their tenants (the other being a Section 8, which will form part of a later article).

A Section 21 notice is the most commonly used method of seeking possession. It can be served any time after the end of month four of a fixed term tenancy and at any point during a periodic tenancy. It provides the Tenant with a two month’s notice of the date of which the landlord will seek possession.

All it involves is the completion of a two-sided form (now a form 6A) which is then served on a Tenant. Sounds relatively simple, right? Unfortunately, not.

There is a raft of scenarios where a Landlord cannot serve a Section 21 and a seemingly endless number of hurdles the Landlord must clear for the Section 21 to be correctly issued and served.

Below is a non-exhaustive list of reasons why a Section 21 notice cannot be served/ won't be valid:

  • During the first four months of a fixed term tenancy (the original tenancy)
  • Where the Landlord is prevented from retaliatory eviction under section 33 of the Deregulation Act
  • Where the landlord has not provided the tenant with any of the following documents
  • The EPC for the property
  • A valid Gas Safety Certificate for the property
  • The DCLG’s “How to Rent” guide
  • Where the landlord has failed to comply with deposit protection legislation, including but not limited to protection, within the right time frame and issuing of all relevant documents to the tenants within strict time limits
  • Where the property requires a House of Multiple Occupation licence and doesn’t have one
  • If the Section 21 does not provide for sufficient notice
  • Where the landlord cannot prove service of such notice or it is done in a way not agreed within the tenancy agreement
  • If the Section 21 information is incorrect
  • If six months have passed since the issuing of the Section 21 notice
Even assuming all the above is undertaken correctly, the tenant doesn’t actually have to leave at on the date specified by the section 21 notice. The notice is one for ‘seeking possession’, not for eviction. Eviction is provided for by the courts.

In practice, and with the help of good management, the vast majority of tenants will leave on or before the date seeking possession.

At Redmayne Arnold & Harris we will serve section 21 notices on behalf of our landlords under our Fully Managed service. We have strict processes in place to ensure that all areas are covered so that there is no uncertainty with regards to the validity of the notices we serve.

The changing face of Buy-to-Let

Published: 18/02/2018   Last Updated: 19/02/2018 10:06:35   Author: Christopher Toynbee    Tags: Landlords, Letting, Rental Market

The world of buy to let is unrecognisable for that of 15 or even 10 years ago. Long gone are the days of 110% mortgages, self-certification and same day remortgages.

Investors now find themselves in an environment where they are seemingly being attacked from every angle. Increase in stamp duty levies, the tapering out of mortgage interest relief and the introduction of portfolio lending assessments. This is where a mortgage company will require much more detail from the Landlord in terms of personal assets and liabilities and income than they had previously.

This has led to many “one-off” landlords - and some more established portfolio landlords - selling off their investments to avoid these additional costs and difficulties in obtaining finance.

Other landlords trying to protect themselves by transferring properties into a Limited Company structure, where mortgage interest costs can still be offset against profit. We would highly recommend speaking to your accountant before pursuing such a strategy as it does come with many other tax implications.

Lending to Limited Companies is now fairly mainstream, and the cost of doing so is not dissimilar to that of personal mortgages. For example, a fixed 5 year deal at an 80% loan to value will attract an interest rate of sub 4%. However, there are also associated legal costs and the mortgage arrangement fees that can vary between 2%-3% of the amount borrowed, adding to the overall cost.

By comparison, personal lending tends to be characterised by much lower arrangement fees despite the fact that the rate of interest charged is really much the same as that for lending to Limited Companies.

Interest rates themselves have seen a recent rise and there is talk of at least one, if not two, more rises later this year. While landlords have enjoyed rock-bottom rates for a long time now, the timing of an increase in rates, combined with the harsher tax and legislative BTL environment we now find ourselves in, will be a particularly bitter pill for landlords to swallow.

Meeting tenant expectations

Published: 31/03/2017   Last Updated: 03/04/2017 12:02:41   Author: Christopher Toynbee    Tags: Landlords, Renting

The rental market in Cambridge is changing rapidly. Renting is no longer the short term stop gap it once was and tenants are becoming more demanding. If they are renting a whole property, they expect it to be maintained and presented as well as if they owned it themselves. And rooms in shared houses do not escape this weight of expectation.

Even for students, the days of damp, dirty and cramped digs are long over. Only seven percent of University of Cambridge students now live in private rented accommodation, most are housed in College-provided blocks with en-suite bathrooms and all mod cons. Anglia Ruskin University now dominates student demand in Cambridge but if you want to find the best student tenants you will need to offer standards that come close to the new purpose-built rooms on offer throughout the city.

Making initial impression count can make all the difference when it comes to attracting tenants.  As a landlord, having a ‘they can take us as they find us’ attitude rarely results in you achieving your rental expectations.

So here are my top tips for the things you must check before you allow potential tenants to come round.

1. Providing fast broadband and decent cable/satellite are now basic pre-requisites for mellenials. Once upon a time services simply covered gas, electricity and water but wi-fi and digital television are just as important. If a tenant can see they are up and running, they know they won't have the hassle of sorting them out.

2. Kitchens and bathrooms are key. TV Property programmes and swanky boutique hotels have raised the bar on the quality of kitchens and bathrooms and this is changing tenant expectations. Think about installing mid range appliances in the kitchen rather than the cheapest. You don't need to lay travertine everywhere but quality tiling and worktops will make a good impression. If you cannot do anything else, at the very least make sure kitchens and bathrooms are spotless.

3. Think like a tenant. Now is the time to look at your property with fresh eyes.  Check for peeling paint in the bathrooms, polish those light switches and tighten the screws to fix those rattling door knobs.  You need to show your property has been looked after and is loved.  Tenants will make a snap judgement about your attitude to future maintenance issues based on what they see on a viewing.
4. The entrance is the keystone of your kerb appeal.  If the front door needs a lick of paint, choose a tasteful colour. Make sure the outside lights work. Even if you don't own the areas around the entrance it is in your interest to check that the path is clear and move the bins away from the front of the property. Make the entrance hall a welcoming space.  Nothing ruins the first impression more than a crowded hallway where you have to fight your way past coats, shoe racks and piles of post. 

5. If your property has a garden don't neglect this important space. An overgrown jungle suggests that you don't care about the property and could leave the impression that you won't sty on top of the maintenance during the tenancy. Pruning, trimming and landscaping will make sure your garden presents a positive first impression.  And now is not the time to argue with the local council about who mows the verge outside your property. Swallow your pride and do it yourself (at least while viewings are taking place).
6. If the sun isn’t streaming through the windows, the right lighting can make all the difference.  Poor lighting can make your home feel dark and drab so install brighter modern lights to make your home seem sunny, cheerful and up to date.

7. And keep on top of the cleaning!  Even if the property has been professionally cleaned after the previous tenants moved out, you may need to do periodic top up cleans. While some potential tenants can ignore stains and dust, most cannot and will imagine themselves living in the space, as you present it.   If your property looks (and smells) clean, prospective tenants will be far more likely to see the potential.
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