How to manage legal risk in rentals
Rental properties are a great source of income as well as a tangible asset, but they can also be a big headache - especially if you don't take the right precautions. It is essential to educate yourself on the latest tenancy laws, as well as keep informed about changes to those laws. Poorly written, unclear or outdated tenancy agreements are one prime example of how you can expose yourself to legal risk. In this article, we will outline what should (and shouldn’t) be included in a tenancy agreement to manage legal risks in rentals and touch on changes to notice periods that take effect from 1st October 2021.
Whilst a written tenancy agreement is not a legal requirement, it is one sure way to manage your legal risk. In your tenancy agreement, you need to ensure that you:
Clearly identify the parties (the landlord, tenant and letting agent), stating their current address and contact details
Clearly state the property in question
Outline how much the deposit for the property will be, how it will be protected and once the tenancy has ended when it will be returned
State how much the rent for the property is. Make sure you outline when rental payments are expected to be made and the interest (capped at 3% plus the Bank of England's rate) on late rent.
If there is a guarantor, or someone else is paying the deposit, you should also make this apparent in the tenant agreement.
In addition to identifying the core features of the agreement, such as the parties, rent and deposits, you can help protect yourself (and your tenant) by including clauses relating where obligations fall and conditions of use of the property. You should outline clauses relating to tenant behaviour that could result in early termination of the tenancy agreement (often through serving a section 8 notice). Examples of these kinds of clauses include:
Maintaining the cleanliness and state of repair of the property
Prohibiting illegal or immoral activity
Prohibiting smoking
Prohibiting tenants from interfering with fire safety requirements
To use the property with care
Prohibiting tenants from using the property as anything but a residential home
You will also want to outline how, and when, the landlord or letting agent can gain access to the property. Notably, you will want to outline repair obligations and the notice required for repairs to take place.
As well as including these clauses, you will also want to outline what will happen once the tenancy has ended. You should outline whether the tenancy will continue as a contractual periodic tenancy. You should also outline the relevant notice periods both parties must provide and whether the fixed term contains a break clause. Under the Coronavirus Act 2020, this year saw significant changes to minimum notice periods in residential rental properties to provide tenants protection from eviction.
However, from 1st October 2021, notice periods will revert to their pre-Covid length under the The Coronavirus Act 2020 (Residential Tenancies and Notices) (Amendment and Suspension) (England) Regulations 2021 and the prescribed forms will also be updated to reflect the change in notice periods. The length of the notice period depends on the ground on which the landlord is relying on to evict the tenant. Crucially, these changes will only affect residential lettings in England.
Another important way to ensure that you manage your legal risk is to ensure that you keep on top of government legislation that affects lettings, as the changes to notice periods have shown! Following the Tenant Fees Act 2019, it is illegal to ask tenants for certain payments. Protecting yourself by considering what is in your contract also involves considering what should not be included! These restricted fees relate to cleaning, referencing, credit and immigration and tenancy renewal. The Tenant Fees Act 2019 also brought into place a series of caps. For example, holding deposits can be no more than one weeks’ rent and property deposits can be no longer than 5 weeks’ rent (unless the total yearly rent is higher than £50,000). Including these illegal clauses in your contract can result in fees, bans and criminal sanction so ensuring that you have taken them out of your agreement is one sure way to manage your legal risks. You will also want to ensure that even post-signature you are aware of your legal obligations. For example, following The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020, landlords are required to carry out an Electrical Installation Condition Report (EICR) every 5 years. Keeping on top of these changes is crucial to protect you and minimise any legal risks.
In this article we have suggested several ways to manage legal risk in rentals. The first is to create a comprehensive and clear tenancy agreement. The second is to ensure that your agreement aligns with the law and that it does not make any unreasonable or illegal requests. The third is to keep track of legal changes that affect the lettings industry, even post-signature! Following these steps will help you to manage and control risk so that your letting experience can be the experience you intended!
Contact us today: info@yourhomemanaged.com or call us on 02081257780 with any queries you may have.
