Legal update – letting legislation

There are several legal changes affecting landlords that are due to come into force before the year end.

HMO properties

The first relates to landlords that let out properties to more than a group of tenants.

The shenanigans in the controls over HMO properties has under standardly confused many landlords.

Firstly, the outgoing government ‘shoots from the hip’ by bringing in draconian planning controls affecting all landlords letting to three or more tenants. The Labour government introduced a new planning classification for a house let as a small scale House in Multiple Occupation (HMO) with 3-6 unrelated occupants called a C4 planning use. This meant that anybody who was using the property as a single family under a C3 dwelling use would require planning permission to use it as a HMO shared use.

Then; almost immediately after getting elected the new coalition government announces there intention to reverse this change.

So where are we now & how will the changes affect landlords?

HMO latest

The new coalition government have just put legislation before Parliament to change the planning system so that planning permission will no longer be required when a family house becomes a small scale HMO. A change of use will still occur where the use changes from C3 to C4; but as the change will be permitted development, an application is no longer required. These changes will come into affect from 1st October.

Grant Shapps Minister of Housing anticipates that this will effectively remove 8500 planning applications from the planning system and thereby save landlords effectively hundreds of thousands of pounds in planning fees.

The planning controls that remain will still allow individual local authorities to selectively retain this control; but only by applying to the Government for an article 4 direction if they believe there is a local problem with an over concentration of HMO properties.

High value tenancy changes

The second legislative change will affect landlords that let high value properties. This therefore will mainly concern landlords in London.

The previous government brought in a proposal to raise the annual threshold for assured and assured shorthold tenancies from the current maximum of £25,000 to £100,000. The top limit on rents were set initially by the original legislation back in 1988 which brought in assured shorthold tenancy agreements. Since that time rising rents particularly in London has meant that even average sized rental properties were no longer covered by the provisions of the Act.

The new coalition government have committed themselves to bringing in the changes which were laid before Parliament on 25th March and will come into effect on 1st October.

There are some concerns however, how the new changes will affect existing tenancies and the potential grey area in the law. The reality is that whatever tenancy agreement is used the new legislation will automatically mean that the tenancy becomes an assured shorthold tenancy.

This has implications for a landlord who has previously be exempted from obligations under this type of tenancy as they had to draw up their own specific tenancy contract. It means that they will have to now protect any tenancy deposit with one of the government approved Tenancy Deposit Schemes (TDS). The government has recently stated its’ approach:

“Our intention is that these new assured shorthold tenants should have the same protection as existing tenants, so if the tenancy started after 6 April 2007, the landlord will have to protect the deposit.”

Under the Tenancy Deposit Scheme where a landlord fails to protect the deposit within 14 days of taking the deposit then they are potentially liable to pay a fine to the tenant of 3 times the deposit amount.

The landlord is also required to serve the prescribed information on the tenant which tells them where the tenancy deposit is held and how to request its’ return.

The DCLG have apparently instructed the courts to give landlords in this situation some leeway however this is yet to be established. Landlords that are affected by the change in legislation should ensure that they lodge the tenancy deposit with one of the approved protection scheme in order to safeguard themselves against further action.

Future legislative changes.

Property Hawk hopes that after the flurry of legislative changes and increased regulation for landlords the new coalition government will leave us alone to run our rental businesses. Grant Shapps does seem committed to the principle of reducing the regulatory burden on landlords and has already committed himself to steps to reduce it.

The one area of concern is that with the huge budget deficit, it might be that landlords, many who are making decent rental profits will be asked to pay an increasing contribution to the nations’ finances. This aspect of landlord and government relations are likely to be made clearer following the forthcoming Government Spending Review.

I’m hoping that landlords don’t get used as a soft target to bail the country out of the current financial mess! Lets face it landlords are frequently portrayed as the enemy and are presented so often as an easy target to kick.

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