Accidental Landlords’ In Danger Of Falling Foul Of The Law

Comment by Mark Daruvalla, MD of CFP Software

The downturn in the market has lead to a whole wave of ‘accidental landlords’ – property owners who have opted to rent out their property, rather than sell them in the current market.

This upsurge in new landlords and the resulting increase in lettings agents, has reflected the sizeable growth in this market.

But the growth has come with a rush of agents and landlords who are ill-prepared and confused by the legislative requirements for lettings agents and recent figures from the Deposit Protection Service revealed that nearly half (48%) of ‘accidental landlords’ has not fully researched the laws beforehand.

The list of legal requirements for agents seems endless, but these are an essential part of today’s industry that all agents must fully comply with. It is apparent that some lettings agents are failing to comply with all of the legal requirements and the penalties can be severe with fines and, ultimately, business closure for extreme cases.

Tenancy Deposit Scheme

An example of this is the Tenancy Deposit Scheme, which is part of legislation requiring letting agents to register the start and end of all new tenancies with the Department of Communities and Local Government.

This is the main legality which is getting lost of new landlords and lettings agents. If a tenant’s deposit is not registered with a scheme within 14 days, the tenant can legally demand three times the amount of deposit in compensation, highlighting the importance for all agents to register to an approved scheme.

This scheme applies to small private landlords who do not use an agent, as well as larger landlords/agents acting for them.

Inland Revenue

The Inland Revenue also performs random spot checks on lettings agents to ensure that their end of year tax reports are fully compliant. All property agents need to provide an annual tax report that shows which landlords own which properties and how much income the agent has received on their behalf for the year. The onus is entirely with the property agent to provide this completed form.

Compulsory Forms

There is further legislation for lettings agents of non UK Resident Landlords. These agents are obligated to provide at least three further forms – the NRLQ (letting agents must pay the tax due quarterly), the NRLY Annual Return (letting agents must complete this form) and the NRL6 (non-resident landlord’s tax deduction certificate).

Tenancy Agreements

It is vital to have a tenancy agreement signed before any tenant occupies a property. A tenancy agreement is vital for making the tenant’s obligations clear, as well as the limitations of their rights.

Although contracts vary on aspects such as property type and price, there are several common details to all, which include:

• Names and addresses of both the tenant and the landlord
• The property address that is being let
• The date of entry into the let property and the termination date
• The rental amount and frequency of payment
• The amount of deposit required
• The type of tenancy e.g. short term or assured tenancy
• Details of the notice period needed to leave the property.

However, too many lettings agents are making the mistake of not running their agreement template past a solicitor, which can result in restricted rights to either the tenant or the landlord.

Finance and Accounting

Professional accounting practices are vital for letting agents to ensure their business is fully compliant with HM Revenue and Customs and Companies House. Lettings agents must place a great deal of importance on attention to detail for all aspects, such as reconciling balances and making landlords aware of all your commissions, especially on property maintenance work.

Finance and accounting will help lettings agents when the time comes for them to sort out VAT from landlords – not all agents are even aware that they are responsible for paying VAT for landlords and should complete a VAT invoice, otherwise the agents themselves are liable for any VAT owed. Lettings agents should be able to produce a list of all the money they have which is the landlord’s rent and deposits as evidence.

It is not permitted to overdraw client’s money, either by way of an overdraft or by paying Landlord A’s expenses from Landlord B’s income. If there has been any loss to clients' money as a result of banking errors, overdrawing , incorrect withdrawal or, administrative errors, the agent should immediately reimburse it from office funds.

Gas Safety Checks

By law agents must:

• Ensure that the management contract clearly specifies who is to make arrangements for maintenance and safety checks on gas equipment and for keeping the necessary records
• Where specified by the management contract ensure gas appliances and/or flues are serviced at least once every 12 months or at any other time if there is a safety doubt
• Ensure that maintenance and safety checks on gas appliances/fittings and/or flues provided for tenants use are only carried out by a CORGI registered installer

Electrical Appliances, Equipment and Wiring Testing

Although there is currently no specific legal requirement for a qualified electrician to carry out an inspection and issue a safety certificate, as in the case of gas appliances, it is now widely accepted that the only way to ensure safety, and to avoid the risk of being accused of neglecting a 'duty of care', is to arrange such an inspection and certificate. It is recommended that appliances should be annually PAT tested (portable electrical appliance safety test) and wiring of the property should be checked at least every 5 years to obtain a Periodic Inspection Report

Smoke Alarms

Although there is no legislation requiring smoke alarms to be fitted in ordinary tenanted properties, it is generally considered that Landlords and their Agents have a 'duty of care' and that the Landlords and their Agents could be liable should a fire cause injury or damage in a tenanted property where smoke alarms are not fitted. 

For new entrants into the lettings market, these legislative requirements can be a minefield and without the proper specialist software to ensure compliance, agents run the risk of being caught out and facing monetary penalties as well as ruined reputations.

Good software should ensure that legislative and legal compliance matters are taken care of, easing pressure on agents and leaving them with one less thing to worry about. Software can help enormously as it takes away the routine administration and frees up time to deal with more complex enquiries, or to provide better customer service. We find that many of our clients start by managing just a few properties and utilise the software we provide them to grow the business without the need to increase the number of staff.

CFPwinMan software is the most audited software package, facing regular checks from bodies such as ARLA, RICS, NAEA, NALS and Inland Revenue CNR, and it has never failed an audit. This means that any letting agent using CFPwinMan can rest assured that they are using software that has been extensively tried and tested to comply with the requirements of all of the main governing bodies within the industry.

CFP software was established in 1989 and over the last 20 years has been working hard to ensure all software packages are legally compliant and adhere to all industry regulations. Becoming a Microsoft Certified Partner in 1998 and most recently being accredited by the ICAEW, CFP Software aims to provide the best solutions for agents within the industry by continually keeping abreast of all industry legislation and legal requirements.

CFP Software, owned by GMG Property Services, specialise in supplying only the best lettings, property management, accounting and estate agency software. CFP software is used by over 2,000 property managers, letting agents and estate agents across the UK, with over 9,000 user licenses, making CFP the market leader in its field.