Public Liability and Personal Injury Claims

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Landlords’ Insurance:

Perhaps the most important aspect of a landlord’s insurance cover is the possibility of a personal injury claim. However unlikely it is that someone will be injured in or around your property due for some reason to your negligence, then the claims can be astronomical.

Without a good landlord’s insurance policy covering personal injury you are vulnerable.

On 20 March 2017, ARLA Propertymark reports that the Justice Department announced changes to the personal injury discount rates applied to lump sum compensation awards. This has serious implications for all landlords and agents in the PRS.

The discount rate used for these award calculations works on a percentage reduction to allow for the estimated return on investment of this sum over the future loss period.

As an example, if an individual earning £25,000 per annum is seriously injured in an accident and unable to resume work, needing long-term care at £75,000 per year, on the basis of the current discount rate of 2.5 per cent, the loss of earnings and care claim would amount to £2,791,000.

However the same calculation on the new discount rate of minus 0.75 per cent, the claim cost increases to £6,325,000, a rise of 127 per cent.

Will you be affected?

This change only relates to any claim settlements after 20 March 2017; as a result of which, insurers are making significant increases to their current claims reserves. The Association of British Insurers estimates the total cost to be as much as £7 billion.

Insurers (the insurance companies) are announcing substantial increases to their claims reserves directly resulting from this change. The Treasury has announced that the impact to the NHS is likely to be an increase of £1 billion in medical negligence claims.

This will also impact policyholders with an increase in claims reserves under Motor and Liability policies – for example Employers liability and Public liability, which most estate and letting agents hold as a business. This will inevitably lead to increased premiums, however it’s too early say what the scale of increase will be across the industry.

Whilst the new rate came into effect on 20 March 2017, and whatever happens the amount of any claim will be large, it is possible it may not be in place for long.

The insurance industry, through the ABI, continues to lobby government who have approved an urgent review, involving consultation with interested parties to identify whether there is a better and fairer framework for establishing the discount rates.

ARLA Propertymark  says:

“This increasing pressure on claims costs further highlights the need to engage in active risk management in reducing claims frequency and severity…”

Top Landlords’ Insurance Providers

Personal injury claims

Public Liability

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71% of landlords feel less confident post political instability

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A landlord sentiment survey carried out by Foundation Home Loans considering confidence post political instability of the snap General Election and Brexit shows that 71% have experience a drop in confidence for the PRS.

38% of landlords have since reviewed the size of their portfolios due to increasing costs and 7% have actually sold property to reduce their exposure to the rental market. For portfolios of 20 or more properties the figures rise to 19% that have sold rental properties so the loss to the PRS increases with the larger individual providers.

30% of landlords also reported increasing rents with the largest percentage in the East Midlands with 41% instigating a rent review.

Jeff Knight, Foundation Home Loans marketing director,  said: “Landlords have been met with a raft of changes, from stamp duty charges to shifts in tax policy, and the lack of certainty on the political front has clouded the picture somewhat.  

“The response has been to batten down the hatches streamlining larger portfolios and protecting income by increasing rents. Decisions that can be reviewed once the Buy to Let market is more accommodating.  

“The fact remains that, whether it’s as a stepping stone to home ownership or a longer term lifestyle decision for tenants, the rental sector is an increasingly important part of the housing mix.”

*Foundation Home Loans sentiment survey include 780 landlords across the Uk

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Freeholder repossessed and done a runner?

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Hi my wife and I own 1/3 share of a freehold Victorian conversion house split into 3 flats. We currently rent this out.

The previous owner/occupier of the top floor flat did a runner and his flat was repossessed by his bank and resold leasehold only, apparently he still owns the freehold.

We wish to sell our flat and had an offer last year, but the sale fell through because we were unable to extend our own lease which has 69 years left and we were unable to transfer the freehold to the potential new buyer.

The whole situation seems ridiculously complicated and we are stuck with a property which potentially has a lot of equity in it, but in reality is unsalable, because of the issue with the missing freeholder.

I could really do with some advice.

Thank you

Roger

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Landlords – Tell the Chancellor what should be done before the Autumn Budget

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HM Treasury has said it welcomes representations as part of the policy-making process and the views of stakeholders are gratefully received.

There will now only be one Budget each year held in the Autumn with a Spring Statement in 2018, but this will not be a major fiscal event.

Guidance has been issued by HM Treasury on how to submit a Budget representation with the aim of commenting on government policy and suggesting new policy for inclusion in the upcoming Budget.

Click Here to see Guidance for submitting your Budget representation

Property118 Campaign Member, Dr Rosalind Beck, has made the following submission below and would encourage all Property118 readers to make their own or similar submissions.

Proposal for Budget to either:

(a)    Scrap Section 24 of the Finance (no. 2) Act 2015; or:

(b)   Make the measure only apply to new purchases.

The evidence for the need to scrap this pernicious measure is outlined in my report below:

SECTION 24 of the Finance (no. 2) Act 2015: “The unjust legislation that will make the UK housing crisis much worse”

1) There are many reasons why this bizarre tax on revenue (overturning the centuries-old principle that taxable profit = revenue – costs) should be scrapped, but perhaps the most pressing one in financial terms is that it will lead to high levels of homelessness amongst the worst-off in society. This is because it necessitates landlords maximising rents and evicting those with the fewest means to pay those rents. This is already occurring. Any revenue from this new tax levy which the Treasury expects to receive will be dwarfed by the costs of dealing with the homelessness which it will cause.

2) Ideally it needs to be completely reversed, but if this is felt to be undesirable for whatever reason, it should at least only apply to new purchases, in order for it to not be retroactive. Whilst this would mean that private landlords would not expand their portfolios (and therefore would not develop much-needed housing), it would not punish and in some cases ruin landlords’ businesses, livelihoods and pensions by retroactively taxing them (many landlords are effectively tied into their mortgages and cannot simply sell, so will have to deal with the new potentially infinite tax rates introduced by the measure).

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Am I guilty of Disrepair, Being Unfair or Both?

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A letting agent I use in Yorkshire has sent me an email today, as they have received a letter from the local council suggesting that I am guilty of disrepair.

This is probably a complaint in retaliation from a tenant that I invoiced, £97.87, for an emergency repair to her kitchen floor that had collapsed due to a water leak from her washing machine over a period of weeks that caused the suspended floor to crumble.

On the 21st June of this year, I was asked, via my letting agent, if the tenant could replace the kitchen laminate as her washing machine had been leaking and some of the laminate flooring in the kitchen had become warped.

Simple question, simple answer!

I had no objection and said I didn’t mind to the letting agent and thought no more about it.

Then on the 20th July, I got a phone call to say that the tenant had started replacing the flooring and had fallen through the kitchen floor and the house had now become uninhabitable.

To say I was alarmed is an understatement, so I cancelled my appointments for the day and dragged myself across the Pennines to find out what had occurred.

When I got there at 3pm, the laminate had been partially been removed by the tenant, or whoever was doing the flooring, revealing a rather large hole in the floor panels, where the tenants foot had gone through down to her knee.

That resulted in a hospital journey as the hole was knee shaped when I got there.

The reason, the floor couldn’t carry her weight, was that the kitchen floor was made from fibreboard and had been subjected to water for so long it had the strength of wet cardboard , i.e. NONE.

(The floor is suspended on joists above a 3ft drop to the planet below).

As I had limited time left, it didn’t take long to trace the source, (the washing machine) and I videoed the hole and then started to rip out the wet floor panels and more sections of laminate until I came into a section of standard floorboards underneath the laminate, further towards a load bearing wall, made of good old fashioned timber floorboards.

The timber was soaking wet and so were the floor joists.

The washing machine was suspended by the existing wooden floorboards and thankfully wasn’t in any danger of going through the floor.

I told tenant that I couldn’t remove the washing machine because there was no floor left to place its weight upon. It would have to stay in position until the rest of the floor was made load bearing again.

The only option was to replace two of the water soaked fibreboard panels, (the rest were intact), so I went to Wickes and bought some flooring grade fibreboard of the same thickness and by the time I got back the surface water had evaporated from the floor joists and I then got on with what I told the tenant would be an emergency temporary repair, so that she could use the kitchen again.

Whist I was removing the ruined panels, the letting agent arrived and was shocked at the extent of the rot that had set in and told the tenant that she might expect an invoice for the work,-as she had reported the leak weeks before and had only just started to remedy the situation.

I kept asking how the floor was so wet and I was originally told that the washing machine had leaked slightly, but that didn’t justify the amount of rot.

So I kept asking the same question in a different way for a couple of hours and finally I think I got an answer that made a bit of sense.

The tenant finally told me that the waste pipe of the washing machine had come off a couple of times and the kitchen floor had become wet because of it.

The waste pipe wasn’t installed properly, but I didn’t move the machine to check because I was too tired and I assumed it would be sorted after the floor had dried out.

To be honest, I was just happy that I had just enough time to get the fibreboard panels replaced so that the house could be used again and I think the tenant was also.

That was 8.45pm and I couldn’t stay any longer.

I told the tenant that whoever was doing her floor would have to leave time for the floor to dry out thoroughly, to which she agreed and about a week later I forwarded on my invoice for about 5 hours work, (at the minimum living wage rate), and the materials used. The total came to £97.87, which I thought was fair, considering it was her washing machine leaking and not mine.

So I went back to Merseyside and carried on with my life of Landlord drudgery.

Then last week I got another email from my letting agent that said that the tenant had told my letting agent she was going to ask her home help if she should pay for it.

I didn’t give that remark much thought, perhaps I should of.

Then POW!, today I got a letter from the Housing Enforcement team declaring that I am guilty of disrepair and wanting to know what my intentions are?

I thought I had made it clear to the tenant that the work I did would only be a temporary emergency repair and I wasn’t the person that would be carrying out the repairs, as they weren’t my fault.

So before I get beaten up by the council, would any Property118 readers like to advise on what to do or say?

Thanks in advance

Gary

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Section 21 – the New Pre-Conditions

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This is the fourth post in my 2017 Legal Update series.

In my last post I gave you the good news about section 21 – the fact that the dreaded ‘last day of a period of the tenancy’ is (in most cases) no longer needed.

However, that problem has been replaced by others! Meaning that many section 21 notices are still not accepted by the Court. This though is now more often due to the fact that the Landlord has not complied with the various pre-conditions for service of a section 21.

This is because the Government is now making the use of section 21 conditional upon landlords complying with their various obligations. All of the pre-conditions are things you are supposed to do anyway. But now if you don’t do them – you won’t be able to serve a valid section 21 notice.

Let’s look first at the older pre-conditions.

Deposits.

This is the pre-condition which causes problems for the most landlords. You must have both protected the deposit AND served the prescribed information within the 30-day deadline.

I’m not going to go into any detail as I discussed deposits in a previous post. Suffice it to say that in most cases, you will have to refund the deposit money to the tenant before you can serve a valid section 21 notice.

If you are in this situation, you may find my Legal Kit – the Deposit Error Repair Kit’ helpful.

HMOs

If you own or manage an HMO which requires a license but has not got one – you cannot serve a valid section 21 notice.

However contrary to what you may have been advised elsewhere, you CAN serve a valid section 21 notice if you have applied for a license, while the application is being processed – even if that license application is subsequently refused (once it is refused you won’t be able to serve your notice – unless maybe you make a second application).

The other alternative is to get a Temporary Exemption Notice (known as a TEN).

The rest of the pre-conditions come under the Deregulation Act 2015 and only apply to properties in England (Wales is developing its own rules, which are mostly not yet in force).

Compliance with prescribed legal requirements (England only)

The reasoning behind this is that landlords need to be compliant with their legal obligations before they can evict tenants under the ‘no fault’ section 21 procedure.

There are two ‘prescribed legal requirements’ so far – although there is power for the Secretary of State to add more. The requirements are:

• Service of the current Gas Safety Certificate, and
• Service of a current EPC certificate

These are supposed to be served at the start of the tenancy, but it is acceptable if they are served later – provided they are served before your section 21 notice.

There is an interesting question mark over EPCs for HMO properties which are let by the room. These normally do not require an EPC – is this the same under these regulations?

The answer is that until there is some case law on the point, we don’t know. Until that time – it’s best to serve it. I discussed this in some detail in my blog post here.

Prescribed Information (England only)

The use of the words ‘Prescribed Information’ is perhaps unfortunate as this is NOT the same as the deposit prescribed information. In this case it means the governments How to Rent booklet.

This is only available online and it is important to check the site from time to time as it is regularly updated and you need to be sure that you are serving the correct version.

If the booklet has been updated between when you served it originally and the renewal of the tenancy – you need to serve the updated version at that time.

But if you forget, its OK to serve it late so long as this is before you serve your section 21 notice.

Conclusion

So, to summarise. To be able to serve a valid section 21 notice:

• You MUST have complied with the deposit rules within the time limit or (in most cases) you will need to refund the deposit money before serving your notice
• You must also have an HMO license if your property requires one – but can serve your notice if you have applied for one (while your application is being processed) or if you have a TEN
• You must have served first the Gas Safety Certificate and a valid EPC (England only) and
• You must have served the governments How to Rent Booklet (England only).

Landlords in Wales – keep an eye out as new rules will be coming in for you over the next few years.

Landlords in England – the government may add to the list of pre-requisites so (again) make sure you keep up to date.

Further information:

There is a lot of information about all this on my Landlord Law Blog.

My Landlord Law membership site has a lot of guidance on section 21 including a guide which you can follow to check that you have complied with all the rules.

Members can also ask me ‘quick questions’ in the members forum area.

You can find out more about Landlord Law here

Next time we will wrap up on the section 21 rules.

Tessa Shepperson is a specialist landlord & tenant lawyer and runs the popular Landlord Law online information service.

To see all the articles in my series please Click Here

Additional course below:

Landlords – if you want to avoid legal problems, penalties and fines, this online course is just the job Please Click Here

The course will have a special 30% discount for PP118 readers via a coupon ( pp118cc30 ) due to expire in 3 weeks time.

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Do you know if your Property Insurance cover is correct?

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Insured Value:

Have you relied on your insurance broker to put an insured value on your properties for insurance purposes? Do you know for sure that the value he or she has arrived at does in fact cover the full replacement value of your properties? How can you tell if it’s correct?

As a landlord you need to make sure that your investment is fully protected by a good insurance policy covering all foreseeable risks based on full disclosure of all the risks by the insured. You need to contact your insurers if anything material changes, for example if the property is vacant for longer than is stated in the policy.

A good landlord policy will do all that, and perhaps even most importantly, will protect you against third party claims. These could be, for example, for injuries to your tenants, their visitors or to members of the public – potentially third party claims could be far greater than the loss of the bricks and mortar value in your property.

The market value or the price you paid for your property may not bear close comparison to the true cost of replacing the property in a total loss situation. Replacement cost is the key to insurance because insurance contracts are based on the indemnity principle: this means that after a claim, in theory, you should be in placed in the same financial position you were before the occurrence of the insured event: no worse off, and having made no financial gain.

If you are under insured, and this could easily be the case with rising prices, building materials costs, site clearance, professional fees etc., you will be subject to what insurers call “averaging”. In other words a house of value £500,000 would be under insured by 20% if you had put an insured value on it of £400,000. Therefore, any claim you make would be paid out, providing you met all the insurers’ conditions, less 20%.

The Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS) produces a range of detailed guidance on the cost of rebuilding standard houses and flats. The Association of British Insurers (ABI) has commissioned BCIS to provide the general guidance included in checking your sum insured and provides a calculator on its web site.

However, in the case of unusual properties such as very old, listed, conservation area, thatched or most commercial properties, these are difficult to value in a standard way, so you should get a professional insurance valuation carried out by a chartered building surveyor.

Most insurers will then index link the annual premiums so that you maintain an accurate insurance value over time, but of course this is all dependent on you getting the value right in the first place.

Never rely on your broker’s valuation because the broker is your agent, not the insurance company’s agent – any mistakes the broker makes are your mistakes. If your broker gets the value out, under insuring by 20%, as in the example, any claim you make will be averaged, that is to say, deducted by 20%.

Find the best landlord insurance policies – www.landlordzone.co.uk/directory/suppliers-directory/insurance

Building Surveyors – www.landlordzone.co.uk/directory/suppliers-directory/surveyors

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