Rent strikes would hammer 500,000 retirees who count on PRS for their income

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Older private landlords could see their pension hammered, while pension funds might be less keen to invest in new rental housing if more tenants heed calls for a widespread rent strike.

As renters’ unions whip up support for payment breaks and Labour party leader Keir Starmer faces pressure to back a strike, residential consultant Ringley warns this would punish hundreds of thousands of pensioners as well as risk halting investment by UK pension funds which are ploughing billions into creating new homes.

More than 4,000 Labour party members recently signed an open letter backing rent cancellation as a policy. It argued that Labour’s five-point plan to help renters, which includes extending the evictions ban by at least six months and giving tenants two years to pay back rent arrears, doesn’t not go far enough.

Ringley says that at least 500,000 landlords are retired while nearly half of them invest in rental property to supplement their pension, which means any move to cancel rents without reimbursing landlords would see their rental income wiped out entirely.

Group MD Mary-Anne Bowring says cancelling rents is not the answer. “It would represent one of the biggest raids on people’s pension pots in British history,” she explains.

“Hundreds of thousands of retired landlords who rely on income from rental properties would be left massively out of pocket while landlords planning to use the income to supplement their pension will also be hit.”

She adds: “Rent cancellation would be another blow to UK pension funds who are investing billions into creating high quality purpose-built rental homes, as many will be exposed to shopping centres and other commercial property where rent collection rates have fallen dramatically.”

At least 3,693 people have joined the London Renters Union’s Can’t Pay Won’t Pay campaign which encourages tenants in the capital to withhold rent and prevent and resist evictions.

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Commercial Property Insurance during a pandemic…

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When rent and service changes are not being paid, and when shops have ceased trading or when they become vacant, potentially doubling the insurance premium, landlords need to pay attention to their insurance policies.

Service changes are often a thorny issue in the relationship between landlord and tenant and the building insurance premium is a major element of this.

Unlike with residential property, where the landlord has a vested interest in making sure the premium is competitive, as the landlord pays, with commercial the premium is almost always recoverable from the tenant. The landlord is less interested in the cost therefore and more interested in the quality of cover, plus there may even be some sort of an overall premium discount which the landlord alone receives on a block policy.

Commercial property insurance is almost always arranged and paid for by the landlord, recovering the cost from the tenant in the annual service changes bill. Tackling the problem the other way around by having the tenant arrange the insurance has the obvious dangers of the tenant either under-insuring or not insuring at all – a risk most commercial landlords would not be willing to take.

The Lease Terms

It is of course possible to including an obligation in the lease for the tenant to produce evidence of cover at least once a year and to update the cover to the landlord’s requirements which is sometimes used, but this is open to abuse as the tenant could cancel or fail to pay the premium when due, and it’s all a lot of hassle, even though it would be more transparent for the tenant and may simplify claims.

When a new lease is granted landlords and tenants can include whatever clauses and obligations they please so long as it meets both parties’ approval. However, when tenants take over an existing lease via assignment, or landlords buy properties with existing leases and tenant in situ, the parties are bound by whatever the parties agreed in the first place, unless a complicated process of variation is entered into.

Generally, the list of insured risks is not contentious. For example, the risks of loss or damage by fire, storm, tempest, earthquake, lightning, explosion, riot, civil commotion, malicious damage, impact by vehicles and by aircraft and articles dropped from aircraft (other than war risks), flood damage, bursting and overflowing of water pipes and tanks and such other risks as the Landlord from time to time shall decide to insure against. What a landlord cannot do, unless expressly allowed in the lease, is to insure for anything that is not mentioned in the lease; hence the “such other risks” etc.

Insured risks will also usually include cover for loss of rent. In older leases, the period of cover might be one or two years, but more recent practice is three years, or for more flexibility however long the landlords decides: three years is generally considered ample.

Where part or the whole of property is damaged or destroyed by an insured risk rendering the premises unusable by the tenant for the duration of the works of repair, etc, the loss of rent cover entitles the landlord to claim from the insurance company, not the tenant, the amount of rent for the duration up to the maximum period of cover.

It is essential, therefore, that whenever rent is changed, the amount for loss of rent is also adjusted. Even if the cost/time of informing the insurer or broker seems disproportionate, it is important to ensure the loss of rent cover is correct: it is not advisable to leave notifying the insurer until the next renewal date.  

Where a rent review date falls within the policy renewal year, some leases entitle the landlord to increase the loss of rent cover to the estimated rent for the review even before the review rent is agreed or ascertained. Some landlords make the adjustment as a matter of course, regardless of what the lease says; and may not even bother to reduce the cover should the actual rent agreed or ascertained be less than their estimate. Whether their tenants are any the wiser would depend on the tenant and its advisers.

Valuation

Valuation for building insurance differs from other types of property valuation. An insurance valuation is not a valuation of what the property might sell for, the market value, but how much it would cost to rebuild/restore in the event of total destruction. Restoration, as distinct from rebuilding, might be a requirement of the planning authorities, particularly if the property were in a Conservation area or is a Listed building.

The whole of the built structure is valued by reference to building costs for the type of property. Generally, the on-line free calculators for building costs tend to be residential-property oriented, which is inappropriate for commercial property.

An inexperienced approach to an insurance valuation or leaving it to the broker or insurance company to suggest a figure is asking for disaster. It is advisable for commercial property landlords to periodically commission an insurance valuation from an experienced building surveyor, with accurate inflation adjusted increases in the intervening years.

A good building surveyor will inspect and measure the property, including any outbuildings, and calculate the gross external area using industry sources to estimate an accurate rebuilding cost, including site clearance, all professional fees and VAT. Whether to include VAT in the calculation can be tricky because it depends upon whether VAT would be recoverable and by whom and as will all these technical matters, professional advice should be sought.

Estimating building costs is often more of an educated guess because of extraneous factors: generally it is prudent to be over-insured than under-insured. With buildings in Conservation Areas and Listed buildings, frankly it is anyone’s guess just how draconian the restoration policies of the planners and heritage organisations might be.

In a well-drafted lease, the insurance premium falls within the meaning of “rent” as defined by the lease.  By that it does not mean that the premium would automatically mean rent regardless. If it’s not expressly included in the definition of rent then it would be a debt, in which case the procedure for recovery in the event of non-payment would be more difficult and expensive.

Insurance Relationships

With insurance there are two separate relationships: 1) the relationship between the policyholder (the insured) and the insurance company; and 2) the relationship between the insured (landlord) and the tenant. Where the insured and the tenant are one and the same then problems are less likely to arise, unless the insured is a different person/company to the legal tenant.

Within the context of the tenancy (lease), the relationship between landlord and the tenant is contractual, subject to any overriding legislation. Where the tenant covenants to pay the insurance premium (assuming the lease does not entitle the tenant to insure), it is usual for the landlord to insure and then recover the premium from the tenant.

Premium Recovery

The renewal date for the insurance policy will often differ from any other rent payment dates, so it will be necessary for the landlord to renew the policy before the tenant has to reimburse. When the tenant has to reimburse depends on the wording in the lease. There are leases requiring the insurance premium to be paid on the next payment date (as defined in the lease) following the renewal date.

When, as is common, the payment date is a quarter day, the tenant is not obliged to reimburse the premium beforehand, in which case depending upon the insurance policy renewal date the landlord would be out of pocket during the intervening period. A landlord who threatens legal action in the event of non-payment before the tenant’s contractual payment date due would have no grounds to recover.

Where the premium is payable by the tenant for example on demand or within 14 days of the policy renewal date, in an ideal world tenants would honour the covenant. Often that is not the case. Unless the lease so provides, a tenant is not entitled to see the receipt for payment by the insured before reimbursing, but will nevertheless request proof.

Beast practice is to provide the tenant with full details: for example copy policy schedule, confirmation of renewal, and how the premium has been calculated where apportioned. This will give the least cause for complaint and delay. The fact that the payment is for example due on demand is unlikely to cut any ice with tenants whose accounts departments only pay monthly and the landlord’s demand arrives too late for the current month, so will be paid the next month, or maybe the following month if the person that authorises payment is next available! This is in normal times, June 2020 is not normal times!

Arguing about Cost

Generally, tenants fall into two types for insurance premium payments. The first understands that, per business tenancy law, it is not necessary for a landlord to shop around for the most competitive premium provided cover is with a reputable insurer.

The second is convinced they can get the premium much cheaper and has shopped around to prove it.  The first type is, of course, easier to deal with: it’s simply a matter of claiming the correct amount for payment to then be authorised. This second type needs to be educated, not only in the difference between the value of the property for insurance and the value for sale, not to mention the difference between commercial property and residential, but also in commercial reality. This is a task that can be made all the more difficult for landlords by the insurance companies themselves offering special deals to new customers, into which category the tenant would fall when the tenant is making enquiries.

Insurance Risk v Premium

A premium is the amount of money that the insurer charges for carrying the risk. A premium will vary with the type of property, its location, and so on; also the nature of the tenant’s use of the property, and the landlord’s and tenant’s respective reputations. Insurance companies are in the business of making a profit out of risky situations.

Where the proposal would be considered a low risk, based on the information on the application form, and the insurer’s experience, the premium would be commensurate. As businesses, insurance companies have to be competitive which, to them (insurance companies) means either offering special deals to new customers, or if there is not enough profit to be had, then withdrawing from the particular sector of the market. Anyone who has tried to get insurance on empty property will know how few insurers are interested and how much higher the premium is than if the property were occupied.

There is also a difference existing between the landlord and tenant relationship regarding a property that is let but unoccupied (not trading) and the insurer and policyholder relationship in the same situation. This is an important point during a Coronavirus pandemic, as landlords and tenants should be informing their insurers if the business is temporarily not trading – it would invalidate the cover if the insurer is not informed.

Between landlord and tenant, a let but unoccupied property is the tenant’s problem. Between insurer and policyholder, an unoccupied property is the policyholder’s problem. The insurer will require the policyholder to agree to conditions for the cover, which would be passed on to the tenant but which, in practice, the tenant might ignore.  In modern leases, there is often a provision obliging the tenant to comply with the reasonable requirements of the insurer, failing which the tenant would be in breach of covenant.

Claims Procedure

Where the landlord insures and then recovers, in effect the landlord is acting as a go between for any claims even when the landlord simply forwards any claims to the insurance broker or the insurer.

Strictly speaking, the tenant should carry out works at its own expense then recover the cost from the landlord who, as the policyholder, recovers the cost from the insurer per the claim. Whether the landlord has to pass on the whole of the cost, or indeed whether the works have to be done at all depends on another standard condition in leases, namely that in the event of damage or destruction not being remedied within a specified period of time the tenant would be able to terminate the lease. The insurance monies are nowadays kept by the landlord.

A minority of tenants have a habit of claiming for damage caused by the tenant’s failure to repair, rather than an insured risk. Generally, the insurers will process such claims by inspection and are generally quick to reject them. Spurious claims made by tenants however can potentially damage the landlord’s reputation with the insurer.

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BREAKING: Rent increases plummet to record low during May

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Rent increases have reduced to record lows during the pandemic with just 14% of tenants experiencing a rent rise last month, latest industry figures show, while 2.5% achieved a rent reduction.

Conducted by the Association of Residential Letting Agents (ARLA), the research also shows that although voids are increasing in length, this is likely to be short-lived as the number of prospective tenants registering for rental properties has surged to record levels, its agent members report.

As a result of the housing market pause, landlords were unable to show prospective tenants’ new properties and therefore, the average time properties were empty between tenancies increased to five weeks in May.

This is the longest time properties have remained void between tenancies since records began after agents and landlords were unable to operate as normal between 23^rd March and 13^th May.

ARLA says the near standstill in rent increases has been caused by landlords recognising the financial difficulties of many tenants during the lockdown.

Brunt of the pandemic

 “Our latest figures show that landlords and agents have been taking the brunt of the pandemic,” says David Cox, Chief Executive of ARLA Propertymark.

“They are aware of the financial difficulties facing tenants and have shown empathy with many landlords not increasing rents where they otherwise might have needed to.

“As we continue to move forward, it’s important that everyone aims to keep the rent flowing in order to sustain the market and help boost the economy following several months of uncertainty.”

According to John Goodall, CEO of mortgage marketplace Landbay, says that difficulties for many first time buyers accessing mortgages at the moment means demand for private rented property is likely to increase in the short to medium term.

“Those who would ordinarily have bought a property may well be struggling to do so and we have already seen demand from landlords increase sharply in the last month,” he says.

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Neighbour might object to Airbnb?

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I own two little cottages at the end of a terrace accessed by a shared doorway to road (historically an open alley). Normal for Cornwall!

The neighbour holds the freehold of the two dwellings roadside (but only owns one flat) so we have shared responsibility for the front door and shared hallway. 

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Veterans to be prioritised for social housing

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New government measures to ensure access to social housing is improved for members of the Armed Forces, veterans and their families have been announced this Armed Forces Day (27 June 2020) by Housing Minister Christopher Pincher.

The government has today set out how councils should ensure members of the Armed Forces and veterans who need support with their mental health

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May saw 11% drop in rent paid, says IFS report

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The impact of the lockdown on household finances including rent payments has been revealed by a new report published this morning by the Institute for Fiscal Studies (IFS).

It says there was an 11% drop in rent paid during May as fewer jobs and lower incomes hit household finances hard.

The ratio of people out of work increased by 4% and median household income dropped by £160 a month.

But the figures also reveal some surprising aspects of the economic downturn created by Covid. This includes the huge role that Universal Credit (UC) is playing in supporting poorer households.Because of the extra UC money, they saw their income drop slower than other households.

Consequently, there have been more home owners who have stopped paying their mortgage than tenants no longer paying their rent.

But while non-payment of rent is more concentrated among poorer families, the non-payment of mortgages is more evenly spread across the population.

Nevertheless, the IFS research shows that the poorest fifth of households, based on pre-crisis income, have been hit harder than other groups in the labour market.

“We see rises in non-payment of bills – especially among poorer households – and this worsened further in May,” says Isaac Delestre, the author of the IFS report, which was funded by the Standard Life Foundation.

“These represent substantial additional debts being carried forward.”

The research also shows that of those who paid a bill in January but did not pay it in May, the average January payment was £1,660 for mortgages, £650 for rent, £170 for council tax and £139 for utilities. 

Read the IFS report in full.

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The Truth About Lease Options

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Video explaining the Truth About Lease Options:

I am joined by Simon Zutshi and together we explain how lease options are such a valuable tool in today’s market and how to make them work when investing in UK property.

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Lobby your MP about evictions ban, urges new campaign

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A joint campaign by the National Residential Landlords Association and Landlord Action is today urging readers to lobby their local MP and impress on them the huge problems created by the government recently extended evictions ban.

This includes asking them for a commitment to help the approximately 6,000 landlords stuck in the court system waiting for the eviction ban to lift on 23^rd August and unable to anything about tenants who have rent arrears dating from before lockdown or those behaving anti-socially.

Landlords are also being invited to attend a free webinar hosted by the two organisations to discuss the unfolding disaster for the sector, to be held on Wednesday 1^st July at midday.

Anyone wishing to attend can do so online and also email their questions to NRLA Chief Executive Ben Beadle, Landlord Action founder Paul Shamplina and Property Tribes co-founder Vanessa Warwick, who will be co-hosting the event. Details of how to lobby their local MP are available on the NRLA website. Questions need to be sent to policy@nrla.org.uk by 9am on the 1st July.

Sustain tenancies

“In most cases landlords and tenants are working hard to sustain tenancies wherever possible,” say Beadle and Shamplina in a joint statement.

“It is vital, however, that as courts begin to hear repossession cases again, that they prioritise the most urgent.

“This includes cases of anti-social behaviour, those where rent arrears were building pre-COVID and cases which were started, but then paused, prior to lockdown.

“To support this landlords have a vital role to play in telling their MPs about the impact the repossessions ban is having as well as highlighting the ways in which they are supporting their tenants through the current crisis.”

Landlord pain: David Healy

Healy is owed over £10,000 in arrears and his tenant has not paid any rent since November 2019. Mr Healy’s court hearing, which was due to take place on 5 May, has been adjourned and he does not yet know when this will be rescheduled for.
 

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Stop relying on landlords’ goodwill and protect tenants’ rights, leading campaigner tells government

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The pandemic has exposed an over-reliance on private landlords’ goodwill to meet the country’s housing needs, says Generation Rent’s new director Baroness Alicia Kennedy, who also says her organisation will be working harder to persuade more local authorities to introduce tenants’ charters.

“We are working with local councils to adopt a tenants’ charter to improve awareness of rights and underpin effective enforcement,” she says.

Several councils have already adopted these including Tower Hamlets in London, but their use is far from widespread.

Kennedy says tenants in overcrowded homes are at an increased risk of contracting coronavirus, while more than half of landlords are failing to offer their struggling tenants flexibility on rent.

“As we move from crisis management to recovery, the Government should act to rebalance our housing system, tackle the causes of unaffordability and ensure private renters are properly protected for the long term,” she says.

‘Suspend evictions’

Generation Rent is calling for a suspension of evictions for rent arrears built up due to coronavirus, as well as measures to prevent those arrears in the first place, such as lifting the benefit cap, expanding eligibility for housing allowance, and an increase in the level to cover average local rents.

“To make the sector work for growing numbers who are stuck in it, the Government needs to act quickly on its pledge to end no-fault evictions and introduce the Renters’ Reform Bill to parliament in the autumn,” she says.

“It’s the opportunity we need to give private tenants security in their homes, stability in their lives and greater power in their relationship with their landlords.”

Kennedy adds that while most landlords treat their tenants well, many are slow to carry out repairs or, even worse, let tenants live in unsafe accommodation.

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Landlords received just 18.2% of commercial rent due on 24th June

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Commercial landlords are even worse off this quarter as swathes of retail chains across the UK are either withholding payment or only paying part of their rent.

New figures from Re-Leased show that landlords collected just 18.2% of commercial rents on 24th June – the most recent quarter rent date – compared with the 25.3% on March quarter rent day.

Its analysis of more than 10,000 commercial properties revealed that retail properties were the worst performing group, collecting just 13.8% of rent owed compared to 19.8% in the previous quarter.

Big high street chains including William Hill, JD Sports, Primark, Boots and Stonegate Pubs are all withholding their quarterly rental payments. Betting chain William Hill has written to landlords saying it won’t pay rent in June and is “unable to confirm when payments will recommence”.

Landlords have been trying to reach agreements with tenants after the Government extended a ban on statutory demands or evictions until the end of September.

Tom Wallace, Re-Leased’s CEO, says these figures illustrate the pressure both landlords and tenants are under.

He says: “Across all sectors, we have already seen landlords offering rent holidays, deferrals, and reductions where possible which is encouraging, but transparency is key. It’s crucial to remember that like tenants, landlords will be experiencing significant cash flow problems and have their own financial obligations to meet.”

Re-Leased’s analysis for the March quarter revealed that 67% of commercial rent had been paid 60 days after the deadline compared with 84% for the December 2019 quarter. Wallace believes rent collection will steadily increase over the coming weeks, but that it’s unlikely to reach the level seen in March.

Office assets have been the most resilient in the sector, collecting 22.8% of rent due. However, compared to March quarter when 31.2% was collected, it has seen the greatest decline with rent collection down 8.4%.

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