OPINION: Ministers, be careful what you wish for

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Some six or so years ago George Osborne, the then Chancellor of the Exchequer made a clear, politically-led move to reign in the growth of the buy-to-let market.

Two key decisions were made which have had significant consequences for the private rental sector (PRS), not least for many landlords and their service providers.

Over a four year period from 2017 onwards, private landlords with property in their personal name saw a gradual annual reduction in their ability to offset against tax the interest on their mortgage finance costs.

The second decision by Osborne was to increase by 3% the stamp duty payable by anyone purchasing an ‘additional’ residential property.

The impact of these measures has been exactly as Osborne and his government advisors at the Treasury intended: to gradually reduce the attractiveness of buy-to-let investment.

Pro-tenant lobbing

This is of course what the pro-tenant lobbying groups, Generation Rent and Shelter wanted but as some more experienced commentators forecast back in 2016 accurately predicted: ‘be careful what you wish for’.

Capital Economics, a respected consultancy, recently produced a report for the National Residential Landlords Association (NRLA) which highlights a reduction in the number of rental properties now available to let.

Many reading this column will themselves be aware of the increasingly acute shortage of rental accommodation in many UK regions alongside rising rental price inflation.

Across the Irish Sea, a similar initiative to the section 24 tax imposed here in the UK by Osborne, was introduced some years ago to limit the offset of mortgage interest against rental income and was imposed on Irish landlords.

But it was subsequently repealed by the Irish government as an acute shortage of rental accommodation gradually emerged, just as is occurring here on the UK mainland.

What did Osborne and his UK government think back then would happen if the supply of rented accommodation was gradually restricted?

Any student of economics at GCSE level would confirm that when demand increases and supply is choked off, inevitably prices will rise and that is exactly what has been occurring in the last 18 months.

BTR solution?

For some, the concept of new purpose-built rental accommodation would provide the supply-side solution.

I recall myself attending an event in Westminster organised by the British Property Federation some years ago where Brandon Lewis, then the Housing Minister, spoke glowingly about the forecast growth of the Build to Rent sector (BTR) and how it would be the future of the PRS.

To date after some seventeen years of gestation and billions of pounds of investment and government financial incentives some 70,785 units are now completed, according to the BPF website.

Capital Economics found that if owner-occupation and social housing continue at their ten-year average rate of growth, then the private rented sector supply would have to increase by 227,000 per year to hit government targets. It also noted that “even if the other [housing] tenures doubled their rate of growth, 105,000 homes for private rental would be needed each year, which is well above current rates of (supply) growth.”

As we regularly report in our upcoming developments section in Property Investor News magazine the pipeline of Build to Rent units is increasing but it is woefully short of providing the numbers of rental homes needed to meet government targets.

And unfortunately for those on low to middle incomes, a substantial majority of rents paid by tenants in the large scale BTR blocks are in the top quartile of rents paid.

This should not be any great surprise given the rising cost of land with planning approval and now of course with build cost inflation rampant, the providers of BTR units find themselves with a product which is increasingly priced out of the reach of many prospective tenants.

The key question of course is, will this government as was the case in Ireland, belatedly recognise the folly of the decisions made by Osborne and reverse the taxation policies he brought in?

The author: Richard Bowser is the editor and founder of the monthly print magazine Property Investor News, which he launched back in 2002. He is an experienced private landlord and long term property investor with a diverse portfolio in London and the north east of England.

He can be contacted via www.property-investor-news.com

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – OPINION: Ministers, be careful what you wish for | LandlordZONE.

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Testimonial from Landlord who sold 200+ portfolio and how it made financial sense

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You may have read the recent article on why a private Landlord with a portfolio of 200+ Buy-to-Lets would choose to sell his properties for 80-90% of the market value. Now it’s time to hear from him in his own words.

View Full Article: Testimonial from Landlord who sold 200+ portfolio and how it made financial sense

Eviction drama highlights huge challenge for temporary accommodation landlords

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A landlord who houses homeless people in serviced accommodation is having to foot the bill to evict a difficult tenant after the council stopped paying his rent.

Duncan Belton provides about 70 units – nearly half to local authorities across six different council areas – housing tenants including those fleeing domestic violence and newly released from prison.

Councils pay him a daily rate while they look for a more permanent place for the ‘guests’, who don’t have tenancy agreements.

One tenant, who has mental health issues and is prone to violence, is living in a property he operates in Aycliffe Village, County Durham (pictured).

After the ‘guest’ refused to accept any of the properties Durham County Council offered him, it stopped paying his bill last November and has now asked the landlord to remove him. Belton has lost about £7,000 in rent and is annoyed to have been given the task.

Squatting

“He’s basically squatting so I’ve had to get Landlord Action to start eviction proceedings – but why is it up to me to get him out?” Belton tells LandlordZONE. “The council have at least said they’ll provide evidence in court, but I’m hoping they’ll pay my costs.”

Lynn Hall, Durham County Council’s housing solutions manager, tells LandlordZONE that as it doesn’t own the property and is “not party to any implied agreements made directly between the landlord and the occupant”, it can’t take legal action.

She says: “However, we are in contact with the accommodation provider and have offered our support with any reasonable court costs associated with their own enforcement action.”

Read more: how to handle the evictions process.

The difficult tenant has tracked Belton down on Facebook and messaged him, asking to meet using menacing language.

However, he’s used to dealing with the more colourful side of life; last weekend, the police were called out to another tenant in the block, which resulted in a scuffle and arrest.

Belton adds: “It can be challenging and properties often get left in a state. I know this particular tenant is now damaging the walls, but it doesn’t put me off.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Eviction drama highlights huge challenge for temporary accommodation landlords | LandlordZONE.

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Wales clamps down on holiday lets with draconian new council tax rules

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The Welsh Government is to bring in its promised local tax rules for holiday lets to address the problem of unaffordable housing.

Self-catering accommodation in hotspots such as Tenby (pictured) currently pays rates rather than council tax when available to let for at least 140 days, and ‘actually’ let for at least 70 days.

From next April, these thresholds will increase to being available to let for at least 252 days and ‘actually’ let for at least 182 days in any 12-month period, to prove that they are being let regularly and making a substantial contribution to the local economy.

Second homes

The government has also announced that the maximum level at which local authorities can set council tax premiums on second homes and long-term empty properties will be increased to 300%, also effective from April next year.

Sian Gwenllian, the designed Member of the Senedd on the policy who represents Plaid Cymru (pictured) says these changes will make a difference, enabling councils to respond to their local circumstances, and will start to close the loophole in the current law.

“It’s a first, but important, step on a journey towards a new housing system that ensures that people have the right to live in their community,” she adds.

Gwenllian says that it is committed to introducing a package of measures to tackle the injustices in the housing market. “Second homes are a symptom of a wider problem – a market that treats property, not as a home, but as a way of making a profit.

By working across the parties in the Senedd, we will introduce more measures, as soon as we can, to make house prices and rents genuinely affordable for people.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Wales clamps down on holiday lets with draconian new council tax rules | LandlordZONE.

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LATEST: Average property increased in value by £44,138 during pandemic

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The value of a typical property has soared by £44,138 since February 2020 – although analysts predict that domestic and global pressures will dampen future growth.

Nationwide reports that a combination of robust demand and limited stock has kept upward pressure on prices, increasing annual UK house price growth to 12.6% last month.

Chief economist Robert Gardner (pictured) believes the market’s continued buoyancy is a little surprising, given the mounting pressure on household budgets from rising inflation and since borrowing costs have started to move up from all-time lows.

“The economic outlook is particularly uncertain at present,” says Gardner.

“Nevertheless, it is likely that the housing market will slow in the quarters ahead. Indeed, there is scope for inflation to rise even further as events in Ukraine threaten to send global energy prices even higher.

“Assuming that labour market conditions remain strong, the Bank of England is also likely to raise interest rates, which will exert a further drag on the market if this feeds through to mortgage rates.”

Muted

Tom Bill, head of UK residential research at Knight Frank, believes there won’t be a return to more muted house price growth until supply picks up, but says there are signs of that gradually happening.

He adds: “While demand has been unrelenting over the last several months, higher levels of market valuations requested by prospective sellers since the start of the year indicate that supply will pick up, particularly as the spring market arrives.

“We would therefore expect price growth to return to single digits later this year. Meanwhile mortgage rates will inevitably rise and higher inflation, accelerated by the effects of the Ukraine conflict, will start to put downwards pressure on demand and house prices.”

Read the Nationwide report in full.

Read more about the housing market.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – LATEST: Average property increased in value by £44,138 during pandemic | LandlordZONE.

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‘More leaseholders seeking ‘right to manage’ after Law Commission review’

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Solicitors are reporting a rise in the number of enquiries from leaseholders about taking over their freeholder’s management functions under The Commonhold and Leasehold Reform Act 2002, better known as ‘Right to Manage’ or RTM claims.

The claim is made by legal firm Blacks Solicitors whose Partner Anushka Nicholas (pictured) says advice is needed in several areas including, prior to the commencement of a RTM claim, because some groups face difficulties in acquiring up-to-date management information from the freeholder, much of which is essential to taking responsibility for the property.

“Leaseholders have become more aware of their rights since the Law Commission’s proposed reforms to leasehold law were announced in July 2020,” she says.

“As a consequence, more leaseholders are exploring the possibilities of RTM in an effort to take more control over the management of their flats.

“RTM claims are a no-fault right, meaning that they are not reliant on proving bad management by the landlord.

“Assuming the leaseholders fulfil the criteria and follow the statutory procedure, there is a very limited scope for landlords to object to a RTM claim or obstruct the process.”

Here Nicholas outlines some of the key information landlords should know before embarking with other leaseholders on the RTM route.

Who can do it

Qualifying leaseholders must hold a lease of more than 21 years in term, and two or more flats within the property must be held by these tenants.

The participating leaseholders must be those of flats comprising not less than 50% of the total number of flats, and the property itself must be a self-contained building or part of a building. 

How it starts

Leaseholders action the claim by incorporating a RTM Company which is limited by guarantee with a prescribed constitution, and the RTM Company then serves the notice on the landlord and management company.

No qualifying leaseholder can be excluded from the RTM company, and a notice of invitation to participate must be served on all of them.

Things to remember

Service of a claim notice activates a statutory timetable, and the landlord has the option to serve a counter notice (admitting or disputing the claim) by the date specified in the claim notice (not less than one month after service of the claim notice).

If the landlord fails to do this, the right will be deemed admitted.

Also, if a landlord serves a counter-notice disputing the RTM claim, the RTM Company must within two months of the counter-notice apply to the First-tier Tribunal for a determination.

The acquisition date for a RTM claim, where it is admitted and not disputed, is at least three months after the date for service of the counter-notice.

After service of the claim notice, the RTM company can serve an information notice on the landlord requiring delivery of any management information which is vital for the property’s management functions. From the acquisition date, the landlord is also entitled to become a member of the RTM Company.

More information from Blacks Solicitors.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – ‘More leaseholders seeking ‘right to manage’ after Law Commission review’ | LandlordZONE.

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More leaseholders seeking ‘right to manage’ after Law Commission review

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Solicitors are reporting a rise in the number of enquiries from leaseholders about taking over their freeholder’s management functions under The Commonhold and Leasehold Reform Act 2002, better known as ‘Right to Manage’ or RTM claims.

The claim is made by legal firm Blacks Solicitors whose Partner Anushka Nicholas (pictured) says advice is needed in several areas including, prior to the commencement of a RTM claim, because some groups face difficulties in acquiring up-to-date management information from the freeholder, much of which is essential to taking responsibility for the property.

“Leaseholders have become more aware of their rights since the Law Commission’s proposed reforms to leasehold law were announced in July 2020,” she says.

“As a consequence, more leaseholders are exploring the possibilities of RTM in an effort to take more control over the management of their flats.

“RTM claims are a no-fault right, meaning that they are not reliant on proving bad management by the landlord.

“Assuming the leaseholders fulfil the criteria and follow the statutory procedure, there is a very limited scope for landlords to object to a RTM claim or obstruct the process.”

Here Nicholas outlines some of the key information landlords should know before embarking with other leaseholders on the RTM route.

Who can do it

Qualifying leaseholders must hold a lease of more than 21 years in term, and two or more flats within the property must be held by these tenants.

The participating leaseholders must be those of flats comprising not less than 50% of the total number of flats, and the property itself must be a self-contained building or part of a building. 

How it starts

Leaseholders action the claim by incorporating a RTM Company which is limited by guarantee with a prescribed constitution, and the RTM Company then serves the notice on the landlord and management company.

No qualifying leaseholder can be excluded from the RTM company, and a notice of invitation to participate must be served on all of them.

Things to remember

Service of a claim notice activates a statutory timetable, and the landlord has the option to serve a counter notice (admitting or disputing the claim) by the date specified in the claim notice (not less than one month after service of the claim notice).

If the landlord fails to do this, the right will be deemed admitted.

Also, if a landlord serves a counter-notice disputing the RTM claim, the RTM Company must within two months of the counter-notice apply to the First-tier Tribunal for a determination.

The acquisition date for a RTM claim, where it is admitted and not disputed, is at least three months after the date for service of the counter-notice.

After service of the claim notice, the RTM company can serve an information notice on the landlord requiring delivery of any management information which is vital for the property’s management functions. From the acquisition date, the landlord is also entitled to become a member of the RTM Company.

More information from Blacks Solicitors.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – More leaseholders seeking ‘right to manage’ after Law Commission review | LandlordZONE.

View Full Article: More leaseholders seeking ‘right to manage’ after Law Commission review

Government landlord commits to large sustainability investment

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One commercial landlord, a Singapore registered real estate investment trust, established to invest directly and indirectly in UK commercial assets, has already bitten the bullet!

Elite Commercial REIT a £293m market cap business has re-geared leases, getting lease commitments from its government tenant, to invest £12.5m over the next three years in an Asset Enhancement Initiative (AEI). These works will improve the sustainability and energy efficiency of buildings in its portfolio that are currently occupied by the UK’s Department for Work and Pensions (DWP).

The DWP is one of the UK’s largest department responsible for people’s welfare, pensions and child maintenance and it occupies buildings throughout the UK.

The real estate investment trust Elite says it is to collaborate with its major tenant, the DWP, to boost the sustainability and energy efficiency of its occupied estate.

The AEI works are to include repair, replacement or upgrading of existing lighting, heating and cooling systems, as well as insulation and solar panels. The aim is to upgrade the Trust’s properties’ Energy Performance Certificate (EPC) ratings to meet the forthcoming higher regulation standards.

Shaldine Wang, chief executive of the commercial property management group, Elite, has said:

“Investing in retrofitting works to enhance the energy efficiency ratings of assets in the portfolio will contribute towards reducing their environmental impact.

“This win-win initiative demonstrates our commitment to adapt our portfolio to address sustainability and climate change requirements, and to extend the relevance of our assets to tenants,” she says.

Elite’s re-gearing of the DWP leases means that it’s got commitment from its government tenant to support its new investment, to be matched with DWP’s agreement to the removing of lease break options. The lease re-gearing gives Elite the added security of knowing that its high quality government tenant is committed to stay for the full length of its lease.

Elite currently has 117 properties leased to the DWP which represent over half of the Reit’s total portfolio in gross rental income, with a lease break option currently set for March next year.

After the re-gearing, Elite secures nearly 80% of its income from the government estate through to 2028, in return for its commitment to the new investment in sustainability, albeit with a small number of the properties enjoying some rent reductions.

Commercial landlords under pressure to improve

The Elite move is likely to be one of the first of many moves to secure tenants into the future by committing to improve the energy efficiency of their tenants’ buildings, while they remain in situ.

The government’s commitment to its net zero target means it is lifting the minimum energy efficiency standard in to-let non-domestic buildings to an EPC rating of ‘B’, as part of its target for the UK being net zero by 2050.

Currently, with very few buildings exemptions, landlords must not let a building not complying with the minimum energy efficiency standard, currently set at an ‘E’ rating on a valid Energy Performance Certificate (EPC).

But the “E” rating is a now likey to be an interim measure, and landlords are sitting on an investment “time-bomb” as the target is to be lifted to a minimum energy efficiency standard for non-domestic buildings to ‘B’ by 2030.

To achieve this higher rating will involve owners in considerable expense for most buildings, though upgrading should result in lower maintenance and energy costs.

It has been estimated that the 2030 upgrading deadline to an EPC “B” for all those buildings affected could involve a total of around 85% of the UK’s rented commercial buildings.

Consultation

The Department for Business, Energy & Industrial Strategy is soon to publish the results of a recent consultation on changes needed to the Minimum Energy Efficiency Standards (MEES) Regulations in the commercial sector to meet the new target commitments, entitled ‘Non-domestic Private Rented Sector minimum energy efficiency standards: EPC B implementation’.

The government is proposing a phased-in implementation of the ‘B’ minimum standard by setting an interim target for 2027 of a minimum standard of EPC ‘C’ for commercial buildings, but this target has yet to be agreed.

It has been estimated by the government that currently around 10% of UK commercial let buildings are still below the minimum ‘E’ rating. From 1 April 2023, commercial landlords with tenants in situ will be breaking the law if they continue to let, if the building has an energy rating below ‘E’.

In some cases buildings will be without a valid EPC after 2023 if the usual 10-year EPC lifespan has expired. It is the government’s intention to change the rules on this so that a building must always have an EPC in place which lasts the whole length of the tenant’s occupation.

This would mean that in future, in cases of lease renewals, there would be a change to the current guidance that suggests that an EPC is not necessary at that point.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Government landlord commits to large sustainability investment | LandlordZONE.

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‘Disappeared’ lettings agency to pay £30,000 to tenants over unlicensed HMO

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A rogue letting agent has been hit with rent repayment orders totalling more than £30,000 after failing to licence an HMO.

The owner of 67 Cleveland Way in Bethnal Green let the property for single household use to Home Connect Ltd, who in turn sub-let it to J&G Home Share Limited, who then rented it as an HMO.

A First Tier Property Tribunal heard that the property was covered by Tower Hamlets Council’s additional licence scheme which has been running since April 2019.

One of the five tenants, Axel Buchaillot, lived there from September 2020 until March 2021, paying £628 a month. He told the tribunal that all six rooms in the property were occupied by separate households during that time.

The tribunal also heard that J&G Home Share Limited had taken no active role in the proceedings and had effectively gone to ground. The five-year-old company appears to have ceased trading – its Companies House listing reveals it is about to be struck off the register for failing to submit its annual accounts, although it still has an active director – Manuel Perez.

Judge Shepherd ruled that the agent was the responsible party with regard to the rent repayment order as it had granted the licence/tenancies to the applicants.

He said: “The tribunal has no hesitation in finding that the premises were being operated as an unlicensed HMO at the time of all of the applicants’ occupation, such that the applicants are all entitled to rent repayment orders.”

Each of the five tenants were awarded full rent repayment orders, adding up to £30,310.

Read the tribunal decision in full.

J&G Home Share Limited has 28 days to appeal the decision.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – ‘Disappeared’ lettings agency to pay £30,000 to tenants over unlicensed HMO | LandlordZONE.

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Misleading New Permitted Development Rights Claim

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Linda and I have been myth-busting following a number of people contacting us to highlight our series on planning and permitted development had missed a recent update. Some social media posts had pointed to changes in industrial PD rights.

Unaware of any changes

View Full Article: Misleading New Permitted Development Rights Claim