Case law: Goldsborough v CA Property shows up some dangers with rent-to-rent…

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The practice of sub-letting a residential rental property to another landlord, a property management company or a local authority, (sometimes referred to as rent-to-rent) is an arrangement that many property owners have found an attractive prospect.

There are advantages in this for both parties: the property owner gets a guaranteed rent for the three or five years’ contract, and the property is guaranteed to be returned in good condition, all signed by the middle manager (we will call him or her the landlord) on a legally binding contract.

For the manager, they get to rent out the property as if they owned it and collect a full market rent from the tenants, paying the owner a lower sum, pocketing the difference. If the middle man divides the house and lets by the room, the arrangement can be extremely lucrative.

That’s certainly the story touted by the so called property “gurus” who run their courses advising novice would-be landlords how they can get started in property with no money – “become a property millionaire and give up your rat-race day job”, is often their line. But remember, the reason why “guru” has become so popular is simply because charlatan is hard to spell!

This is an area that’s fraught with problems and difficulties. For some extreme examples take a look at Paul Shamplina’s new series, “Extreme Nightmare Tenants”, Thursday nights on Channel 5 TV.

These so call middle men – unless you are dealing with a reputable company or local authority, and even then you need to look out – are often less than reliable. They will wreck homes by dividing them for multi-occupation, they will operate them without HMO licences, they will fail to pass on any rent and they will return the property, if you are lucky, in a run-down state.

Something like this occurred in the Goldsbrough & Anor v CA Property Management Ltd case at The Upper Tribunal (Lands Chamber) (2019).

Recent legislation has introduced something call a Rent Repayment Order (RRO), where a court, or in this case a tribunal, can order a landlord to re-pay rent in compensation to a tenant where the landlord was letting the property illegally, in this case without the requisite licence.

The question before the tribunal was – as two of the tenants had filed a RRO, because they discovered the absence of an HMO licence – who re-pays the rent? Is it the head landlord (the owner) or is it the sub-letter middle man, the management company “under” landlord? No licence meant the two tenants were entitled under the Housing and Planning Act 2016 to full repayment of their rent during the unlicensed period.

You would naturally assume here that the owners were well and truly out of it because they have sub-let to a management company that had taken on full responsibility; not our problem would be the owners – Mr and Mrs Gardiner’s – response.

Well, you probably guessed what’s coming: no said the tribunal! Despite finding that the management company was in fact the landlord, the tribunal was faced with a challenge from the two tenants. They argued that the company was acting merely as agent, and that the owners of the property were in fact liable.

Quite surprisingly the tribunal agreed with the tenants and held that the owners of the property were liable to re-pay the full compensation. The Housing and Planning Act 2016 states that a RRO can be made against “a landlord” but it does not specify that it must be a “direct” landlord, concluded the tribunal.

Whether this is the final word on the matter is open to question, should there be an appeal. But for now the principle stands: a court or tribunal could go for one or the other or both landlords to re-pay. A lot would perhaps depend on the solvency of the parties involved.

There are some important lessons from all of this:

1. Great care is needed when entering into a rent-to-rent arrangement unless, you are certain the under landlord (property manager) is reputable.
2. Legally the arrangement is complex and requires a water-tight commercial contract – an AST simply will not do.
3. Owners should seek legal advice before signing any sub-letting agreement.
4. Make sure the property is properly licensed and meets all the regulatory requirements for the intended use.

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Welsh Tenancy Saver Loan scheme paid directly to Landlords or Agents!

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A new £8 million Welsh Government Tenancy Saver Loan scheme to help tenants struggling with rent arrears due to coronavirus has launched by Minister for Housing and Local Government Julie James.

First of its kind in the UK

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Landlords warned: come clean about Airbnb income or face fines

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Airbnb hosts and landlords should make sure their tax affairs are ship-shape to avoid any potential fines, warns a leading accountancy firm.

It follows the lettings platform’s decision to share details about its hosts’ income from 2017/18 and 2018/19 with HMRC, which Grunberg & Co says could lead to a rise in investigations.

Airbnb has faced pressure worldwide to check that its hosts pay the appropriate taxes and partner Alexander Kossoff is encouraging those in the UK to consider making a disclosure and payment to HMRC for any outstanding tax.

£3,000 a year

According to Airbnb, the average annual earnings for a typical host are just over £3,000 but Kossoff (pictured, below) explains that those hosts who rent out a second or third home, rather than part of their main home, can’t benefit from the Rent-a-Room relief allowance of £7,500.

He says: “In many cases no tax may be due, but that where it is, a voluntary disclosure to HMRC could help to reduce any potential fines from the tax authority.”

Anyone who has left out some or all of their residential property income for earlier tax years should consider disclosing information under HMRC’s Let Property Campaign or where property is located overseas, via the Worldwide Disclosure Facility, he advises.

“In some cases, where they act quickly enough, they may only be required to pay the outstanding tax amount.”

HMRC recently hit Airbnb UK with an extra £1.8 million tax bill last year to add to the £1m it had already paid.

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BREAKING: Welsh rent arrears loan scheme opens for applications

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The Welsh government has opened its Tenancy Saver Loan scheme to applications.

Announced in August, it offers loans to tenants who have built up rent arrears or those who believe they will struggle to pay their rent in the coming months, and is the first of its kind in the UK.

It will run until March 31^st 2021 and is backed by a fighting fund of £8 million, paying funds approved by the scheme directly to landlords or lettings agents.

The loans will be repayable over a five-year period and charge tenants an interest rate of 1% APR, and come with support and advice services ‘to help them manage their financial situation’.

Managed by Wales Council for Voluntary Action, they will be provided by seven credit unions across Wales. These will initially work with tenants to find out whether they’re eligible for the loan scheme and how much they could afford to repay, and if suitable offer them support.

Constant pressure

“We recognise the constant pressure that the coronavirus is putting on tenants and landlords,” says Minister for Housing and Local Government, Julie James (main pic, above).

“That’s why we’re supporting a low interest loan scheme that provides financial assistance for both tenants and their landlords.”
Ann Francis of Cambrian Credit Union, which is covering the majority of counties in Wales, says: “We would stress that this is a loan scheme of last resort and not a grant, so it may be that not every applicant will receive a loan.”

NRLA chief executive Ben Beadle (left), adds: “These loans will help keep tenants who have been affected by coronavirus in their homes, while supporting landlords reliant on rental income to pay their own bills.

“We would advise every landlord with a tenant in arrears to make sure they are aware of the new scheme and advise any landlord in receipt of these payments to commit to working with their tenant to maintain the tenancy in the long term.”

Read how tenants can apply for a loan.
Get more advice how to stop tenants getting behind with their rent.

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House prices up by more annually than savings on Stamp Duty holiday

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The September Halifax House Price index has just been released showing annual growth of 7.3%, quarterly growth of 3.3% and a monthly increase of 1.6%. The new average house price now stands at £249,870.

The key question is how long will pent-up demand from the lockdown and the Stamp Duty holiday incentive continue to outstrip the supply side and drive house prices?

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‘Permitted Occupier’ status – new AST needed?

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Short scenario – Tenant is asking for a partner to move in. I won’t offer a joint tenancy as the incoming person has not been in a job long enough to warrant this (still in 6 month probation period) and even then she won’t be able to afford the full rent herself.

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Not enough proof of support for six-month notice periods in Wales, committee tells minister

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A Welsh cross-party Senedd committee has criticised the country’s housing minister Julie James for her amendment to the Renting Homes (Wales) Act 2016, a change that will extend the possession notice period in Wales to six months on a permanent basis.

The provisions of the Act, which will introduce many changes to the PRS, are not yet in force but will be brought in during Spring 2021, it is expected. First announced in February, the amendment to the bill has been heavily criticised by landlords.

The minister has argued that it gives tenants more time to get ready to leave a property after a landlord has decided to take possession via a ‘no fault’ Section 21 eviction.

But the Legislation, Justice and Constitution Committee has pointed out that James has not proved that the measure has widespread support in Wales, and that overall the Welsh government did not have enough solid data to prove its case.

“The need to expand the evidence base for the Welsh PRS is an NRLA campaign that the Association said should be addressed through a Welsh Housing Survey,” says the NRLA’s Welsh policy officer, Calum Davies (left).

The report adds: “While we accept that engaging with this particular sector may come with difficulties, we make a general point of principle that the Minister’s evidence-base is weakened by the informality of the data and it is not good practice to rely on such evidence as grounds for changing primary legislation.”

The housing minister has also been criticised for the messy way the rules have been changed, and warned that the judicial system will face increased workload as landlords deal with the complexities of the new legislation.

“We believe the Minister’s decision to seek to substantially amend an Act not yet in force via a subsequent Bill, brought forward four years after that principal legislation was enacted, is an irregular approach to legislating,” it says.

“The court system should not result in high costs being incurred and there must be an emphasis on the need for timely resolution. This is especially important because of the impact the Bill will have on a landlord’s right to access their own property.”

Read more about the legislation.

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NRLA trashes Boris claim that renting is a second-rate home choice

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Boris Johnson has managed to belittle the private rented sector while launching a policy to introduce long-term fixed-rate 95% LTV mortgages for first-time buyers.

Speaking at the Conservative’s virtual national conference, the PM told the party faithful that the Government aimed to turn Generation Rent into Generation Buy.

“The disgraceful truth is that home ownership levels in this country have plummeted and many are forced to pay through the nose to rent a home they can’t truly love or make their own,” said Johnson.

Buying instinct

He said that while many people liked the flexibility that renting offered, for most people the “overwhelming instinct was to buy”, but that they couldn’t afford the mortgage or deposit. He added that this initiative – the biggest expansion of home ownership since the 1980s – should create two million more owner-occupiers.

“We will give power back to people – the fundamental, life-affirming power of home ownership. The power to decide what colour to paint your own front door.”

The National Residential Landlords Association says the PM is wrong to believe that tenants can’t turn the properties they live in into a home of their own and points to a previous survey which revealed that 63% of renters had redecorated their home.

It also showed that 52% had made significant changes to their gardens with the landlord’s permission.

Policy director Chris Norris (left) says landlords much prefer to have tenants settled long term in a home they feel comfortable in and want to look after.

He adds: “If the Government really wants to support homeownership it should consider changes to the tax system to support and encourage landlords considering leaving the market to sell to first-time buyers.

“Reports that ministers are considering an increase in capital gains tax would serve only to incentivise landlords to hold on to properties longer than they might otherwise have done.”

Read more: NRLA writes to Boris.

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National Landlord Investment Online Super-Show Thursday 8th October

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The first National Landlord Investment Online Super-Show opens the 8th October 2020 with the following Schedule:

9am – The Show opens with an introduction by LIS team

9.05am – David Smith, Economics Editor of the Sunday Times and feature writer of Property Notify will be providing you with an Economic review of the housing market and what the landscape is looking like for UK Landlord and Investors.

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IMMIGRATION BILL: Lords and MPs lock horns over ‘wrong’ online status checking service for landlords

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Peers have urged the Government to allow people to physically prove their settled status as part of the proposed EU Settlement Status legislation.

The House of Lords voted through an amendment to the Immigration and Social Security Co-ordination (EU Withdrawal) Bill which requires landlords to check tenants’ immigration status if they’re EEA and Swiss nationals – using a new online system.

Introduced by Liberal Democrat Lords spokesperson Lord Oates, it states that the Government should issue physical proof to those granted pre-settled or settled status, if asked.

He said: “[Landlords] may wonder at this discrimination between nationalities and, given that they face crippling fines and the possibility of imprisonment if they get things wrong, they may decide that in the absence of physical proof, it is safer to replicate the Government’s discrimination and not to employ, rent a property to or provide a service to an EEA national.”

Lord Horam (left) pointed out that the Australian Government had gone to an entirely digital system but allowed people to have a paper system at no cost for eight years, and to pay to have a paper system alongside the digital system for a further three years.

He added: “The Government are expecting this to happen by next July. The reality is that it will not.”

Home Department Minister Baroness Williams of Trafford insisted that if necessary, EEA citizens could show third parties their written confirmation of status, which includes details of the ‘view and prove’ service so the person checking their status could see that there was an online service where they could check the individual’s status.

She added that it also provided a telephone helpline for landlords and employers to provide guidance on conducting right-to-work and right-to-rent checks.

The Bill goes back to the Commons where it faces a Government majority.

Read more about recent Right to Rent developments.

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