REVEALED: Landlords now risk fines totalling £55,000 after regulation surge

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Successive governments’ attempts to clamp down on rogue operators within the PRS means errant landlords are now exposed to fines totalling £55,000 as well as unlimited Rent Repayment Orders and up to three years in jail under Right to Rent regulations, it has been revealed.

This extraordinary tally is highlighted by Paul Shamplina, Chief Commercial Officer at Hamilton Fraser, who wonders if many landlords have ever been shown the reality of failing to be compliant.

He also says many landlords’ views on property management might change if they were shown the full list of fines and penalties they face.

“While these are the most extreme cases, I think it presents a clear picture that there is more emphasis than ever on landlords to be professional and compliant – there is no margin for error,” he says.

“Self-management is more challenging now than I have ever known it to be in the 30 years I’ve been involved in the private rental sector.”

Rights awareness

Shamplina also warns that tenants are becoming increasingly aware of their rights, partly due to local and national government campaigns to raise awareness but also efforts by key housing campaigning groups to highlight rogue landlords in the media.

“I think it is disappointing, especially after all the hard work landlords and tenants have gone through over the past year to work collaboratively, that such narratives are used,” he says.

“It creates a divide that suggests landlords and letting agents have no interest in having well-informed customers and are therefore mistreating their tenants.”

Shamplina says there will always be a small number of landlords and letting agents who deliberately fail to provide tenants with adequate information, the vast majority take their responsibilities seriously.

Find out more about Shamplina’s landlord course on self management.

Read his full-length blog on the regulation and landlords.

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EXCLUSIVE: Controversial landlord reveals all over ‘commercial waste’ arrest

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Multi-millionaire landlord Fergus Wilson has been arrested after clashing with a council worker over furniture removal outside one of his properties.

Wilson’s workmen were loading dissembled furniture into a van in Perryfield Street when the environmental health officer from Maidstone Council arrived.

An altercation ensued, the police were called and he was arrested on ‘suspicion of assault’. However, after being taken to the police station, he was released without charge due to a lack of evidence.

He tells LandlordZONE: “The officer concerned called me racist for referring to him as a ‘petty little Hitler’. I told him he had blue eyes, blond hair and was English just the same as myself.

“He said I had assaulted him. I am 73 years old in a few days but if I had punched him he would have been out cold.”

Disgruntled neighbour

Wilson believes a disgruntled neighbour reported the workmen and that there may have been confusion over whether they were actually his employees and legitimately on a job.

He explains that the disagreement arose over the definition of commercial waste.

“The house is being sold after the tenants had moved out and has a stairway with a bend in it where you can’t get up conventional furniture.

“The council seems to think that if the landlord dissembles flat pack furniture to remove it, such as a dining room table – in order to reassemble at another house – it is to be regarded as commercial waste. However, if you do not disassemble it, such as a settee, then it is not commercial waste.”

Wilson adds: “Maidstone has the most acute housing situation in Kent but I’m not surprised if they carry on like this.”

A Maidstone council spokesperson tells LandlordZONE: “Maidstone Borough Council can confirm that a vehicle was seized in Perryfield Street which was carrying materials that required a waste carrier’s licence. We are unable to comment further on the incident as it is currently being investigated by Kent Police.”

Read more about Fergus Wilson.

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What will retail commercial tenants be looking for in the future?

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Over recent years retail landlords have had to accept that they are in a tenants’ market, so even before Covid they already had to adapt or see their premises vacant for long periods. Covid just made this situation worse.

The number of empty shops on UK high streets has risen to its highest level in many years as city centres, especially London, suffer from a dramatic drop in worker and visitor footfall. Now, on average nationally, more than 12% of shops remain vacant compared to around 10% just over 12 months ago.

The number of empty premises is rising in six out of ten UK regions, according to the retail analysis firm Springboard, with Greater London suffering by far the worst blow, they say, with empty shops increasing by nearly two-thirds.

This rise in boarded-up shop fronts comes as the number of visitors to towns and large city centres has continued to fall, with some high streets seeing around half the number of the usual visitor numbers during Covid.

Many retailers were already struggling before Covid hit, but now the demise of the UK’s high streets has seen a dramatic downward shift as sales migrate to towards online shopping and home deliveries.

The pandemic has merely accelerated what was an inexorable trend, some experts have said by as much as five years. The genie is unlikely to be forced back into the bottle, so it’s a trend shop owners will have to live with, it is becoming the new norm in retailing, where a large number of retail stores become redundant and in need of re-purposing.

However, all is not lost. In some locations there will still be a healthy demand for small retail and office space, often in the suburbs where many of the properties are owned by small-scale landlords. But how to attract and keep good retail tenants?

The length of the lease

With far less certainty in the business world than is the past, and when things change much more rapidly than they used to, shorter leases are the favoured option for most business tenants. Gone are the days of the 20, 15, 10 or even 5 year leases. For some tenant, 3 years with a mid-term break is what they are looking for.

So, it doesn’t come as too much of a shock to retail commercial landlords that shorter leases are being demanded, as the trend has been ongoing for years. Long leases simply do not provide sufficient flexibility for retailers in this new rapidly changing marketplace.

Given that in some locations up to 30% of retail units are sitting vacant and boarded up, which not only makes it difficult for landlords to secure new tenancies, it means that rental values can have dropped by as much as 50%

In the current climate landlord have to accept that the rents they achieved in previous times are simply not achievable today, and it may even be necessary to allow other concessions and offer incentives for tenants to take on a new tenancy, such as rent-free periods.

But what’s the alternative?, having a shop stood vacant with all the costs that incurs for the landlord. It’s far better to have the shop occupied with a lower return, and the tenant paying business rates, insurance, utilities charges and basic maintenance costs.

One saving grace is that in return for the security of a shorter lease, tenants should be willing to pay a higher rent, or alternatively, the landlord may be willing to offer a lower rent in return for a longer lease. If lower rents afford the tenant the opportunity to make more profit, it provides more long-term security for both landlord and tenant.

What concessions are tenants looking for?

Traditionally with commercial leases it’s the tenant that takes all of the risk. The landlord is guaranteed a rent amount for the full term of the lease, or at lease until a break, regardless of whether the tenant is trading successfully or even whether it is solvent or not.

Generally, throughout the period of the pandemic, sensible landlords have recognised that it’s in their own interests to keep their tenants onboard and to help their tenants survive. As such many that can have offered concessions such as rent holidays or reduced rents, or rent loans during lock-downs, where tenants have been unable to trade.

Turnover Rent

Tying rents to the level of turnover or the tenant’s business is one way that landlords can share some of the business risk with their tenants. It is a method that has increase in popularity as the Covid pandemic has progressed, but many landlords enter into this type of arrangement reluctantly.

Turnover rents usually involve the tenant paying to the landlord a low basic rent, to be topped up depending on the level of turnover the retailer achieves. If the retailer is very successful, then obviously the landlord is well in pocket, but the reverse is true. If the retail sales are low then the landlord shares the hit with the tenant.

The new relationship created between the landlord and tenant can be successful, but it calls for a high degree of trust and professionalism on both sides. The tenant must be prepared to “open up the books” to the landlord or the landlord’s accountant and the niggly details need to be ironed out beforehand, such as what happens to returned goods, what happens in respect of online sales, etc.

What of the future?

With many retail businesses, from small single stores to large retail groups, having gone into administration, a trend accelerated by the pandemic, the survival of many retailers that are just “hanging on in there” will depend on landlords and tenants coopering and working together for both their interests. If that means sharing some of the business risk then so be it – better than having an empty unit on your hands.

Though much retailing activity has switched to online, bricks and mortar shops still have a role to play. Many online operations will be conducted from retail premises, operating a hybrid retail model, with both in-store and online sales, click and collect and rapid returns.

The traditional English full repairing and insuring (FRI) lease, though much favoured by landlords in the past, is looking increasingly dated in the current retailing environment. Without concessions on the part of landlords, in what is undoubtedly a tenants’ market, many premises will fail to let.

With acknowledgements to The Scottish Grocer

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WARNING: Keep up with local licensing rules or face fines, judge tells landlords

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Landlords must keep up with local licensing changes or face huge fines, a judge has warned in the latest big Rent Repayment Order case.

Despite being a member of the National Residential Landlords Association (NRLA), landlord David Peploe and wife Alison have been hit with a £9,262 RRO by a First Tier Property Tribunal after they failed to licence their five-bed student HMO in Tresillian Gardens, Exeter (pictured).

It had been shared between four former tenants – students at Exeter University renting from September 2019 to July 2020. The couple were also ordered to pay £300 costs.

The tribunal heard that the Peploes instructed a student letting agent, Cordens, when they first rented out the property in 2010 when it did not need an HMO licence.

But a licensing scheme was introduced in the interim and they did not apply for a licence until August 2020 after being contacted by Exeter City Council in March 2020.

The judge said: “The respondents were not able to provide any effective steps taken to regularly keep up to date with the requirements placed on landlords.

Sensible steps

“If modest and sensible steps had been taken, most obviously reading and acting upon information of relevance received from the NRLA, the overwhelming likelihood is that the respondent would have been aware of the change in the law and the need to act upon it.”

The tribunal said because they rented out various properties it meant the landlords were professional and that their ignorance of the law was ‘not an excuse’.

But it only awarded half the amount originally applied for, and added: “The tribunal found them to be essentially conscientious landlords, who did not have a licence or a defence to a lack of a licence but who tried their very best to provide good accommodation and achieved that, being careful to fulfil – and arguably exceed – the obligations that they were aware of.”

Read more about HMOs.

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National property licensing system for Wales proposed to limit short lets

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Plaid Cymru have called for a licensing system in Wales to create a balance between homes for sale and rent within communities.

The party’s short film, shown on Channel 4’s Political Slot, continues its campaign against second homes, with MP Liz Saville Roberts (pictured, above) claiming that the situation has reached breaking point.

“Vital Welsh-speaking communities are turning into a part-time playground for rich holidaymakers,” she told viewers.

In the party political broadcast, she urged the Welsh Government to make all second homes pay council tax, rather than some being eligible for business rates, and to introduce a requirement for buyers to seek planning permission to turn homes into holiday lets and for a new licensing system to regulate the balance of property types in an area. 

Compulsory registration

In July, the Welsh Government announced a compulsory registration scheme for holiday homes would be introduced as part of a three-pronged approach, which would see it look at the affordability and availability of housing, regulations including planning rules and how national and local taxation can be used.

But Plaid Cymru wants it to go further. The increasing number of second homes in Wales is growing and driving local people out of the property market, putting unacceptable pressures on local services in peak season, and creating desolate, half-empty towns and villages in winter, says the party.

It has pledged to change the planning laws to allow councils to impose a cap on the number of second homes and to refuse permission for changing a dwelling from being a primary to a secondary residence.

It also wants to allow councils to charge council tax premiums of up to 200% on second homes and to bring forward regulations to treble the Land Transaction Tax charge on the purchase of second properties.

Watch the Plaid Cymru film.

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Landlord slapped with than £17,000 penalty for fire-risk unlicenced HMO

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A landlord in Reading is the latest to be slapped with a huge penalty for operating an unlicensed HMO which also posed a fire risk.

The prosecution was initiated by Reading Council which takes an ‘Olympic’ approach to licensing management; awarding good landlords gold, silver and bronze medals but coming down hard on those who don’t join in the ‘games’.

Mohammad Basharat, 57, of London Road in the town, admitted operating the property in Blenheim Road (pictured) without a licence and failing to maintain smoke detectors, following an investigation by the council’s private sector housing team between May and July 2019.

Reading Magistrates Court fined him £14,065 for the offences as well as £3,000 costs and a victim surcharge of £170.

Lead member for housing, Ellie Emberson, says it’s yet another example of how its housing team is helping to protect the rights and safety of private renters.

Prosecution

She adds: “The successful prosecution should be seen as a strong warning to landlords all over the borough that they must comply with the rules or face the consequences.”

The team enforces the borough’s HMO licensing scheme, which covers 1,300 licensed HMOs, while its Reading Rent with Confidence Scheme aims to improve housing standards in the borough by accrediting landlords’ achievements based on criteria which also work to produce good property management services.

Emberson (pictured) adds: “Our Reading Rent with Confidence scheme is helping by awarding gold, silver and bronze standards based on the quality of accommodation and good management practices.

“By providing good landlords with a market advantage and potential tenants with confidence, along with prosecuting substandard landlords, we are showing our commitment to high-quality housing for all of Reading’s renters.”

Basharat got off lightly, it can be argued. In January Mohammed Zahir was was given a £66,000 fine for a similar offence.

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7 Things Landlords Need To Know About Making Tax Digital

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Making Tax Digital (MTD) is an ambitious scheme by the HMRC to move all tax administration to a digital system. The HMRC believes this transition will reduce bookkeeping errors making compliance easier for businesses and self-employed.

The new Making Tax Digital scheme necessarily means a dramatic change to how you will need to track and report your income and expenses for your buy-to-let properties.

In this article, we explore seven major parts of the MTD transition that landlords need to be aware of.

Find out more in our Landlord Studio’s latest MTD Guidebook.

1. Key MTD Dates

MTD came into effect for VAT registered businesses earning over £85k in April of 2019.
From the 6th of April 2023, it will apply to all self-employed, partnerships, and landlords whose combined gross income for the year exceeds £10,000.

2. Keeping Digital Records

To ensure you can submit all your updates in a timely fashion, you will need to have systems in place to keep up-to-date digital records. The easiest solution is to adopt a cloud accounting software like Landlord Studio that allows you to track your income and expenses on the go, connect your bank account for easy reconciliation, and digitise receipts at the point of sale.

3. Multiple Tax “Updates” Per Year

The number of returns (termed ‘updates’) to be submitted under the new MTD system will increase. Regulations state that individual landlords must submit separate quarterly ‘updates’ for each property business category (i.e. separate ‘updates’ for lettings, furnished holiday lets, and overseas lets) plus an end-of-year final statement. The minimum number of submissions will be five per tax year but could be as many as 20 if you have income from multiple business categories.

4. New Dates To Submit Your Taxes.

Taxpayers will need to submit updates every quarter (rather than just a single end-of-year statement) between 10 days before the quarter-end to precisely one month from the end of each quarter. You will also be required to confirm your previous submissions with a finalisation statement to be submitted by January 31st after the tax year-end.

5. Digital Documents And Receipts

While you won’t need to submit receipts and documents unless requested by the HMRC, this backup information must still be kept. You will want to make sure you are keeping them for your records and posterity.

It’s a good idea to find software that, as well as enabling digital record-keeping, will allow you to easily digitise receipts. For example, an income and expense tracking tool like Landlord Studio allows you to use your phone camera to snap a picture of a receipt at the point of sale and attach it to your recorded expenses for future reference.

6. Use approved software for quarterly submission

To be compliant you will need to have an approved software in your arsenal of tools so that you can digitally submit your quarterly returns as required by the new MTD rules.

Compliance is covered in more depth in our free MTD Guidebook.

7. Late Payments and Penalties

In conjunction with the launch of MTD, the HMRC will be updating its penalty scheme for late payments and submissions. There will be some leeway, especially during the first year as people become used to the system.

The new points system will designate one point for every missed submission deadline with a penalty of £200 once the threshold for the points is reached.

Once the points have reached the threshold, which for landlords will be 4 over 12 months, the taxpayer must bring everything up to date and then remain compliant for the following 12 months to reset the points back to zero.

If a taxpayer misses a payment, after 15 days grace period a 2% penalty will be applied. Should the taxpayer fail to pay after 31 days the penalty will be increased to 4%.

Final Words

April 2023 may seem a long way in the future, however, it is never too early to start preparing. Landlords need to be aware of the changes taking place and put together processes to ensure that the transition goes as smoothly as possible.

Landlord Studio is a cloud-based property management and accounting system that allows you to manage your tenancies, track income and expenses, digitise receipts and more through either the mobile app or desktop portal.

To learn more about MTD and the upcoming changes, download our free MTD Guidebook here.

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Consultation on commercial rent arrears – the evidence is in

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Government policy throughout the COVID-19 pandemic has been to help viable businesses – and the millions of jobs that they provide – to survive.

Early on the government introduced measures to protect tenant businesses from the threat of eviction or insolvency when they found themselves unable to pay their rent due to restrictions on trading.

These measures coupled with a code of practice published with the help of industry bodies have encouraged many landlords and tenants to come together to agree to share the impact of the pandemic in fair and sustainable ways.

Many landlords agreed to waive or defer some or all of the accumulated rent debt to enable their tenant businesses to survive, preserve jobs, and make their contribution to the recovery. However, there have remained many landlords and tenants that have been unable to reach agreement on this, and the level of accumulated rent debt still threatens the existence of many tenant businesses and in turn the millions of jobs they support.

What’s the true picture?

To get a true picture of the situation on the ground the government launched a consultation process, a call for evidence inviting landlords, tenants, and other interested parties to describe their experience in seeking to negotiate settlements of rent debt during the pandemic.

The thinking is that this evidence and the views of stakeholders will be used when deciding on the various options for withdrawing or replacing the existing tenant protection measures as the country moves towards a recovery from the pandemic.

The consultation elicited around 500 responses. Based on the evidence received the government announced on the 16^th of June that legislation is to be introduced during the current parliamentary session to work towards an orderly resolution of rent arrears accrued by commercial tenants over the period of the pandemic to-date.

The new legislation is to ringfence rent debt accrued from March 2020 for tenants who have been impacted by COVID-19 business closures until restrictions are removed for their sector. It will also introduce a system of binding arbitration between landlords and tenants.

Arbitration is seen as a last resort, after encouraging negotiations to take place between the parties to work towards and amicable solution. Ahead of the legislation the government is to publish the principles on which the legislation is to be based in the form of a revised code of practice, giving landlords and tenants time to negotiate on that basis.

Eviction ban

Section 82 of the Coronavirus Act 2020 currently prevents landlords of commercial properties from being able to evict tenants for the non-payment of rent and this will continue in force until the 25th March 2022, unless new legislation is passed in the meantime to change this.

The government expects those tenants who have not been affected by closures and who have the means to pay, should pay. Additionally, government expects commercial tenants to begin paying rent as per their lease from the point of restrictions being lifted for their sector.

As soon as the new legislation is passed, the moratorium on evictions will only apply to ringfenced arrears. This includes rent debt accrued from March 2020 by commercial tenants affected by COVID-19 business closures until restrictions for their sector are removed.

This means that landlords will be able to evict tenants for the non-payment of rent prior to March 2020 and after the end of restrictions for their sector, and who have not been affected by business closures during this period.

What were the options?

The two most favoured options for withdrawing protection measures based on the consultation responses were to allow the tenant protection measures to lapse on the 30th June 2021 (89.5% of responding landlords were in favour of this option) and to introduce a scheme of binding arbitration to resolve rent debt (66.3% of responding tenants were in favour of this measure).

Overall, 57.3% of respondents were against letting measures expire on the 30^th of June, whilst a significant group (33.7%) were in favour of it. 49.2% of respondents were in favour of binding adjudication, whilst only 27.4% were against it.

A dichotomy of views

Acknowledging that there was a clear dichotomy of views expressed by landlords and tenants the government had to consider its options in the light of its original policy objective; to preserve viable tenant businesses and the millions of jobs that they support.

This has led to the decision to bring forward legislation to ringfence rent debt accumulated during enforced closures and to set out a process of binding arbitration to be undertaken between landlords and tenants that are still unable to reach agreement on rent debt.

UK Hospitality estimates that around 332,000 jobs could be lost in the hospitality sectors if measures expired on the 30^th of June – about a sixth of the remaining workforce of 2 million.

The government’s decision also acknowledges the fact that a number of large commercial landlords, together with sector representative bodies from both landlords and tenants, have recently published proposals for binding arbitration and the ringfencing of rent arrears independently of the call for evidence.

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LEGAL LATEST: Landlord’s leasehold cancelled after ignoring anti-social tenant complaints

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A London landlord has had his leasehold cancelled after ignoring neighbours’ pleas to deal with an aggressive, anti-social tenant for more than a decade.

Neighbours Mr and Mrs Kandala claimed Andrew Cripps, who owns the leasehold on a property in St Ann’s Way, South Croydon, was in breach of lease covenant for allowing his tenant to cause damage, annoyance or inconvenience to the neighbourhood for 11 years.

Prolonged abuse had taken its toll and led to serious mental and physical health issues for Mrs Kandala.

Failure to respond

A First Tier Property Tribunal heard that despite writing to the landlord many times, he had failed to respond constructively to their letters or take any action. In an email from October 2019, Cripps replied to a letter complaining about the sub-tenant’s conduct, saying: “I apologise for any inconvenience/damage caused and please be advised I am taking this matter extremely seriously.

“We will of course give him notice if he continues to behave in this way.”

In 2010, the tenant was issued with a harassment warning by the police after setting fire to the Kandala’s back garden, but Cripps again did not reply to letters and the cost of repairs was met by the residents association.

“The tenant also let his dog foul in neighbours’ front gardens, parked across their garage and made regular threats of violence, screaming and shouting directly at the couple.

They said: “The residents association recently informed us that a notice requiring possession was served on the subtenant by Andrew Cripps. The subtenant immediately took to making repeated offensive sexual gestures to Mrs Kandala.”

The tribunal was satisfied that this was clear evidence of completely anti-social behaviour, amounting to breach of covenant. It also ruled that as Cripps was not named as a joint party on the building insurance policy, this was also a breach of covenant.

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Tenants’ rent tribunal win may cost billionaire landlord dearly – claim

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Billionaire landlord John Christodolou could face a deluge of rent claims after a judge ordered him to pay back £18,000 to former tenants in his Stoke Newington block.

The three members of Somerford Grove Renters (SGR) campaign group received a Rent Repayment Order for eight months’ worth of rent.

It has promised to file nearly 50 more cases from tenants, representing half a million pounds in possible claims, after a First Tier Property Tribunal heard how the 56-year-old tax exile had failed to license an HMO in Simpson House, Somerford Grove.

The tenants told the tribunal that their landlord had neglected to install fire safety measures. They also reported a lack of heating and hot water, poor building maintenance and lack of pest control measures

But a director of his investment company said that maintenance works had been carried out promptly when complaints were received.

Rent reduction

Last summer, SGR wrote to the lettings agent that represents Christodoulou, Tower Quay, asking for a rent reduction for struggling residents in next-door Olympic House (pictured, above), which he largely owns.

After initially saying renters’ requests for relief would be dealt with individually, they were turned down and instead told to use money saved on lunch, holiday, entertainment, clothes and travel to pay rent, it is claimed.

The judge ruled: “The tribunal does not accept that…a company with a large property portfolio could not have become or made itself aware of the additional licensing scheme that had come into effect on 1st October 2018.”

One of the winning tenants, Marc Sutton, told the Hackney Citizen that the victory would be the first of many. He said: “Our billionaire landlord responded to a request for a rent reduction by those of us who have lost income due to the pandemic by issuing eviction notices.

“After a year of campaigning and fighting, we are thrilled to have achieved such a major win, the first of many more to come.” 

Read the tribunal ruling in full.

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