St Helens really is a fantastic place for investors right now

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Six of our clients recently purchased new build 2 & 3 bed houses at Newton Road, St Helens, with prices starting from only £117,500.

Rental demand for quality, new build properties is so high in St Helens that professional tenants were lining up prior to completion. 

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Privity of Contract – Authorised Guarantee Agreement

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Commercial Lease:

It is an established rule of English law that a person can only enforce a contract if he is a party to it or a lawful assignee of the benefit of the contract.

In the context of a business tenancy, the “privity of contract” doctrine means the first (original) tenant can assign his interest in the tenancy (presupposing the lease permits assignment), but not his relationship with the landlord.

Before the Landlord and Tenant (Covenants) Act 1995, the first tenant remained liable for the rent, etc throughout the term of the tenancy, regardless of assignment. An assignee default at any time meant the original tenant could suddenly be presented with a demand for rent at any time.

Also, privity of contract did not then include any right for the original tenant to take over the remainder of the tenancy. How far down along the line the landlord could pursue an original tenant was brought home to a friend, a beneficiary of a will where the deceased had been the original tenant.

After 1 January 1996 when the 1995 Act came into operation, the change in the law introduced what is known as an Authorised Guarantee Agreement, or “AGA� for short. Now, and assuming completion of an AGA, the first tenant on assignment only remains liable for the duration of the first assignee’s interest in the tenancy. When that first assignee assigns, the first tenant bows out and the first assignee becomes liable for performance of the second assignee’s interest, and so on.

Along with the right for the outgoing tenant to take over the remainder of the tenancy should its incumbent assignee default, the Act also introduced a formality into what had been largely dependent upon case law whereby a landlord can specify in the lease the criteria that a proposed assignee has to satisfy to avoid any claim the landlord is being unreasonable in refusing consent to the assignment.

Any joy that landlords may have jumped for dissipated when it was realised that draconian criteria could have a deprecating effect at rent review. Consequently, the criteria have been softened and case-law has added to the tort measures of Landlord and Tenant Act 1988 by providing an indicative time limit on how long may be allowed before it could be said the landlord is unreasonably withholding or delaying consent.

Unlike a new letting in the market where the landlord can refuse offers without having to give reasons, a tenant wishing to assign is presenting the landlord with a substitute tenant whose financial or investment covenant status the landlord may have little or no choice but to accept. Even so, landlords are not obliged to ‘rubber stamp’ a tenant’s application to assign.

There is no reason why detailed enquiries may not be made and actually it is prudent to do so. Not only for the landlord’s benefit, but also for the outgoing tenant for whom the added protection of the landlord’s carefulness might prevent the outgoing tenant’s performance as guarantor from ever being called upon.

To the landlord, what matters is not whether the assignee could afford the rent out of the business, whether or not the business at the premises is also being disposed of, but whether the tenant could afford to pay even if the business failed.

Although few tenants are of independent means, business tenancy law assumes all tenants to be so; generally, rent and compliance with other terms and conditions of the tenancy is nothing to do with how the tenant chooses to use the premises.

Amongst larger companies, there is a preference for either underletting or surrender if possible. Assignment is to be avoided because of the risk of privity bounce-back through assignee default. Underletting enables the tenant to keep tabs but has its own problems from procuring a reliable tenant to one that does not mind, should the tenant or lease require, the underlease being contracted out of the Landlord and Tenant Act 1954.

The value of an AGA to the landlord depends upon whether the outgoing previous tenant can be traced if need be. But what an AGA does not have any control over is whether the outgoing tenant would have any money or assets for the landlord to call upon for the AGA to be honoured.

Where the outgoing tenant is a weak covenant or shrewd, the success in whether better for the landlord to ask for a deposit in exchange for scrapping the AGA depends upon how canny the outgoing tenant.

Where a premium for the lease is being paid, or the leasehold business as a going concern at the premises is to be sold, in my experience, few tenants seem too concerned as to the long-term risk of assignee default.

The trend for tenancy term 10 years even with a tenant break clause at the 5th year is nevertheless a long period of time in which anything could happen. On the face of it, outgoing tenants that are individuals or partnerships may not be able to do much about minimising the liability but outgoing tenants that are limited companies with no guarantor may be in a stronger position to dump the liability.

As for pro-active management to capitalise on any opportunity to enhance the value of the reversion, landlords should not unwittingly limit the potential in the AGA cushion by varying the terms of the tenancy for an assignee, because that could limit the outgoing tenant’s guarantor of the assignee’s performance to the date of the variation.

To be on the safe side, it may be better to vary terms of the tenancy before the AGA is entered into, provided any variation would not fall foul of any unreasonable criteria in the lease, or invoke the wrath of the Landlord and Tenant 1988. Treading carefully at every stage is the name of the game. There are no easy answers, it all depends on the circumstances.

Michael Lever
The Rent Review Specialist
Established 1975

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Privity of Contract – Authorised Guarantee Agreement | LandlordZONE.

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Subject to status and referencing

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Might the phrase “Subject to status and referencing” be more politically correct than “No DSS”?

The only reason I can think of for using the “No DSS” phraseology is if advertising is priced on a per word or per character basis.

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Metro Bank backtrack on “No DSS” ban after government meeting

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Metro Bank announced changes to its mortgage criteria which currently prevent landlords renting to tenants on housing support, following a roundtable at Downing Street led by Housing Minister Heather Wheeler MP.

Today’s announcement (11 June 2019) is the latest pledge from industry to end potentially discriminatory practices which deny good quality accommodation to those on benefits such as ‘No DSS’ adverts and follows similar moves in recent weeks from big names such as Rightmove and Zoopla.

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Halifax House Price Index up 5.2% on last year

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The Halifax House Price Index latest report for May shows the average UK house price is up 5.2% on last year to £237,837. However,  this comes against the backdrop of a particularly low growth rate in the corresponding period in 2018

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£142 million for housing infrastructure

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The Government hopes thousands of homes will be built in growth areas of Woking and Truro  as a result of a £142 million investment in infrastructure, the Housing Minister Kit Malthouse MP confirmed today.

The money will be spent on widening bridges

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“How to Rentâ€� guide and s21 notice updated…

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How to Rent Guide:

It is very important when setting up a new tenancy, or on
renewal, and when serving a section 21 notice, that all the prerequisites have
been complied with. The latest forms and documents should always be used. Keep
yourself up-to-date with the requirements through the following links and
information.

Following the commencement on the 1^st of June 2019 of the Tenant Fees Act 2019 there was a necessity for the Government to update its “How to Rentâ€�, the updated version of which is now available here ‘How to Rent’ 

Alongside this guide, the government has also been obliged, as a result of the new Act, to update the Section 21 possession notice known as Form 6a, available here Form 6a  

The Tenant Fees Act 2019 introduces yet another requirement before
a valid Section 21 notice can be served, that is, not to have taken a “prohibited
payment� as prescribed by the Act.

The “How to Rent� guide serves as an important reminder to
both landlords and tenants of their obligations under a AST residential tenancy
in England, and it also offers helpful advice mainly to tenants looking to rent,
and those living in rented accommodation.

Originally introduced after the changes to the letting rules
brought in by the Deregulation Act of 2015, it means that landlords are legally
obliged to provide their tenants with the current version of the guide at
the commencement of every tenancy, or on renewal, since 1 October 2015.

This process is very
important for landlords to comply with, as any Section 21 notice served before
the correct version of the guide is provided to the tenant will be void and
unenforceable.

Although the Section 21 “not-fault� eviction process is reportedly
under threat and subject to a government consultation exercise, in England it
is still a very important process for landlords to use in the unfortunate event
that a tenants must be evicted. Landlords should be mindful of the fact that
the S21 process is very beneficial to them in these circumstances and therefore
to help ensure its survival, should be used only when eviction is for legitimate
reasons.

In order to use the Section 21 process various Acts
introduced over recent years have made it conditional on meeting certain administrative
requirements, all of which require some considerable attention to detail by
landlord or their agents when setting up a new tenancy, and all involve obtaining
documentary proof that they have been carried out correctly.

Reminder of the S21 Requirements:

Before serving a section 21 notice for an assured shorthold tenancy,
landlords and letting agents must as well as other general legal requirements
for a tenancy, ensure that the following points have been complied with:

1. Ensure that where there is a gas supply in the property
   a current Gas Safety Certificate is given to the tenant at the commencement of
   the tenancy and that any gas appliance have been served annually. Following a couple
   of recent cases, unfortunately if this has not been complied with the current situation
   is that this oversight cannot be mended and a valid section 21 process can
   never be served for the tenancy.
2. The tenant has been provided with a current Energy
   Performance Certificate (EPC) unless in certain circumstances, such as when individual
   tenants in HMOs don’t require one. In this case the EPC should be prominently displayed
   for the HMO building as a whole.
3. The current version at the time of the
   commencement of each tenancy of the “How to Rent� guide is provided to the
   tenant.
4. The tenants are provided with the correct prescribed
   information relating to the deposit protection agency used, when a deposit is
   taken. The deposit must be protected within 30 days of its receipt and the prescribe
   information must be served on the person, persons or entity providing the
   deposit.
5. Where there is a requirement to have a selective
   licence or an HMO licence then the tenant/s should be provided with a copy.
6. Any deposit such as a holding deposit should be
   documented and must have been returned to the tenant.

It is likely that in the not too distant future landlords
will also be required to serve on their tenants a valid Electrical Safety test
certificate and an EPC that meets the minimum energy efficiency standards (MEES),
i.e., that is a minimum of an E rating.  

Note: Supplying
documents by electronic means (email attachments of .pdf files for example) is
allowed but copies must be of original documents and not links to websites.
Also, the tenant must have agreed to receive notifications in this way, so a
clause to this effect must be included in the tenancy agreement.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – “How to Rentâ€� guide and s21 notice updated… | LandlordZONE.

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“It was an accident!� – How can you prepare your property for accidental damage?

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Landlord Insurance

As a landlord your property is likely to be one of your
biggest assets, so protecting it from accidental damage is paramount.  A broken window or overflowing bath could
spell disaster for a landlord, not to mention drain their time and money.
Reducing the risk of accidental damage in your property with a few simple steps
can help to keep your property running smoothly.

Unfortunately, when letting out your property accidents can,
and do, happen. Even in the event of property damage that is caused by your tenants,
it remains the landlord’s responsibility to pay for, and rectify these issues.
With this in mind, it is imperative that landlords purchase a comprehensive
landlord insurance policy to cover them in the event of accidental damage to
their property and look for ways to minimise accidental damage occurring in the
first place.

What is accidental
damage?

Accidental damage is property damage caused suddenly by
something that is not just unforeseen, but also unintentional. ‘Damage’ is
defined, and applied
by the Financial Services Ombudsman, as related not only to physical damage but
also takes into consideration ‘loss of function’. This relates to part of the
property that is now unable to perform its everyday function as a result of
this accidental damage.

Examples
of accidental damage can include:

• A ball being unintentionally kicked through a window
• A nail piercing a water pipe when trying to hang a picture
• A tap being inadvertently left running
• Falling through the ceiling when inspecting the loft space
  in a property

A
landlord insurance policy covering accidental damage protects against just that
– an accident. Landlords should be sure to check their landlord insurance
policy wording to ensure that they are adequately covered for their personal requirements,
as specific incidents included under accidental damage cover will vary from one
insurer to another.

There
are a number of things that are not usually covered by accidental damage
insurance, including:

• Damage caused by pets in the property
• Damage to contents
• Damage to the building caused by construction, alteration
  or repair
• General property wear and tear
• Defective design or workmanship

What is malicious
property damage?

It
is important to establish and understand the difference between accidental and
malicious damage to your property. Malicious damage refers to any property
damage caused by tenants, or their guests, with intent. It is not to be
confused with general wear and tear which is a natural part of letting out a
property. 

Examples
of malicious damage can include:

• Windows and doors that have been intentionally broken
• Smashed furniture
• Graffiti on the walls or furniture in the property
• Arson in the property

For malicious damage to be covered by your insurance provider you will need to be able to provide evidence that the damage was caused with intent. In addition, the damage must be reported to the police to obtain a crime reference number. Hamilton Fraser’s Total Landlord Insurance Premier Policy provides cover for malicious damage by tenants and/or guests providing you with support should the worst happen. 

Accidental damage
claims report

Recent research conducted by Hamilton Fraser Total Landlord Insurance analysed around 5,000 claims over a 10-year period to assess recurring patterns and statistics surrounding property claims, including accidental damage. This vital information can help to inform and advise landlords on how to best protect their property and particular areas of concern.

For example,
Hamilton Fraser found that in 2010 accidental damage accounted for five per cent
of all claims received. However, within six years this figure had more than
doubled to 11 per cent.

In addition,
of note was claim type seasonality whereby it was found that accidental
damage peaks in the summer months when people spend more time at home and
children are away from school. Food for thought when it comes to looking after
your property.

Read the full 10 years of property claims report for more detailed analysis.

How can you reduce
the risk of accidental damage in your rental property?

There will always be an element of risk when letting out
your property. Despite this you can mitigate the risk of accidental damage in
your property by taking certain steps. This includes:

1. Ensuring you have a comprehensive landlord
   insurance policy

A comprehensive landlord insurance policy will always be a good line of defence against incurring substantial costs as a result of accidental damage in your property. Remember to check the level of cover provided and that you fully understand how your insurer defines accidental damage before agreeing to a policy, as this is often not offered as standard. Learning this the hard way could be extremely costly, but is easily avoided.

Hamilton Fraser’s Total Landlord Premier Insurance policy
includes protection from both accidental and malicious buildings damage caused
by tenants, meaning you can rest assured that any accidental damage caused to
the building will be taken care of.  This
also includes accidental damage to glass and sanitary fittings.

Landlords should also remember that buildings and contents
insurance for their property must be based on rebuild or replacement values.

• Reference check your tenants adequately

Carrying out a comprehensive tenant reference check, such as
that provided by Tenant Verify, can help to identify any problem tenants that
could increase the risk of property damage.

In addition, understanding more about your tenants can help
you to understand what they do day to day and what they are like. For example,
a professional couple may have very different needs and requirements from your
property compared to a family, which could impact on the type of cover your
property requires.

• Make every effort to establish, and maintain, a
  good working relationship with your tenants

Responding to your tenant’s queries in a timely fashion and
rectifying any property issues as soon as possible can help to reassure tenants
that you care about both them and the property. This will likely also encourage
them to look after the property, especially if it is a family home. A little
kindness can go a long way to ensuring your property is suitably maintained.

It is also a good idea to carry out regular inspections of
the property throughout the tenancy to address any concerns with the property
before they escalate. This also provides a great opportunity to talk with your
tenants about any of their concerns or your recommendations surrounding the
property, to ensure that you mitigate the risk of any damage occurring. This
also reduces the risk of tenants trying to carry out their own DIY, which could
potentially result in accidental damage.

• Design your property with accidents in mind

Simple changes to your property can help to minimise the
risk of accidental damage from the outset. For example, when selecting
flooring, worktops and bathroom suites opt for durability to help minimise any
damage.

Taking into consideration these factors can help to avoid claims surrounding accidental damage and ensure your property is maintained for many tenants to come. Find out more about comprehensive landlord insurance and rest assured that your property is in safe hands.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – “It was an accident!â€� – How can you prepare your property for accidental damage? | LandlordZONE.

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Don’t forget Landlords Boris?

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Boris Johnson has today promised to cut taxes for around 3 million higher earners by raising the 40p threshold from £50,000 to £80,000 if he becomes Prime Minister.

But Boris what about the Landlords?

A big percentage of Owner Occupiers also own a Buy To Let Mortgage.

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House prices on the move…

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House Prices Rise:

House price rise to May 2019 shows the fastest pace for two
years says the Halifax Building Society.

The year to May increase of 5.2% reflects stability in the
economy despite the uncertainty of Brexit says the leading UK mortgage lender.

The continuing high unemployment rate – there are fewer out of work and claiming benefits since the 1970s – and with low interest rates together they underpin the continuing demand for house purchases.

The unemployment rate in the UK fell to 4% in the three
months to November 2018, its lowest level since the 1970s. This was slightly
below market expectations of 4.1%.

Halifax says the average house price in the UK now stands at
£237,837.

However, the lender warns that the May 2019 sharp increase in
house prices is against a backdrop of “particularly low house price growth� over
the same period last year.

There has been a definite slowing of Britain’s housing
market since the 2016 Brexit referendum, driven largely by bigger price falls
in London and the surrounding south-east neighbouring areas, and exacerbated by
higher stamp duty for home buyers and small-scale landlords on purchases of second
homes and buy-to-lets.

The optimistic figures produced by the Halifax though contrast
somewhat with the latest figures produced by the Nationwide, which show a lower
annual growth rate in property values of just 0.9%.

Russell Galley, Managing director of Halifax, commented:

“We saw a slight increase in house prices between April and
May, but the overall message is one of stability.

“Despite the ongoing political and economic uncertainty,
underlying conditions in the broader economy continue to underpin the housing
market, particularly the twin factors of high employment and low interest
rates.�

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – House prices on the move… | LandlordZONE.

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