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Lettings Legislation: What do you need to know?

Fri 14 February 2020

There is no getting away from the significant and complex legislative changes that have been introduced to the lettings industry over the past few years. Whilst this legislation is vital when protecting tenants against rogue landlords and a substandard of living, it can be difficult to keep up with, and in many cases, understand.

2020 is a significant year for these legislative changes, as many come to fruition, mainly in the first half of the year. Here, Teresa Sargeant, Residential Lettings Manager, goes through the key dates and changes that you need to be aware of for the coming six months.

Extension of the Homes (Fitness for Human Habitation) Act – March 2020

The Homes Act came into force last March; it is designed to ensure that all rented accommodation is fit for human habitation and to bolster tenants means of redress against the minority of landlords who do not fulfil their legal obligations in keeping their properties safe. However, when first introduced, the Act only applied to tenancies that started after the commencement date.

From March 2020, the Act will apply to all tenancies that began before March 2019 (aside from those that are still within the fixed term). To ensure that your property is up to standard, you can use the Human Health and Safety Rating System (HHSRS), which sets out 29 types of hazards deemed unsafe in a home.

We suggest taking a proactive maintenance approach to your portfolio to ensure that you are abiding by law. Those landlords that don’t abide by the law can be taken to court by their tenant(s).

Minimum Energy Efficiency Standards (MEES) – April 2020

Since 2008, an Energy Performance Certificate (EPC) has been a requirement on all rented properties in England and Wales. However, changes to the minimum standard of energy efficiency for domestic and non-domestic properties have been apparent since 2016, when domestic private rented property landlords in England in Wales could not refuse to carry out energy efficiency improvements when requested by a tenant. In 2018, this was extended further and stated that landlords could no longer let a property on a new tenancy without an EPC rating of E or above.

This year, domestic private rented property landlords in England in Wales must not continue an existing tenancy or begin a new tenancy without an EPC rating of E or above. Essentially, all properties must hold a rating of an E or above. Landlords are expected to spend up to £3,500 on improvements (this includes grant funding from sources such as the green deal).  

Yes, there are exemptions… you can apply for an exemption that will last for five years in the following circumstances:

  • The landlord has made all the relevant improvements to the property, but the EPC rating is still below an E;
  • The tenant has refused to give consent for the works to be carried out or the landlord has been unable to secure the necessary third-party consent;
  • and, The landlord has an independent surveyor’s report stating that the value of the property will be reduced by more than 5% due to the works.

There is of course the question of listed properties. As stated by ARLA Property Mark Chief Executive, David Cox in a recent Rightmove webinar, whether you need to carry out the improvements is completely objective. He suggests consulting with your local conservation officer in regard to the works that need to be carried out; if the works will significantly alter the appearance or character of the property, the likelihood is that you will not need to make those improvements. However, this is just advice and should not be taken as part of the legislation.

There are various levels of fines in place for landlords that do not fulfil these legal obligations; fines go up to a maximum of £5,000. 

Capital Gains Tax – April 2020

From April 2020, changes to Capital Gains tax will be introduced; this will affect the sale of additional properties in the UK. Currently, Capital Gains Tax is set at 18% for basic rate taxpayers and 28% for higher rate taxpayers; the changes to the law will not affect rates, however, this does not mean that rates won’t change in the future.

The changes to Capital Gains tax will affect the time you have to pay your bill, the amount of tax relief you can claim and the way in which letting relief will work.

Payment Deadlines

Capital Gains Tax is currently paid through your self-assessment tax return; it doesn’t normally need to be paid until the following tax year. For example, a property sold in 18/19 that incurs Capital Gains Tax does not need to be declared and paid until 19/20. The new rules mean that from April 2020, sellers will need to pay their full Capital Gains Tax within 30 days of completion.

Private Residence Relief

Currently, Private Resident Relief means that if you sell your home, you don’t have to pay Capital Gains Tax on the profits. This does apply to some landlords as well; for example, if they live in the property but they are now selling. A landlord is currently exempt from paying Capital Gains Tax on properties they lived in for the last 18 months of ownership, regardless of whether it has been let out, meaning that you have longer to sell the property after you move out. In April 2020, this time frame will be shortened to nine months.

Letting Relief

Alongside Private Resident Relief, landlords are also currently able to claim lettings relief on properties that they used to live in, up to the value of £40,000. The changes to Capital Gains Tax means that from April 2020, landlords will only receive lettings relief if they are living in the property at the time of completion and sharing that property with a tenant.

Client Money Protection – April 2021 (was April 2020)

Mandatory client money protection rules were introduced in April 2019 and agents were given a year to comply. The rules meant that property agents had to be a member of an approved client money protection scheme. In April 2020, the grace period was supposed to be coming to an end, however, this has been extended by another year as agents have come across difficulties opening multiple client accounts with banks and building societies.

Isobel Thomson, chief executive of safeagent (a letting agent accreditation scheme for lettings & management agents) blamed banks for the delay, she said: “Unfortunately, we know some banks are refusing to permit agents to open client accounts or changing the terms on which existing accounts are held with little notice. Client accounts are vital for compliance with Client Money Protection Regulations.

“Not only does this stance make life difficult for these agents who are trying to comply with the legislation, but these banks are actively blocking, rather than supporting an important consumer protection measure. This is unacceptable.”

Extension of the Tenant Fees Act – June 2020

The Tenant Fees Act came into force in June 2019, meaning that all new tenants could not be charged any fees other than rent, deposits, holding deposits and charges for defaulting on the contract. This June, the rules will be extended to all existing tenancies. If a tenant is charged for any ‘extras’ such as cleaning, gardening and other administration, a landlord can be fined up to £5,000 for a first offence, and £30,0000 for subsequent breaches.