Landlord and tenant legislation is ever changing making it essential for Managing Trustees who let out residential property to keep an eye on what is happening and know what action they need to take to ensure they are fulfilling the statutory responsibilities placed on them as a landlord. This article summarises some important recent changes that Managing Trustees need to be aware of.
New government guidance is now available summarising the rights and responsibilities of landlords (and tenants) in the private rented sector; “Landlord and Tenant Rights and Responsibilities in the Private Rented Sector”.
The Ministry of Housing, Communities and Local Government launched this new guidance note on 9 April 2019 which will provide a helpful reference tool for Managing Trustees:
https://www.gov.uk/government/publications/landlord-and-tenant-rights-and-responsibilities-in-the-private-rented-sector (HCLG Responsibilities Guidance).
Managing Trustees are encouraged to read the HCLG Responsibilities Guidance (especially the second section focusing on landlords from page 14) for a summary of the statutory obligations placed on them as landlord and steps to be taken before and during a tenancy. This guidance provides a valuable and reliable reference point particularly in the midst of the current media interest in landlord and tenant matters.
The “no cost to the landlord” exemption has been withdrawn and a minimum landlord contribution up to £3,500 per property introduced.
The Energy Efficiency (Private Rented Property) Regulations 2015 (the MEES Regulations), which originally came into force in April 2018, were amended with effect from 1 April 2019 to withdraw the “no cost to the landlord” exemption. The MEES Regulations established minimum energy efficiency standards for properties let out on new assured shorthold tenancies (ASTs). This means that where a property is rated below the minimum standard (currently “E” as set out in the Energy Performance Certificate (EPC)) it cannot be let unless one of the limited exemptions applies and is registered. The effect of the 1 April 2019 change is that where the MEES Regulations apply, Managing Trustees seeking to let out properties rated below “E” will now be expected to spend up to £3,500 (including VAT) per property on energy efficiency improvements unless one of the other exemptions applies.
This also means that any “no cost to the landlord” exemption registered by Managing Trustees since the MEES Regulations came into force on 1 April 2018 will now end on 31 March 2020, instead of the exemption extending for five years as previously.
TMCP is in the process of publishing a new Focus Note on the MEES Regulations which will be available shortly explaining how the MEES Regulations apply to Managing Trustees specifically. Managing Trustees will also find the recently reissued Domestic Private Rented Property Minimum Standard Guidance produced by the Ministry of Housing, Communities and Local Government.
Significant changes have been made to the rules relating to the licensing of “houses in multiple occupancy” (HMOs) with effect from 1 October 2018 to increase the scope for mandatory HMO licences and impose additional mandatory licence conditions.
HMOs are homes shared by three or more people from more than one household (or family) who share common facilities such as the bathroom, kitchen or toilet. Such properties attract specific legislation due to the potential for these arrangements to lead to poor housing conditions including over-crowding. The new regime imposes additional obligations for all HMO landlords and requires an increasing proportion of HMO landlords (including Managing Trustees), to apply for a HMO licence.
What Changes have been made?
The changes have been brought in by the Licensing of Houses in Multiple Occupation (Prescribed description) (England) Order (the Order) and the Licensing of Houses in Multiple Occupation (Mandatory Conditions of Licenses) (England) Regulations 2018 (the Regulations). The main changes are:
- More HMO properties now require a licence
Since 1 October 2018 it has been mandatory for landlords who rent property to five or more people forming more than one household to obtain a HMO licence if one of the tests set out in the Order applies. In short this is where the property comprises one or more units of accommodation, is occupied by two or more households as their only or main residence, one or more tenants pay rent and two or more tenants share a toilet, bathroom or kitchen (or the property does not have one of these). This is known as the “standard test”. Previously HMOs only required a licence if the property also had three or more storeys.
For a summary of the different tests used to establish whether properties fall inside the mandatory licensing requirements, please refer to section 2.3. of the HMO guidance produced by the Ministry of Housing, Communities and Local Government:
Whereas the previous rules meant that Managing Trustees tended to escape the requirements, the wider scope means that more Managing Trustees will need to obtain licenses. Please refer to the guidance in the Selective Licensing article in the News Hub section of TMCP’s website for information on obtaining a licence.
- Additional mandatory conditions imposed
Under the Regulations which also came into force on 1 October 2018, local authorities must now impose additional mandatory conditions when granting a HMO licence. Managing Trustees with a licensable HMO property need to be aware that these additional conditions include:
- Imposing a maximum number of people of different ages per bedroom.
- Imposing minimum bedroom sizes.
- A stipulation that rooms smaller than 4.64 square metres cannot be used as sleeping accommodation.
- A requirement to comply with any waste storage and disposal requirements imposed by the Local Authority.
For details of the full regulations please refer to section 3.1 of the HMO Guidance.
What are the consequences of not following the new Regulations?
Managing Trustees need to be aware that it is a criminal offence to let a licensable HMO without obtaining a licence, or to breach any of the conditions of a licence. This can lead to fines and prosecution.
In addition, where a property is let without a mandatory licence, the proceeds of any rental income can be seized by way of a Rent Repayment Order or a Confiscation Order. It is also not possible to recover possession of the property using the section 21 procedure under the Housing Act 1988. (Please refer to Section C of the Residential Tenancy (Ending) Focus Note for more information.)
The Church has a number of properties which are already HMOs but the changes to legislation are likely to affect more lettings and Managing Trustees should check all their lettings where they know (or suspect) that there is more than one household living in a property as their main home; to see if they now need to get a licence. Note that even if the property does not automatically require a licence under the new rules, the local authority could require the Managing Trustees to obtain a licence under their own selective licensing requirements. Please refer to the Selective Licensing article in the News Hub section of TMCP’s website.
Managing Trustees or their instructed agents (whoever is responsible for managing the HMO) must ensure that they apply to their Local Housing Authority for an appropriate licence and abide by all licensing conditions.
Why does this matter to Managing Trustees?
Beyond being committed to comply with legislation aiming to protect some of the most vulnerable in society, Managing Trustees will be anxious to ensure they understand and comply with their obligations under the new rules to avoid the sanctions for breach of the rules including prosecution and reputational damage.
All new tenancies (with a term of less than 7 years) or tenancies which were allowed to run after the end of the fixed term on or after 20 March 2019 are subject to a new implied term that the property must be “fit for human habitation”, and that it will remain fit throughout the term of the tenancy.
These changes were brought in on 20 March 2019 when the Homes (Fitness for Human Habitation) Act 2018 (2018 Act) came into force. To be “fit for human habitation” the property must comply with the requirements set out in section 10 of the Landlord and Tenant Act 1985. A property would not be “fit” if it:
- has been neglected and are in a bad condition;
- is unstable;
- there is a serious problem with damp;
- it has an unsafe layout;
- there is insufficient natural light;
- there is insufficient ventilation;
- there is a problem with the supply of hot and cold water;
- there are problems with the drainage or the lavatories;
- it is difficult to prepare and cook food or wash up; or
- any of the 29 hazards set out in the Housing Health and Safety (England) Regulations 2005 are present.
This additional “prescribed hazard” (as defined under Section 2 of The Housing Act 2004) includes any matter or circumstance amounting to a “risk of harm to the health or safety of an occupier arising from a difficulty in the dwelling”. This includes diverse issues from mould and electrical hazards to excessive exposure to noise e.g. a noisy junction.
While the 2018 Act puts Managing Trustees' responsibilities as landlord into sharp focus and empowers tenants to force their landlords to ensure their home is not dangerous to their health, in practice it does little to actually increase Managing Trustees' obligations.
Full detailed guidance on the application of the legislation, Managing Trustees' responsibilities as landlord, the process tenants can now follow if they identify issues and the penalties that can be imposed are set out in the following Ministry of Housing, Communities and Local Government guidance specifically for landlords:
The existing responsibilities of landlords are laid out in section 10 of the Landlord and Tenant Act 1985 (see bullet points above). In addition, Managing Trustees are already subject to the duties placed on them to safeguard charity assets as prudent charity trustees and the requirements imposed by Standing Orders to carry out works identified in their Quinquennial Inspections.
Managing Trustees should already be managing properties of a superior standard to those targeted by the 2018 Act. However, the 2018 Act provides a good opportunity for Managing Trustees to talk to their agents and/or review the property to ensure there are no concerns.
What should Managing Trustees do?
Managing Trustees will need to check that their properties meet the required standards and are “fit for human habitation”.
For new tenancies it is strongly recommended that Managing Trustees ensure that appropriate records, in the form of photograph based “check–in”/schedule of condition and inventory, are prepared and reviewed throughout the tenancy.
If Managing Trustees are notified of potential factors affecting the habitation of the premises or common parts, appropriate steps must be taken to investigate and remedy any concerns without delay.
The new provisions will not require Managing Trustees to carry out works for which the tenant is responsible under its duty to use the premises in a “tenant like” manner, pursuant to an express repairing covenant or where the premises are unfit for habitation due to a tenant’s own breach of covenant. The provisions will not require Managing Trustees to (1) rebuild or reinstate damage by fire, storm or flood or (2) where to do so could put Managing Trustees in breach of statute or duties to a third party such as a superior landlord.
What happens if a property is let in breach of the new provisions?
Managing Trustees need to be aware that if their tenants do raise concerns, these need to be treated very carefully and professional advice obtained to ensure they are handled correctly and in accordance with the 2018 Act. Note that complaints to the Local Authority can lead to an inspection identifying many more issues than those originally raised by the tenant, Managing Trustees cannot serve notice on their tenants in retaliation and failure to act can lead to criminal penalties not to mention the reputational damage.
Please contact TMCP Legal if there are any concerns that a property is not fit for human habitation.
Payments from residential tenants to Managing Trustees or their letting agents will be prohibited from 1 June 2019 unless they are specified as a 'permitted payment' under the Tenant Fees Act 2019.
The new legislation coming into force on 1 June 2019 severely limits the fees residential landlords and their agents can charge a tenant. This means that Managing Trustees need to be very careful about what payments they accept from tenants who sign tenancy agreements after 1 June 2019 and review what fees they may become responsible for themselves. Aside from the ban of agent’s fees and credit checking fees which has drawn much of the publicity, Managing Trustees need to be aware of the much wider reaching impact of the changes. When the law comes in new tenants will only be liable for those payments specifically set out in the Tenant Fees Act 2019 which includes:
- Utility bills including Council Tax (unless the landlord is paying);
- Deposit - where the annual rent is £50,000 or less, the maximum deposit that can be requested is limited to up to five weeks of rent and the maximum holding deposit is just one week’s rent; and
- Default payments for loss of keys and failure to pay rent within 14 days of the due date only – however, loss of keys payments are limited to costs “reasonably incurred”. Managing Trustees would need to be able to evidence the costs incurred in writing and show that they are reasonable. Interest charges are limited to 3% above the Bank of England base rate.
- Payments for changes to the tenancy and early termination of the tenancy (if requested by the tenant only) - these are very restricted being capped at£50 unless the landlord can show that greater costs were reasonably incurred.
Managing Trustees can find detailed guidance in the following guidance note set out in the form of questions and answers:
This means that Managing Trustees as prudent charity trustees need to consider, whether costs commonly incurred over the course of a tenancy should be recovered by increasing the rental amount for the property. Managing Trustees must obtain confirmation that the agreed rent is no less than market rent and the letting is on the best terms possible before entering into a new tenancy. Managing Trustees need to discuss the impact of the Tenant Fees Act 2019 with their agents when they ask them to provide this confirmation. The new rules may well mean an increase in the rent for the property.
Further guidance on the requirements for confirmation of market rent can be found in the Residential Tenancy (Landlord) Guidance on TMCP’s website.
There has been a great deal of publicity lately on the Government’s announcement of its consultation on plans to abolish “no fault” eviction. Managing Trustees should not be immediately alarmed as at this stage the Government is only consulting on the proposal and the law has not been changed. However, the Church will need to keep this under review to help it decide at a strategic level when Assured Shorthold Tenancies (ASTs) continue to be appropriate.
At this stage everything is very much in the air and any repeal of section 21 of the Housing Act 1988 (under which landlords can serve two months’ notice on their tenant at the end of the fixed terms to terminate the tenancy) is likely to be accompanied by other saving provisions and a package of reforms including changes to the Section 8 eviction process, which currently only allows landlords to evict tenants if one of very few specified ‘grounds’ can be proved. It is worth noting that section 21 is often used for ease but there are other ways that landlords (including Managing Trustees) can end tenancies, notably the grounds for possession set out in Schedule 2 of the Housing Act 1988. While some of these rely on the tenant being at fault, not all do and it is likely that the Government will strengthen those grounds that do not rely on tenant fault.
The Church generally uses ASTs to ensure that properties are occupied when they are temporarily not required for use as a Manse relying on the flexibility to end tenancies if they are required for a new Minister, or if there is a decision to sell or use the property for other purposes. The consultation will be kept under review to see whether the Church will continue to be able to terminate ASTs (after the fixed term) and how easy this will be under the alternative procedures.
The main change is that Managing Trustees would not be able to evict tenants for no reason or without being told why.
Managing Trustees should also bear in mind that any legislative changes are likely to be quite a lengthy process even if the Government was running normally. Commentators suggest that any abolition of section 21 is unlikely to be in force before late 2020 at the very earliest.
Ground 5 Notice
- Professional help
Landlord and tenant issues with all this new legislation and mandatory licensing requirements can be a confusing area of law and it is recommended that Managing Trustees obtain professional advice from their letting agent, Local Housing Authority or solicitor at an early stage to assist them if they have any concerns or are unsure whether any of the requirements apply to their tenancy e.g. whether the MEES Regulations apply or if the property is a HMO requiring a licence.
The Methodist panel of solicitors have extensive experience in acting for charities and Christian organisations and are familiar with Methodist law, policy and the procedural requirements of the Methodist Church. Details on each of the panel firms can be found on the Panel Solicitor page on TMCP’s website.
- TMCP guidance
For guidance on residential tenancies, please refer to the Residential Tenancy page on TMCP’s website.
- Government guidance
Detailed guidance has been produced by the government on the legislative changes discussed in this article with the key guides for Managing Trustees listed below:
1. General summary of guidance on Landlord responsibilities:
- “Landlord and Tenant Rights and Responsibilities in the Private Rented Sector”: https://www.gov.uk/government/publications/landlord-and-tenant-rights-and-responsibilities-in-the-private-rented-sector
2. The MEES Regulations:
- “The Domestic Private Rented Property Minimum Standard”: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/794253/domestic-prs-minimum-standard-guidance.pdf
- “Houses in Multiple Occupation and residential property licensing reform”: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/792971/HMOs_and_residential_property_licensing_reforms_guidance.pdf
- “Shelter HMO Guidance”: https://sheltercymru.org.uk/get-advice/renting/shared-and-subletting/houses-in-multiple-occupation
4. Fitness for human habitation
- “Homes Fitness for Human Habitation Act 2018: Guide for landlords”: https://www.gov.uk/government/publications/homes-fitness-for-human-habitation-act-2018/guide-for-landlords-homes-fitness-for-human-habitation-act-2018
5. Ban on tenant fees
- “Tenant Fees Act 2019: Guidance for landlords and agents”: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791273/TFA_Guidance_for_LandlordsAgents.pdf
If you have any queries in relation to the guidance in this document please contact TMCP Legal for further assistance.