Renting out a house or a flat to tenants comes with many rules and regulations that you need to follow, and it’s important to abide by these from the start – not only to protect your tenants but to protect yourself too.
This guide has been created with Farillio Expert Katie Briggs of Wilkes to explain what those key things are so that you can get the knowledge you need to become a residential landlord.
If you’re looking for information on becoming a commercial landlord (i.e. renting buildings out to businesses to use), you’ll instead need our commercial landlord and tenant 101 guide.
What types of tenancies are there?
Some common types of residential tenancy are:
Assured shorthold tenancy – This is the most common type of tenancy – and probably the type most of us think of when it comes to being a residential landlord. It’s where you have a property owned by a private landlord (or housing association), who doesn’t live in the property and the property is the tenant’s main address.
Excluded tenancy (or license agreement) – This is the name given to an arrangement between a landlord and a lodger, i.e. someone who lives in the property with the landlord and shares some of the rooms with them – for example, a bathroom or the kitchen. This type of tenancy doesn't give the tenant as many protections as an assured shorthold tenancy.
Regulated tenancies & assured tenancies – If you’re buying a property with a tenant currently in situ, then these tenancy types may be relevant to you.
They’re very similar – with both providing increased and long-term tenant protections, such as regulating the amount for rent that can be charged.
However, these tenancies are something of the past, where regulated tenancies refer to those that started before 15 January 1989 and assured tenancies refer to those that started between 15 January 1989 and 27 February 1997.
Any tenancies entered into after this date, if not an excluded tenancy, will most likely be an assured shorthold tenancy.
Furthermore, tenancies can be sub-categorised like so:
Fixed-term tenancies – This means the tenancy agreement between the landlord and tenant run for a set amount of time, usually 6 months or 12 months.
In the event that either the landlord or the tenant wishes to end the tenancy before the end of the fixed term, you'll need to include a ‘break clause’ in the tenancy agreement.
A break clause can give the landlord or tenant or both the right to end the tenancy after giving adequate notice (usually 2 months).
NB: Once you've let your property, you have no right to end the tenancy and retake possession within the first 6 months, whether you have a break clause or not.
Periodic tenancies – Unlike fixed-term tenancies, periodic tenancies roll continuously on a periodic basis. This period is reflective of the payment of rent i.e. weekly, monthly, quarterly or annually.
Most private sector tenancies will begin as fixed-term, only becoming periodic once the fixed-term has ended.
Houses in multiple occupation (HMO) - If you have a number of tenants forming two or more separate households – i.e. single people or members of the same family (including unmarried couples) who have their own room in the property – while also sharing amenities such as the kitchen or bathroom, then your property is likely an HMO.
A typical example of an HMO would be a student flat or house share, where your tenants share the property but are not members of the same family.
If you’re a private landlord with an HMO, then you may need a license from your local council. You may have other responsibilities too, which we discuss in more detail further down this guide.
The type of tenancy you choose is very much up to you…
For example, you may be taking a year out to travel and so would rather have a fixed-term tenancy for 12 months, so that it reduces the likelihood of you needing to find new tenants whilst you’re on your travels.
Or, maybe you’re letting your home out while you’re away but you’re not entirely certain of when you’ll be moving back in… if so, then a periodic tenancy would give you more flexibility.
Whichever tenancy type you decide on, you’ll need to put a tenancy agreement in place.
Holiday and AirBnb landlords
If you're renting out your property to holiday-makers, you should still have some sort of documentation in place and make sure your property is safe to let. Not only will this give your paying guests peace of mind, but it will also provide greater protection for you in the event of any kind of accident or damage to the property during their stay.
What should be in a tenancy agreement?
The tenancy agreement is the contract between you and your tenants and it should set out all the terms and conditions of the tenancy.
Starting with the names of the tenant and the address of the property, through to the amount of rent agreed, the deposit amount and all the obligations of the tenant during their time in the property.
Tenancy agreements can be verbal or written contracts, but the terms must comply with the law. It's always prudent to obtain a written tenancy.
Regardless of whether there’s an agreement in place or not – tenants and landlords both have rights and responsibilities.
What responsibilities do landlords have?
Protecting your tenant’s deposit
At the beginning of a new tenancy, tenants will usually pay a refundable deposit (usually the equivalent of no more than 5 weeks’ rent).
The Tenant Fees Act 2019 has capped the amount that can be taken as a tenancy deposit at 5 weeks’ rent where the annual rent is less than £50k and 6 weeks’ rent if more than £50k.
NB: Within 30 days of receiving this money, landlords must put it into a deposit protection scheme.
A deposit doesn't need to be put into a deposit protection scheme if the tenancy is an excluded tenancy.
If you’ve received a ‘holding deposit’ from future tenants (i.e. money received to reserve a property before all the paperwork can be finalised), this doesn't need to be protected.
Residential deposit schemes are there to make sure the tenants get their deposit back at the end of the tenancy, assuming that both you and the tenant/s part on good terms – for example, without them owing any outstanding rent or costs to repair or replace damaged property.
If there’s a dispute, say in the event of damages, then the schemes protect the tenant's deposit until it can be agreed how much of the deposit should be returned.
Whether repaying in part or in full, once the tenancy is finished, you must return the deposit to the tenants within 10 days of agreeing the amount to be repaid.
For more information, see our other guide for residential landlords on deposits and guarantors
Ensuring your property is safe to rent out
As a landlord, it’s your responsibility to keep the properties you rent safe and habitable. This includes maintaining gas and electrical equipment installed at the property and fitting and testing smoke alarms and carbon monoxide detectors.
You’re also responsible for repairs – and this includes both repairs to the property and repairs to the fixtures and fittings, subject to the terms of the tenancy i.e. if the property is rented as furnished.
If you don’t make repairs and fail to keep your property safe from hazards, tenants can complain to your local council who can inspect the property and take action against you.
The penalties include charging you to fix the hazard or even preventing you from using the property if they find a serious hazard. You could also be issued an improvement notice, which will inform you of when you’ll need to make the changes by to prevent being fined or prosecuted.
If you refuse to carry out repairs, tenants can seek remuneration via the small claims court or in some cases carry out the repairs themselves, deducting the costs from their rent.
NB: You must give your tenants 24 hours notice before you can enter the property to make repairs unless there is a genuine emergency.
Paying tax as a landlord
If you own more than one rental property or you make your living through being a landlord, what you do is seen as running a business – and, like all businesses, your earnings will be subject to tax.
For landlords who aren’t running a business, your first £1,000 of income from property rental is tax-free.
After that, you must pay tax on any profit you make – however, you can make deductions for allowable expenses such as agency fees, utility bills and buildings insurance… essentially any costs associated with the day-to-day maintenance of the property.
NB: Changes are being phased in regarding the tax relief that residential buy-to-let landlords enjoy. For more details about those and your tax obligations, we recommend seeking independent financial advice.
Checking tenant’s right to rent
In England, you must check that potential tenants or lodgers have the legal right to be residents in the UK and thus the right to rent your property.
Before making an agreement with a tenant, ask them to provide you with their original documents and make copies for your records.
In the event that a tenant doesn’t have the right documents, you must use the Home Office’s right-to-rent check service to confirm the tenant has the right to rent without them.
The penalties for failing to carry out right-to-rent checks, or renting your property to someone you had reason to believe didn’t have the right to rent property in the UK, are severe – including unlimited fines or even prison time.
Giving your tenants the information they need
In order to comply with the law, you must give your tenants a copy of a valid gas safety certificate before the tenant occupies the property.
Further, you must give your tenants a copy of a valid energy performance certificate, which must give the property a rating of E or above.
In addition, landlords in England need to hand this free how-to-rent checklist guide to tenants at the beginning of the tenancy.
There are fixed penalties for failing to provide this information to tenants and it can impact upon your ability to recover possession of the property at a later date.
Houses in multiple occupation (HMO)
If your property is an HMO, you'll be responsible for all of the usual necessary repairs, as outlined above, including those to any of the communal areas.
Landlords will also have additional legal responsibilities, including managing the risk of fire and not overcrowding the property with tenants, making access to kitchen and bathroom facilities unmanageable for those living in the property.
You may also need a license from your local authority responsible for housing. Our handy infographic below shows you how you might go about applying for one.
Your local authority will also have plenty of other information for landlords of HMOs and you should take a look around their website just to be clear on what they might require of you – for example:
Fees – Local councils normally charge fees for the issue of an HMO licence.
Council minimum standards & extras – Some councils will also spell out extra standards and requirements of HMO landlords.
Penalties – The penalties for not having an HMO license when can be steep. You could be fined and ordered to repay up to 12 months rent and prevented from serving a section 21 notice to evict tenants.
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