Response to the consultation on the proposed changes to Section 21

The Conservative government made a commitment to deliver ‘a fair and balanced relationship between landlord and tenant’. As part of that, it has held two consultations proposing longer tenancies and the abolition of the Section 21 notice, the last of which closed on 12^th October.

Key points:

• Landlords and agents could no longer end a tenancy by issuing a Section 21, giving the tenant two months’ notice to leave, without having to give a specific reason. Essentially, the Assured Shorthold Tenancy would become an open-ended rental agreement.
• A tenancy could only be ended with a Section 8 notice, where the landlord has to give a specific reason for termination.

To reassure landlords they could still get their property back when needed, the government pledged to make other part of the system perform better:

• Grounds to repossess under Section 8 would be extended (e.g. if landlords need to sell or move a family member into the property)
• They’d look at whether some of the existing grounds should be updated to give landlords the powers they need
• A dedicated Housing Court would be created to make it quicker and easier for landlords to regain possession of their properties if a tenant refuses to leave.

Any scrapping of Section 21 should make little difference to good landlords who already operate ethically. Assuming the system is improved as proposed, you’ll still be able to let tenants go who breach their agreement or if you have a legitimate reason for needing to regain possession.

The Fifth Money Laundering Directive

The Fifth Money Laundering Directive (5MLD) takes effect in the UK on the 10^th January 2020. 5MLD will make changes to the UK anti money laundering regime and will bring letting agents within the scope of the Money Laundering Regulations for the first time. This means that letting agents will be required to assess certain tenancy agreements for their potential to be used as a mechanism to clean up the proceeds of crime.

All tenancy agreements with a rent in excess of €10,000 per calendar month will be caught by the regulations. This means that lettings agents will be required to carry out “know your customer” checks on landlords and tenants. “Know Your Customer” will mean ID checks, verification that the tenancy is genuine and not set up to assist either the landlord or tenant to clean up the proceeds of crime. Tenancies that fall within the scope of the regulations will require on-going monitoring to check the initial conclusions regarding the money-laundering risk remain relevant. Landlords and tenants who fall into this category of tenancy should therefore prepare for more questions and administration.

Minimum Energy Efficiency Standards (MEES) for an ‘E’ rating extend to all properties.

As of April 2020, it becomes illegal for any property let privately on an AST to be rated F or G on the EPC without registering an exemption.

This legislation has applied to new tenancies since April 2018 but if you’ve had a long-term tenant, you may not have yet made any necessary energy improvements. So, if you have a current tenancy that began before April last year, check the rating on the EPC and if it’s not E or above, you must now make arrangements to have work done.

That might be as simple as having roof, loft and/or wall insulation installed, which could cost as little as £300.

Bear in mind that if you’re found to be in breach of this law, you could be fined up to £5,000 and will be unable to let the property until it complies.

All UK tax payers: Three changes come into effect for Capital Gains Tax (CGT) payments

1. A payment on account of CGT will need to be made within 30 days of completion of a residential property sale or other disposal (e.g. giving it away) if gains are liable to CGT.
2. The Private Residence Relief (PRR) is reducing. As it currently stands, if you once lived in your rental property, you don’t pay any CGT for the years you lived there, plus you get an additional exemption for the final 18 months you owned it, even if you weren’t living there yourself. From 6^th April, this additional exemption period is halving, reducing to 9 months.
3. Lettings relief is being withdrawn. Over and above PRR (as above), if you’ve ever lived in the property you currently let out, you can claim up to £40,000 additional relief. However, from the start of the new tax year, this will only apply if you yourself share the property with a tenant. If you no longer live in the property, you’ll lose this relief altogether.

All UK tax payers: Final phase of the withdrawal of mortgage interest and finance costs as an ‘allowable expense’.

For the financial year beginning on 06 April, you won’t be able to deduct any of your mortgage interest and finance costs for your rental income. The whole amount will simply be subject to basic rate relief at 20%.​

The tenant fee ban applies to all tenancies

In June this year, the fee ban came into force for all new tenancies. This same law will apply to all tenancies from June 2020, meaning landlords and agents cannot charge any fees to tenants, other than:

• An administration fee when the tenant requests a change or early termination of a tenancy. This is capped at £50, unless higher reasonable costs have been incurred
• Utilities, communication services and Council Tax bills
• Payments arising from a default by the tenant, e.g. replacing a lost key

Also:

• Holding deposits are capped at one week’s rent
• Tenancy deposits are capped at 5 weeks’ rent – 6 weeks if the annual rent is £50,000 a year or more

Be aware that this cap on deposits means you will no longer be able to take an additional deposit in relation to pets.

If you fall foul of this law, you could be fined up to £5,000 for a first offence, with an unlimited fine for reoffending within 5 years.

Back in January, the government published its response to the consultation held on improving electrical safety in the Private Rented Sector. Although there’s been no further progress in 2019, the government did announce that it intended to introduce legislation ‘as soon as parliamentary time allows’. As such, we’d recommend you prepare for 5-yearly checks to secure an Electrical Installation Condition Report (EICR) to become law at some point next year.

Landlords will be legally required to ensure that the people carrying out inspections are suitably competent and will also be encouraged to voluntarily:​

• Make visual checks of electrics at each change of tenancy
• Carry out electrical appliance testing (PAT) and visual checks of appliances at change of tenancy
• Install RCDs (Residual-Current Device, also called a Safety Switch)

If you haven’t had the electrical system in your rented property inspected within the last five years, we’d recommend you do so now. If we manage your property, we can arrange for this