This is the second part of our getting started guide for landlords, which condenses the information you need into 9 simple steps. In the first article, we covered the first 3 steps: essential background paperwork, safety regulations, and licensing schemes. Here, we’ll get into the substance of actually setting up your first tenancy, with next 4 steps: preparing and advertising, referencing, deposit protection, and contract signing.
STEP 4: Prepare and advertise your property
Preparing your property for the market is an opportunity to attract potential tenants and also check that you have complied with landlord regulations. Besides the safety legislation we covered in part 1 of this guide, you are also legally obliged to provide a decent home in a good state of repair and free of potential hazards. This is governed by the Homes (Fitness for Habitation) Act, 2018, and the Housing Health and Safety Rating System. There are serious penalties for failure to comply with this legislation, ranging from fines to jail time. As a general rule, only rent out your property when you a satisfied that you and your family could live there in comfort.
When it comes to advertising your property, some well-staged photos go a long way. Try to avoid blandly factual images that differ little from an inventory - this is about selling your product! Dressing the house with homely items and bedding is highly recommended, as it encourages potential tenants to imagine themselves living there, with the fresh coffee and open book by the sofa. Check out holiday letting websites like AirBnB for some great ideas and inspiration. With that said, it is important to remain accurate in all images and written descriptions, to comply with advertising regulations. Highlight features that are likely to appeal to your target market, whether that's nearby schools and transport links, or proximity to a university campus. You must also include the EPC rating and council tax band, which are relevant factors for tenants deciding where to rent.
If you are working with a letting agent to advertise your property, always check that they are registered with a redress scheme, like The Property Ombudsman, and a client money protection service like Money Shield.
STEP 5: Always reference potential tenants
Tenant selection is a crucial stage in the process of renting out your property. Whilst there are no totally failsafe methods for screening applicants, a few sensible measures can significantly reduce the chances of problems. Firstly, don't neglect the value of meeting people and having a friendly chat at the viewing. Sometimes people give away clues in what they say and how they behave that problems might lie ahead. Don't neglect gut feeling.
More substantively, you should complete a 4-point referencing process on applicants. This starts with obtaining a copy of ID, which should be a passport or driving license, to confirm they are who they say. Next, carry out a credit check which will reveal poor credit history, County Court Judgements, or bankruptcies. You should also request an employer's reference, which will be a letter confirming employment status and income level. Finally, a reference from the previous landlord is a valuable indication of what you might expect from the tenancy.
Since 2014, landlords have borne the responsibility for checking their tenants’ immigration status and right to rent in this country. Initially this had to be done with manual document checking, but it’s become a much less onerous process thanks to the Home Office checking service. Obviously, as your letting agent we can manage this process for you, but if you’re self-managing a rental property this should be a crucial step in your process as it carries the risk of jail time for failure to comply.
Finally, if your tenant is using a guarantor, you should also reference the guarantor with exactly the same process outlined above.
STEP 6: Take a deposit and protect it in one of the approved schemes.
It’s not a legal duty to take a deposit, but we thoroughly recommend doing it. The purpose of a deposit is to protect against the cost of repairing damage left at the end of a tenancy, or even to cover unpaid rent. The amount you are allowed to take is capped at the equivalent to 5 weeks’ rent for the property (it can be 6 if the annual rent is above £50,000).
You are legally required to protect the deposit in a government approved scheme, such as The Deposit Protection Service, within 30 days of receiving it. Similarly, you must send the tenant "prescribed information" about the scheme within 30 days. This ensures that the deposit is held securely and that deposit return disputes can be independently arbitrated, to ensure a fair resolution. Deposit schemes offer 2 options: custodial or insurance schemes. The custodial option entails paying the deposit to the scheme for safe-keeping during a tenancy, before any deductions are applied during arbitration and returned to you. The insurance option enables you to keep the deposit and earn interest, but comes with a small fee. In the event of disputes, you must pay it to the scheme for an arbitration and deduction service that is similar to the custodial version.
STEP 7: Sign the tenancy agreement.
The most common type of tenancy agreement is an Assured Shorthold Tenancy (AST). This will be the applicable contract when: the rent is between £250 and £100,000 per year; the tenant is a person not an organisation or company; the property will be their main home; and you – the landlord – will not also be living at the property.
You can use slightly different versions of AST contracts, depending on the type of tenancy for a given property. For example, the contract for a single family let will be different from that used for a shared student house, or individual room contracts for an HMO. It’s possible to use electronic signatures for signing AST contracts, instead of hard copies. If you need a copy of an up to date AST contract for your tenancy type, they are available through the NRLA website.
With the anticipated changes of the Renters Reform Bill, it is likely that AST contracts will cease to exist. This is because they include a fixed period at the start, usually 6 or 12 months, during which the tenant cannot leave and the landlord cannot recover possession using Section 21, before continuing on a periodic (month-to-month) basis. The reform will replace this system with new tenancies that are periodic from the start. For more information on the Renters Reform Bill, check this 10-point guide. You can also read about our own opinion on the bill in this article.
That brings us to the end of this second part in out getting-started guide for landlords. In the next and final section, we will look at creating an inventory, or schedule of condition, and giving tenants an information pack at the start of their tenancy, in compliance with regulations.
If you have questions about this article or renting out your property, please get in touch with us. We're an independent letting agency in Norwich, serving the whole of Norfolk. We manage all property types, including HMO's, and specialise in Guaranteed Rent.
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