Impending tax and benefit changes will require residential landlords to adopt a change of approach to their property lets. Slee Blackwell’s Terese Kingman and Iain Robinson review the new rules, their effect, and possible solutions for landlords.
Landlords who let to benefit-dependent tenants need to be aware that Universal credit will soon start to replace a number of benefits, including housing benefit. Importantly, the housing component of this will not be as generous as housing benefit has been and it will not be paid directly to landlords.
This means tenants are more likely to fall into arrears. A tenant in arrears can be removed – and, if the tenant has any money, the arrears claimed back – using section 8 proceedings in the County Court. However, where a tenant is in less than two months arrears, the court has discretion whether to order the tenant out. It is easy to see that a tenant who is in rather lower arrears may well find sympathy with the court, leaving the landlord no further forward and out of pocket.
A landlord with a newly-vacated property might struggle to re-let at the same price, of course. With the old housing benefits being more generous than they are now, and the universal credit set to perhaps reduce that a little further, there is simply less money chasing the same number of homes.
A landlord might adopt a policy of only letting on a six-month basis, taking a deposit and serving a s21 notice as soon as possible. That way, small amounts of arrears can be deducted from the deposit. It is rather labour-intensive, of course, and relies on deposits being adequately protected. The court can order a landlord to pay the tenant up to three times the amount of the deposit if the landlord hasn’t put the money in an approved scheme and given the tenant the relevant notice.
Other alternatives include improving the property so that it is suitable for private rental, altering the property to make it suitable for more tenants, selling the property, or simply reducing the rent. The problem with reducing the rent is that if enough landlords do so, the market falls. Since the amount of benefit available is set by reference to local market rents, so does the amount of benefit, and a vicious circle develops.
A more sensible strategy is to seek a guarantor. A guarantor stands in the tenant’s shoes if the tenant is unable to come up with the money. They are most commonly used in the student letting market, since students’ parents tend to have more money than they do. A carefully-chosen guarantor on a well-drafted guarantee can provide the landlord with some security and peace of mind.
Slee Blackwell can assist with the drafting of tenancies and guarantees, preparation and service of s21 and s8 notices, subsequent eviction proceedings and, if you are thinking of entering or exiting the market, sales and purchases.Call us on 01271 372128