Lisa Simon, Partner and Head of Residential Lettings, offers a practical view on residential letting issues currently in the news.

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The lettings industry has been hit with a raft of changes in legislation and policy in recent years, including new measures aimed at enhancing energy efficiency. Navigating such reforms and understanding precisely what the rules and regulations demand can sometimes feel like an uphill battle. Often the mere mention will be met with a reluctant sigh.

However, with new legislation on Minimum Energy Efficiency Standards (MEES), which comes into effect from 1 April of this year, landlords who have not done so already, should fix on getting to grips with the changes as a matter of urgency.

From this date, landlords of privately rented properties within the scope of the MEES regulations must not renew existing tenancies or grant new tenancies unless the building meets the minimum energy performance certificate (EPC) requirements, which starts at a minimum rating of E. Alternatively, landlords can register for an exemption, details of which are outlined below.

Failure to comply with the requirements of the MEES regulations by renting out a property in breach of the rules carries substantial penalties.

Landlords should familiarise themselves with the guidance first before registering an exemption.

Prior to re-letting or serving a Section 6A notice (formally Section 21) Landlords with a property that has an EPC that is more than ten years old or who don’t have one at all, will need to act now and contact an energy assessor to obtain one.

In the first instance, landlords should audit their portfolio to understand which properties are within the scope of MEES regulations and whether exemptions might apply.
All exemptions to the minimum rating (including temporary exemptions) must be reported to the Private Rented Sector (PRS) Exemptions Register, which is operated by the Government.

Rules and regulations are as follows:

  • Local Authorities are responsible for the enforcement and monitoring of compliance
  • Exemptions are self-certified and must be accompanied by the relevant supporting evidence
  • Notification can be made by a Landlord, or by an agent on a Landlord’s behalf
  • Failure to register an exemption will render it ineffective and therefore invalid
  • The Local Authority requires Landlords to submit evidence in support of any claim for an exemption. If they have queries or concerns, they will contact the Landlord directly
  • Landlords will be in breach of the regulations if they claim an exemption to which they are not legally entitle
  • If the Landlord changes after the exemption is registered, then the new Landlord must re-register the exemption
  • Exemptions claimed by a Landlord may not pass over to a new owner or Landlord on any transfer; if a transfer of ownership occurs, the exemption will cease
  • Exemptions will start from the day they are registered, rather than from 1 April 2018 when the minimum standard comes into operation. Additionally, there is no obligation on landlords to register exemptions before a new tenancy begins

All exemptions must be registered on the PRS Exemptions Register, available here. In addition, feedback can be sent directly to: PRSRegisterfeedback@beis.gov.uk

Guidance
For both domestic and non-domestic landlords, further information is available here.

Exemption Duration
Exemptions will only last for five years, after which time they must be reviewed to see if they are still applicable. In cases where they are not, they will have to be brought up to standard in order to continue letting the property. If the exemption is lack of a tenant’s consent, then this will only last for five years or until the end of the tenancy.

Where Carter Jonas manages your property we will liaise with you regarding the compliance of your property.

The landscape for landlords has changed almost beyond recognition in recent years – and no more so than with reforms to Section 24 of the Finance Bill, which were introduced in 2015, and will be phased in over a four-year period.

Historically, landlords have been able to deduct the full cost of their mortgage interest payments on their rental properties before they pay tax. However, since April 2017, mortgage, loan and overdraft interest costs have become in part inadmissible when calculating taxable rental income.

Once the new regime is fully operational, 100% of finance costs will benefit from 20% tax relief only by 2020.

We would of course recommend that any landlord concerned with the changes to Section 24 seek professional legal advice, but for those who aren’t sure, the reforms apply to:

  • UK resident landlords with residential rental properties anywhere in the world
  • Non-UK resident landlords with UK based residential rental properties
  • Trusts and partnerships with residential rental properties
Those most likely to be affected include:
  • Landlords with high loan-to-value portfolios
  • Landlords with buy-to-let mortgages in 40-45% tax brackets will pay more tax
  • Those in the 20% bracket may pay more if their gross income (rental and other income) is greater than £45,000, which in turn could affect child tax credits or student loan repayments

On a more positive note, investment properties are still outperforming other asset classes, mortgage rates are at an all-time low, tenant demand is high, which is keeping void periods to a minimum, and long-term capital growth is historically good.

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Lisa Simon
MARLA
Partner - Head of Residential Division
0207 518 3234 email me about Lisa
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Lisa Simon heads up our Residential Division, which includes sales, new homes, lettings and property management across our National network. She joined Carter Jonas in 2011. Her twenty years plus experience has been largely in London and the Home Counties working with Landlords and Tenants. Lisa oversees the day to day running of our residential branches and acts as a key contact for some of our portfolio clients. She also runs our corporate services department liaising and promoting our properties to companies and their relocation agents. Lisa resides in West London with her husband and two daughters.

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