Updates and points to note in relation to buy-to-let residential properties
Whether you are an experienced investor in the UK property market or new to the buy-to-let market, as a landlord, you should be aware of the following updates.
Energy Performance Certificate (EPC)
To let or sell a property, a valid EPC will usually need to be provided to the tenant or buyer. An EPC is valid for 10 years and shows the energy efficiency of a property on a sliding scale basis with A+ being the most efficient and G the least efficient. If the recommendations in the EPC are undertaken (if any), the potential rating can be increased.
A new EPC is not required each time there is a change of tenancy or when the property is sold provided that the existing certificate has not expired.
Under Minimum Energy Efficiency Standards, residential properties for which an EPC is required can currently only be let if they have an E rating or above unless one of the exemptions applies. This means that lettings of domestic residential properties with an EPC rating of F or G will be in breach of the relevant regulations (unless exempted).
There are limited temporary exemptions for properties with an F or G rating to protect landlords where it is not technically advisable, financially feasible to bring those properties up to an E rating, or if a tenant refuses to permit works. Once registered, most of the exemptions are valid for five years, however some capital expenditure may be required before successfully registering an exemption on the PRS Exemptions Register.
Landlords are required to carry out all relevant energy efficiency improvements to try to bring their property up to an E rating. However, this is subject to a spending cap of £3,500, which applies to the overall cost of improving the property.
Whilst some authors have indicated that residential properties will need to achieve a C rating by 1 April 2025 to be let, it should be noted that this is not yet the law. There is indeed a bill proposed in Parliament to increase the minimum EPC rating to C for new residential tenancies from 2025 and for existing residential tenancies from 2028. However, this is only a bill and not the current law. Nevertheless, landlords should be aware of the direction that the government appears to be moving in.
Selective Licensing Scheme
Some councils have implemented a selective licensing scheme requiring private landlords of residential properties to apply for a licence if they intend to let their property in designated areas. Landlords should check if their council have implemented such a scheme. If so, a licence should be obtained before letting the property. The council may charge a licence fee and the licence will normally last around five years. Landlords should check the requirements of the relevant council to ensure they comply with the same.
If owners let a licensable property without a licence, this can result in prosecution and an unlimited fine if convicted. The council or the tenant may also be able to apply to court to require landlords that have not obtained a licence for licensable properties to pay back up to 12 months’ rent to the tenant if the order is awarded.
Whilst some councils may not have a selective licensing scheme, they may have a Houses in Multiple Occupation (HMO) licensing scheme. If applicable, landlords should check if they need to obtain an HMO licence.
Renters’ (Reform) Bill
The Renters’ Reform Bill was introduced to Parliament on 17 May 2023. Under this bill, there will be changes to the private rented sector (if implemented) including:
- Abolishment of ASTs which will be replaced with periodic assured tenancies;
- A ban on section 21 no-fault evictions (currently landlords can serve section 21 notices to evict tenants without fault of the tenant. Under this draft bill, a landlord will need to seek possession under specified grounds);
- Changes to the grounds for possession on which the landlord can use to evict tenants;
- Changes to the statutory procedure for rent increases;
- Right for tenants to request permission (not to be unreasonably withheld) to keep a pet;
- A new ombudsman for the private rented sector; and
- The introduction of a new digital portal to enable landlords to understand their obligations and help tenants make better decisions when signing a tenancy agreement.
Whilst this is still a bill and not yet the law, landlords should nevertheless be aware of these proposed changes.
Tenant Fees Act 2019 (Act)
Existing landlords should already be aware of this Act which came into effect on 1 June 2019. However, for new investors, the purpose of the Act is to change what landlords or letting agents can seek to recover from a tenant of an AST. It also restricts a landlord’s ability to serve a valid section 21 notice to terminate an AST until it has returned any prohibited payment to the tenant.
An example of a prohibited payment is requiring a tenant to engage professional cleaners at the end of the tenancy. However, an AST may include a term that the property is cleaned to a professional standard but not require the tenant to use professional cleaners.
Landlords should check that their tenancy agreements do not contain any prohibited payments.
Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA 2022)
Under the ECTEA 2022, a new Register of Overseas Entities (ROE) was created at Companies House. Overseas entities (OE) owning or acquiring a qualifying estate (i.e. a freehold or a lease granted for more than 7 years) are required to register on the ROE to disclose its beneficial owners and obtain an overseas entity identity number (OEID).
OEs that own a qualifying estate should have already applied to join the ROE by 1 February 2023 (except OEs that became registered owners of property at the Land Registry before 1 January 1999). Failure to comply with this registration obligation is a criminal offence which may lead to the OE and its officers being subject to a fine or imprisonment. OEs owning UK property must annually update the information submitted to Companies House. A failure to comply with this duty is also a criminal offence.
Any OEs that intend to buy a qualifying estate must obtain an OEID before they apply to register their ownership at the Land Registry following completion. However, if the OE is entering into a legal charge, the OEID must have been obtained before executing the legal charge.
The Land Registry will have automatically entered a restriction on the title of properties held by OEs. It will be a criminal offence for any OEs to transfer, charge, or grant a lease for more than 7 years without having obtained an OEID.
In addition to the points highlighted above, landlords have other general legal responsibilities when letting property, such as ensuring compliance with health and safety legislation and protecting tenancy deposits. Property law is an evolving area of law. If you have any queries, you are recommended to seek specialist advice from a qualified property solicitor.
The International Residential Team at Charles Russell Speechlys LLP has a wealth of experience in acting for buyers, sellers, companies, banks and other lenders. While the focus of this note is on English residential property, our Firm also advises on commercial property and rural and urban estates, which requires specialist advice.
