Property Letting

You have a number of unavoidable obligations:

Repairing covenants
Under the Landlord and Tenant Act 1985, the landlord must look after the structure and exterior of the property, and the installations for the supply of services (gas, electricity, water, sanitation and heating). You'll find this in the Assured Shorthold Tenancy agreement for England and Wales and in the Short Assured Tenancy agreement for Scotland. The landlord should also look after the roof of the property, drains, gutters and the garden, if there is one.

Gas safety
Under the Gas Safety Regulations a landlord must have the gas equipment at a property inspected every year by a Council for Registered Gas Installers (CORGI)-registered plumber and give the certificate to the tenant. Landlords should check the current regulations with their local health and safety executive, who enforces them.

Furniture, electrical equipment and general product regulations
These regulations require furniture to be fire-resistant, and all electrical equipment and other items in the property to be safe. You can get further information from your local trading standards office.

Covenant of quiet enjoyment
This is part of all tenancies and it means the tenant should be able to live without interference. The landlord can't enter the property without the tenant's consent (except in an emergency), should keep the property in a proper condition, and should not do anything or allow anyone else to do anything which would affect the tenant's rights, for example, stopping services to 'persuade' the tenant to leave.

A landlord who lets a number of separate flats in a property has a duty to his other tenants because of the covenant of quiet enjoyment. For example, if one tenant is a nuisance, the other tenants will look to the landlord to solve the problem, and if necessary evict the disruptive tenant.

Insurance
The landlord has an obligation to insure the property and its contents but the tenants are responsible for insuring their own possessions. The landlord should be certain his insurance policy is suitable for rented property - his normal household insurance generally will not be. Check the terms of the policy carefully, as some policies exclude cover for lettings to some types of tenant. The agreements included in the Residential Lettings Kit allow the landlord to give the tenant a copy of the insurance policy. This is so the landlord can hold the tenant responsible if he does anything that voids the insurance or causes the landlord's premiums to increase.

Try these ideas, in this order:

Reduce the rent
If you can't let your property at the price you want, then try reducing the rent - even as little as £2 per week less can make a difference.

Be less picky
For example, if you've asked for non-smokers, then consider smokers. A local cleaning company may be able get rid of the smell quite easily.

Put furniture in the property
This will be expensive and is no guarantee that the place will attract tenants. Consider this if you are getting calls rejecting the property because it's unfurnished.

Consider selling it
This is a drastic step, because most properties in the UK are lettable - it's just the rent you are asking for that might put off possible tenants. However, if you are experiencing trouble letting it, think about getting out! You could sell it and buy something else.

If you have a mortgage or are going to let a leasehold flat, you need to check to see if you need to obtain permission from your mortgage company or your landlord before letting. If consent is not obtained, this could have serious consequences, including the lender or landlord taking possession proceedings against you. Your mortgage company may impose conditions for letting; needless to say, you should be careful to comply with these.

In England and Wales, strictly speaking, there is no need to have signatures witnessed if the tenancy agreement is for a term of less than three years. However, it may be a good idea to have any guarantor's signature witnessed, particularly if they do not sign in front of you. The witness can be the same person for all three signatures on the agreement.

In Scotland, it's recommended that the tenancy is witnessed, as it then becomes self-proving.

In order to create a proper Short Assured Tenancy, you must complete an AT5 Notice of a Short Assured Tenancy which must be used with a Short Assured Tenancy Agreement. The completed AT5 Notice must be given to the tenant(s) before the agreement is signed and dated. It can be given at any time before the agreement is entered into. However, you must be able to prove that it was given to the tenant before he or she signed the agreement, so it's wise to give notice at least one day in advance.

If you're worried about a prospective tenant's ability to pay the rent, it's wise to take a guarantee from a third party. For example, guarantees are often taken from parents of students when they sign tenancy agreements. However, you should take up references and do credit checks on guarantors, as you would on a tenant; it's no good having a guarantor who is as impecunious as a tenant.

It's unwise to allow the tenant to take the tenancy agreement away to get the guarantor to sign it; it has not been unknown for tenants to forge guarantors' signatures in these circumstances. If the guarantor doesn't sign the agreement in front of you, make sure that the signature is witnessed by someone you can trust, who can vouch for their identity.

If you want to increase the rent, unless the tenancy agreement provides a rent review clause, rent can only be increased by agreement or by service of the proper form of notice.

You can always increase the rent by including a rent review clause in a new form of tenancy agreement, to be signed by the tenant at the expiry of the old agreement, or at any later date when you decide to increase the rent. The tenant will not normally be able to challenge the rent increase because he will be deemed to have agreed to it by signing the new tenancy agreement.

It's partly because rent is so frequently increased in this way that landlords are advised to keep fixed terms fairly short. If a tenant refuses to sign a new agreement with a higher rent, the rent can be increased by serving a special form of notice; however, you should note that the tenant will be able to refer the proposed new rent to the Rent Assessment Committee for review, if he or she  feels that it's too high. For this reason, many landlords choose not to use this procedure. If a tenant is refusing to co-operate by not agreeing to sign a new tenancy agreement with an increased rent, you always have the option of putting pressure on the tenant by serving a notice requiring possession under section 21.

It's against the law to evict a tenant by force, or to harass a tenant to make him leave by, for example, cutting off the gas or water. If you try to evict someone without a court order, you could be liable for criminal prosecution and/or a claim for damages by the tenant. If you need to evict a tenant, you should consult a solicitor before taking any action.

Here are five hints:

1. Decorate the property in a neutral style
2. Buy property in high demand areas
3. Be less fussy about the type of tenant you are willing to accept
4. Buy a type of property for which there is high demand
5. Advertise the property in plenty of time before the end of the current tenancy

If you receive income from furnished lettings, it is taxed under the property income rules.

If you provide laundry, meals, domestic help, etc. for your tenants, then you may be able to claim that you are running a self-employed business - as you usually can if you are providing holiday lettings (see below). The advantage of running your property enterprise as a business means that there are usually more expenses you can claim against Income Tax and, in addition, you may be able to claim business asset taper relief for Capital Gains Tax and business property relief for Inheritance Tax purposes.

• The accommodation must be available for holiday lets for at least 140 days per year.
• The accommodation must be let for 70 days in the year.
• No let must exceed 31 days.

The income is treated as earned income (a trade) attracting Capital Gains Tax rollover relief and business asset taper relief.

Tax-saving ideas worth thinking about...

• Rollover of capital gains on the sale of trading assets into the purchase of holiday accommodation.
• Any gain on the sale of the holiday accommodation may eventually attract Capital Gains Tax at only ten per cent.
• You can claim capital allowances on furniture and equipment.
• If you make a trading loss from your holiday lets, you may offset it against your other income or capital gains in the same year or the previous one.

However, don't buy the accommodation with a substantial mortgage because HM Revenue & Customs may regard your motives as not being commercial and don't forget about the VAT consequences if you are VAT-registered.

If you let a room in your house and you are an owner-occupier, or a tenant who is sub-letting, the first £4,250 of any income is tax free, i.e. a rent of £81.73 per week is tax free.

If the rent is higher than £4,250, you either elect to pay tax on the surplus above £4,250 (without relief for expenses) or you can treat the arrangement as being a furnished letting and prepare accounts.

• Repairs: You are obligated to use the property in a 'tenant-like manner', which means that you will be responsible for any repairs that are your own fault, even if they would otherwise fall to be paid for by the landlord. Generally, the tenant is responsible for the condition of the interior of the property, but your landlord may restrict you in the tenancy agreement from doing any redecoration. You must pay for anything that is broken and damaged in the property during the tenancy and your landlord can deduct the cost of this from the damage deposit. 
  
• Outgoings: The landlord will not normally want to be stuck with paying your bills, so tenancy agreements provide for you to pay them. However, if there is a number of different tenants coming and going on individual tenancy agreements, the utility accounts may have to be in the landlord's name. If there are any accounts that the landlord will pay, for example some landlords pay the water rates, then the tenancy agreement should be altered to show this.
  
• Use of the property: You must use the property solely for residential purposes, as otherwise you may put the landlord in breach of planning regulations. The landlord will also want to prevent the tenant from letting anyone else live at the property, as he will only want tenants whom he has checked and approved.
  
• Access for the landlord: This is important, as the landlord will need to visit and inspect the property from time to time, to ensure that the property is in good condition, and to do any repairs and gas safety checks. The landlord will retain keys to the property; however, he or she should never use these without your consent, except in an emergency.
  
  

Assured shorthold tenants have the right to refer rent matters to the Rent Assessment Committee. In England and Wales, however, any referral must be made within the first six months of the tenancy. In Scotland, it can be made at any time during the period of the tenancy.

The Committee can only consider the application if there is a sufficient number of similar dwelling houses in the area, and will only reduce the rent if it considers it to be significantly higher than might reasonably be expected, compared to rent paid under similar tenancies in the locality.

Once a rent has been determined by a Rent Assessment Committee, the landlord cannot serve a notice of increase until more than 12 months have expired since the date of determination.

You can give notice to end your agreement provided you can find a suitable replacement tenant. If you can't find such a replacement, you will be responsible for the rent until the end of the agreed tenancy, even if you have physically left the property. In any case, you cannot end the agreement during the first three months of your tenancy.

According to The Buy-to-Let Bible's author, a good buy-to-let property will give you around 12 per cent of the purchase price each year in income, so if your new property costs £45,000, you would hope to get around £450 per month in rental.

If similar properties in the area are rented out at £350 per month, you know your property will struggle to bring in the rent you need and maybe you should consider investing somewhere else.

Kitchen
Is the kitchen big enough to accommodate a small dining table? This is attractive if there is only one reception room and it turns the kitchen into a kitchen-diner.

Smallest bedroom
If the smallest bedroom is smaller than 6' 6" in any direction, then it's not a bedroom! You need to be able to get a bed in a bedroom, so this room can only be considered as a study or a baby's room. You need to think about this when deciding what type of tenant you are looking for. If you're looking for two professional people to share a two-bedroom flat, then the second bedroom must be bigger than 6' 6".

Bathroom
Is there a fitted shower? A bathroom is a lot more desirable if there is a power shower. If there are two bathrooms then the property is very desirable, even if one is only a shower room.

Heating
An old heating system can be expensive to replace. If possible, get it checked before you buy the house. It's your legal duty to provide heating and to issue a gas safety record.

Electrics
Are the electric sockets old? This will tell you that at some point the whole electric system will need rewiring.

If you are new to the property game, it's probably best not to. It's time-consuming, stressful and you lose money while the property is not being let out.

If you are experienced, have the time and can afford to do without the incoming rent, then it could be worth your while. Always remember to double the amount you think you'll spend because unforeseen costs almost always emerge.

It's possible to borrow everything you need by taking out an unsecured personal loan and using it as a deposit on your new property. However, this is a risky way of investing, and you should probably only do it if your income is much higher than your spending.

Another option is to arrange a 100 per cent mortgage. Some offer several times your salary, plus your partner's salary, and you can find a list of providers in Lawpack's book, 'The Buy-to-Let Bible'.

If you do have enough money for a deposit on your new property, it's often easier to get a buy-to-let mortgage than a normal one, because the property rental income - not your income - will fund the repayments.