Tax Man in Hot Pursuit of Landlords – guest blog by Roberta Ward of My Property Mentor

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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This post first appeared on Roberta’s excellent My Property Mentor Blog on 19 October 2009.

You may not be aware of this- I certainly was not-but HMRC are actively searching for landlords who are avoiding paying tax either by accident or by design.

HMRC is actively searching local newspapers for information on planning applications for flat conversions.

If the planning application was for a number of flats within one house they will try to find out if the landlord was filing a tax return. (Sneaky!) They are checking for a ‘UTR’- Unique Taxpayer’s Reference. This 10 digit number is ta way for them to start the chase up. It allows them to see if the taxpayer was declaring the letting income. If you are then you would be entered on the “Not Worth Further Pursuit” database.

However…..
If you are Self Assessment registered and not declaring the income, the fun begins. They will send a 116 form, requesting information from the District Valuer, this tells them how much the landlord paid for the property, date of purchase and from whom the landlord purchased it. ( eeek!)

The next step is for them to check Experian to seek any further linked addresses to your name. If so, they will send more 116s, and see if more properties were not declared. More often than not, this yields spectacular results for the HMRC.

So, what if they are unsuccessful? Well, they may ask the District Valuer for a ‘Covosearch’, a historical list of properties, bought by the landlord, or possibly members of the landlord’s family friends and associates. If by chance the family member is a minor, they will suspect the landlord of attempting to limit his tax liability, and that non-compliance was taking place. (You have been warned!)

Further Enquiries
Now, if they decide that you are part of non-compliance, your case would be then be subject to a full enquiry. On the other side of the coin, if you are not on Self Assessment, you would be referred to the ‘Hidden Economy Team’, where you would be requested to complete returns with the letting income included. OK, hands up those who knew just how much power the HMRC have to chase you? How many investors have been advised by greedy marketeers and brokers into setting up sizeable portfolios in their family members/ kids/ friends names to avoid the many forms of tax?

Other Ways They Can Chase You
Apart from the local newspaper, another source of locating non-compliant landlords is via a Gangmasters’ project of licensed labour providers, which may have offshoots of properties owned in which a vast amounts of tenants were placed in just one room. (When we had a large influx of EU members there were stories of Polish workers living cheek by jowl in this manner.) Usually a family member would be acting as the landlord, leaving the Gangmaster to exploit the workforce.

Yet another way of locating non-compliant landlords is to establish (via the London Information System (LIS) database) how much housing benefit was paid to a landlord by a local council for the tenants. Local councils are duty-bound to place this information on the LIS database for HMRC.

Last but not least, they can also find, via LIS, rental income submitted to HMRC from letting agents. (Ed: they may also be able to track you via the tenancy deposit schemes which pass information on to the government)

Get Your Tax Sorted-NOW!
This government is very strapped for cash and in my opinion we can expect more of this type of behavior. We know already that banks are employing forensic accountants more and more now too (see my recent blog here for more info). The situation is likely to get worse as the government search more actively for spare cash trapped in the system. The tax man is coming folks- you have been warned. Sort your stuff out sooner rather than later.

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If you need help, Roberta's service may be able to assist. You can email her via her main website http://mypropertymentor.co.uk.

Snippets from the Property Investor News

Reading (rather late) the October issue of Property Investor News, I came across these interesting snippets of news:

Insurance
Apparently a survey by insurance firm Direct Line for Business has thrown up the fact that many landlords are cancelling their insurance policies 'to save money'. Presumably these are people who are signed up to their own insurance schemes (otherwise how would they know)? I could not find any mention of this on their web-site, however I did note that their landlord insurance does not cover lettings to students.

Maintenance insurance for agents
Another one on insurance. Apparently many letting agents are carrying out maintenance work on rented properties without being properly insured. Agents are warned to watch out for this and not do any maintenance work unless they are sure they are covered. Apparently many office policies for letting agents exclude cover for this, meaning that agents won't even be covered for changing a light bulb. You are warned!

Student stereotypes
Finally research by Rookwool shows that actually students are not as rowdy as everyone thinks, as there is only one complaint made for every 557 students. Many student are actually more concerned with studying hard and getting a good degree, "and arguably may have more to fear from the noise generated by the rest of the town".

Where next for the Private Rented Sector?

At the recent CLT Conference I attended, there was an excellent talk by Professor Martin Partington OBE (former Law Commissioner) on possible future developments in the Private Rented Sector (PRS). I set out below a very condensed version of his notes (with his permission).

He started by saying that the PRS is now a key feature of the housing market and one which the government needs to encourage. He looked briefly at the prospect of large scale investment in the sector (most private sector landlords have only a few properties) such as the Kick Start delivery initiative, and concluded that it remains to see if these actually result in any developments, although it could happen.

The Rugg Review
Turning to the Rugg Review, this was commissioned by the government after the Law Commission (under Professor Partington) had spent several years carrying out an extensive consultation and research exercise in the same areas. Needless to say, there is a strong suspicion among many that the Rugg Review was commissioned because the Law Commission’s report did not say what the government wanted!

The Rugg Review recommendations can be summarised as follows:

• A ‘light touch’ licensing system for landlords and mandatory regulation for agents
  
• A new independent complaints and redress system for consumers
  
• Tax changes to encourage good landlords, and changes to stamp duty to help them buy more properties
  
• Look at ways to see how PRS can help lower income families, including support for landlords willing to house vulnerable people
  
• Local Authorities taking steps to better understand the sector and do more to support good landlords, tackle bad ones, and promote tenants rights

The Law Commission was disappointed that it decided against the legal changes recommended in its reports, but it seems that the Rugg approach reflected more closely what government officials were thinking.

The Government’s Response
This was published in May 2009 and was discussed on this blog here. The issues which it looks as if the government will want to take forward are:

• The National Register of Landlords
  
• A requirement on landlords to provide a tenancy agreement
  
• The compulsory licensing of letting agents, and
  
• The raising of the AST threshold limit to £100,000.

The report confirmed that the government are not proposing to implement the Law Commission’s proposed legal changes (note – this recommended two simple tenancy types – one for the PRS and one for social landlords - to replace the current plethora of tenancy types, which many find very confusing) as it could lead to too much upheaval in the market.

However Professor Partington does not agree with this view. In his opinion, for the PRS to achieve its full potential, it is essential that there be a much closer analysis of how the PRS and the social rented sector interact. The Law Commission’s recommendations would have allowed for this.

‘Light touch’ regulation
After its mammoth consultation exercise, the Law Commission did not feel that mandatory self regulation would be appropriate plus it was likely to prove too expensive. However the Government have become attached to the idea of a Landlords’ Register.

The governments paper though, does not appear to address the key question of whether ‘light touch’ licensing will actually be effective in driving out bad landlords. The Law Commission had come to the conclusion that any licensing scheme would either be ineffective or not light touch. This is why they recommended instead, a program of self regulation via landlords associations’ and local authorities working together to promote accreditation and standards.

Tenancy agreements
However Professor Partington was happier with the conclusions on tenancy agreements. The question here however is whether:

1. There will be minimum standards set, allowing individuals to draft their own agreements, based on these standards, or

2. Whether prescribed model agreements will be set out in legislation, which landlords can add clauses to, to reflect individual circumstances.

He suspects the latter, and does not think that the first option would work.

Licensing of letting agents
There is a large body of opinion in favour of this and it is likely that the government will do this, although the paper is short on detail. We will have to see what happens.

Conclusion
Although it looks as if the government are going to do something, it is not entirely clear what this will be. The Conservatives however, in their recent Green Paper have indicated that they will (if they get into power) conduct a review of the PRS to see how it can play an enhanced role in the housing market.

Maybe this indicates that the Conservatives are unhappy with the approach taken both by the Law Commission and the Rugg Review and are looking for a further review to justify a different approach.

(With thanks to Professor Partington for allowing me to use his notes for this post.)

How to protect yourself against rogue landlords

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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An interesting article in the Cash section of the Observer today looks at the increasing tendency of tenants to check up on their landlords before signing a tenancy agreement. And quite right too! As has been reported on this blog in the past, innocent tenants have been known lose their homes at short notice and through no fault of their own, due to their landlords dishonesty. To quote the article:

"When the Council of Mortgage Lenders (CML) started compiling buy-to-let data in the second half of 2005, only 200 investment properties were in mortgage arrears of three months or more. By the first half of this year, this had soared to 5,400. Repossessions of investment homes also climbed, from 400 to 2,800, during the same period."

Rules are now being put in place to protect tenants from this sort of thing, but even if they do not actually get evicted, the threat of eviction can cause massive worry and upset.

So what can tenants do to protect themselves? Referencing a landlord in the same way that landlords reference tenants is one good option. The article refers to TenantVerify, a service used by many landlords. However there are now also special services being developed for tenants, for example that provided by Rentchecks.com which costs £24.95. You need to get the landlords permission to carry out the check first, but if the landlord refuses to give this, that is a bad sign in itself and indicates that he has something to hide.

The article also points out that if the tenant rents via an agent who is regulated by one of the professional agent organisations such as ARLA, this will offer some protection, as "a good Arla agent will check the landlord's mortgage and insurance company have been informed the property is rented." However you cannot guarantee that this will be done, and as many agents are in financial difficulties, it is possible that they will not enquire too deeply if they think it will scare off a new customer.

There is no doubt though that using a regulated agent is safer than using an unregulated one, who may turn out to be a 'cowboy' who will provide a poor service, or even 'do a runner' taking with him other people's tenancy deposits and rent. The agents regulation organisations to look out for are:

• ARLA - the Association of Residential Letting Agents
  
• RICS - the Royal Institute of Chartered Surveyors
  
• NALS - the National Approved Letting Scheme
  
• NAEA - the National Association of Estate Agents

All of whom will have client money protection in place, a complaints procedure (via their professional organisation), and whose staff are likely to have been properly trained. It is also a good idea to check whether the agent is registered with the Property Ombudsman.

Another thing tenants need to check, is what is being done about their tenancy deposit. Most tenants should now know that deposits need to be protected by one of the government authorised tenancy deposit schemes, but it is surprising how many people, including many landlords who should know better, are unaware of this. For example in a recent survey the DPS discovered that some 30% of deposits were still not being protected. Talk to your landlord or agent about this and find out which scheme is being used before paying the money over.

The article concludes by saying that if tenants find debt collectors knocking at the door this is bad news and they should seek advice from a reputable organisation such as the Citizens Advice Bureau as soon as possible. Another good choice is Shelter who have a free housing advice helpline on 0808 800 4444.

However even if the worst does come to the worst, thankfully it does look as if more lenders are now willing to appoint a receiver instead of evicting the tenants, and if you find yourself in the position where your landlords lenders are threatening to evict you, you should contact them and suggest this to them. Or get Shelter or the CAB to help you with this.

Have you had problems with your landlord? Or have you any tips on checking up on landlords before renting? If so please leave a comment, below, I would love to hear from you.

Complaints against letting agents are at an all time high, reports the Observer

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Letting agents are supposed to be the experts in lettings. Many are excellent. Unfortunately however, there are a lot of 'cowboys' about. The growing level of dissatisfaction with many agents is made very clear by an excellent article in the Cash section of the Observer today, which states that a number of surveys show increased levels of complaints from tenants regarding incompetent landlords and (in particular) letting agents.

The Property Ombudsman's figures show that in July there were a record 1446 complaints about private lettings, more than 110 per week, and since summer 2008 there has been 44% increase in complaints about lettings. Which, as many people fight shy of making official complaints about problems, indicates that the real level dissatisfaction is far higher. Particularly as, unfortunately, it is not compulsory for agents to belong to a scheme such as his, or indeed any scheme.

The CAB reports that 73% of tenants were unhappy with their letting agent. Top complaints with them are the time taken to carry out essential reports, and additional charges levied, e.g. for referencing and renewals. Shelter also report a big increase in complaints, particularly regarding the return of tenancy deposits.

Surely it is time for letting agents to be regulated? Or at the very least, be required to be a member of the Property Ombudsman scheme.

Long term tenants in Norwich

As a solicitor I see a lot of problem tenants and find myself writing a lot about problem situations, so it is nice to do a post about a tenancy, reported here on Norwich Evening News 24 website, which has been 100% successful. Doris and Jack Goodson have been tenants of their home in St Lawrence Street, off Pottergare, since 1967 and they have loved every minute of it.

Mr Goodson: “We've been ever so happy in this house. I wish we could take 40 years off so I can have another 40 years in the house. We have lovely neighbours and we all get on really well together."

The pair are the longest-standing tenants of Norwich Housing Society, who are this week celebrating their 75th anniversary.

Maybe if you choose the right tenant, you too could have no voids for 42 years!

Taking in a lodger may invalidate your insurance

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

See also my new website The Lodger Landlord.

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This is the subject of an excellent (if worrying) article in today's Observer. Were you aware that failing to make proper enquiries, or taking in students (which some insurers find particularly objectionable "because the lifestyle of students - bringing friends home and perhaps leaving doors unlocked - poses a greater risk" according to the Bank of Scotland), can leave you without cover?

"We cannot provide home insurance to lodgers or paying guests because you [the policyholder] are giving access and responsibility for the security of your house to someone you do not know," said a spokeswoman for esure, "If a policyholder takes in a lodger without telling us, their home insurance is potentially null and void because withholding this information counts as non-disclosure."

Other insurers say the same. For example the Bank of Scotland: "If a policyholder did so [rent out a room] without informing us, this could invalidate the cover". Even if you are covered, an insurer is likely to refuse to pay out against losses from burglary, if there is no evidence of forced entry.

So what should you do? Here are some suggestions:

Tell your insurers
This is probably the most important thing. If you can show that your insurers were told, preferably in writing, that you were going to take in a lodger, and they did not warn you that your policy was at risk, you will have a good chance of successfully challenging any non payment of claims on that basis. Make sure you contact your insurers in good time, so that if they say that you will no longer be covered, you have time to find another insurer before the lodger moves in.

Carry out checks against your lodger
You should of course be doing this anyway. You need to take references and consider also getting a credit check done (there are many companies online which will do this - you will find some listed here). Make sure you double check that referees actually exist, and that the telephone number given is not that of a friend of the prospective lodger! For example employers details can be verified by looking in the telephone directory or online.

Get your lodger to sign a letter confirming they have no unspent criminal convictions
Many landlords will find it very embarrassing to question potential lodgers (who they may then be sharing a home with) about this. Probably the best thing to do is just give them a form to sign, saying that it is a requirement of the insurers. Of course if the insurers themselves produced a form for landlords to use, this would make things easier.

It seems from the Observer article that insurers will expect landlords to question lodgers about unspent convictions. Zurich told them: "We do want a homeowner to ask tenants about criminal convictions because you have to declare, at inception or renewal of a policy, if anyone in the property has a conviction. We could decline a claim and void a policy because of non-disclosure. If the lodger lied to the homeowner we would look at it on a case-by-case basis. If the policyholder can prove they have a process including written confirmation, this is as much as they can do."

Find another insurance company if necessary
If your current insurer is proving difficult, this does not mean that you will be unable to find cover. For example companies which specialise in landlord insurance may be able to assist. If your lodger admits to a past conviction, but you still want to let a room to him, the charity Unlock (the National Association of Reformed Offenders) may be able to help you find an insurance company prepared to offer cover.

In conclusion
It is very important to be aware of this problem and to deal with it when taking in a lodger, Otherwise you may be in a position of suffering losses but without being able to make any claim against your insurer.

(NB All quotations are taken from the Observer article)

A company let of a room in a shared house?

Over on the Property Tribes forum, there is a question by a lady letting out a room. Her prospective tenant/lodger told her that as he is self employed, he is going to have the rent the room out through his company.

My view is that a company let of a room in a shared house or a room as a lodger, is wholly inappropriate, but having been put on the spot, I can't put my finger on just why! (Maybe its because it is late on Friday evening ...)

Do any other lawyers have any views on this?

The London Landlords' Show - 9/10 September at Olympia

Just a reminder to people that I will be speaking at the London Landlords' Show tomorrow and Thursday.

On Wednesday I will be talking on 'Essential Legal Points for Landlords' at 3.15 pm, and on 'Dealing with Rent Arrears' at 4.15 pm in the auditorium. I will also be doing a clinic between 2.00 and 3.00 pm.

On Thursday I will be talking on 'Essential Legal Points for Landlords' at 10.30am and doing a clinic between 12.00 and 1.00 pm.

Those who attend the talks will also be entitled to use a special online resource I have set up here. The enrolment key will be given out at the talks.

Tenancy deposit arbitrations - why landlords keep losing

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

Reading through the excellent 'Landlord & Buy-to-Let Magazine' today (September/October 2009 issue), I particularly enjoyed reading the landlords diary at the back by Barry Brunton. This gave some interesting background information on tenancy deposit arbitration's, which I thought I would share with you.

I was especially interested as a number of readers of this blog have posted their complaints about too tenant friendly arbitrators, for example here. In the context of this, Barrys article is quite enlightening.

He makes the point first that the tenancy deposit belongs to the tenant, and the landlord, if he wants to make deductions, is making a claim which he will have to prove by evidence. And if you do not provide this, you will lose your claim, the arbitrator is unlikely to write and ask you for it. For example:

• Inventories - these need to be a detailed condition report on the property not just a list of the furniture in it. To make a claim for damage to furniture (for example) you are going to have to prove that it was in good condition at the start of the tenancy. It is best that this is done by an independent firm of inventory clerks
  
• You will also need a check out report, again this should be done by the independent inventory clerks
  
• Photos are generally of no value as they could be of anywhere. Presumably if they are signed by the tenant and inventory clerk on the reverse and dated they should be acceptable. If used they should be clear and have something (such as a ruler) to show scale.

Barry then explains how an adjudicator would approach a claim for a damaged carpet.

• He would want to know the condition of the carpet both at the start and at the end of the tenancy
  
• Evidence of when it was purchased
  
• The cost of replacement
  
• And the normal life of such a carpet
  
• He would consider whether it could instead have been cleaned
  
• Or whether any stain is relatively insignificant and can be left
  
• In his award he will consider fair wear and tear
  
• And base his award on the cost of replacement carpet but not underlay
  
• For a ruined 3 year old carpet, the landlord (he says) will be lucky to get 40%, even if he can prove everything, as a tenants deposit is not a 'new for old' insurance policy

This is a bit different from in the old days, when the landlord would just deduct the cost of a new carpet leaving the tenants to sue him at the county court if they disagreed.

It seems that adjudicators also expect landlords to post notices explaining how things work and will accept a tenants excuse that he did not know (and therefore is not responsible for damage through misuse) even if the landlord has provided manuals. For example in one case, a tenant ruined a lawnmower by not putting oil in, but he successfully argued that he should not be held responsible as there was no 'check oil before use' notice on the mower, even though this was set out the manual he had been given.

I am beginning to see why landlords are often so incensed at arbitration results. I agree that the landlord should have to prove his case, but this seems a bit too much. I wonder whether a Judge in a County Court case would have come to the same decision.

Have you any stories to tell? If so please post a comment.

In the next issue, Barry is going to talk about adjudicators dealings with claims relating to gardening, condensation and tenants changing. Order your free copy now.

Letting to companies

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Most residential lets are to people, real people who are alive and who physically live in the property. However sometimes lettings are made to a limited company. If this happens there are a number of important differences and a few things to watch out for.

Firstly, lets to companies are not assured shorthold tenancies (ASTs). The reason for this is that the act which set up the protective code which governs ASTs, the Housing Act 1988, specifically states that its provisions apply only to 'individuals' i.e. not to artificial beings such as companies. Companies are businesses (so the argument goes) and do not need the protection that the act gives.

What this means is that 'company lets' (as they are called) are governed by the underlying 'common law', the legal rules which regulated tenancies before the Rent Act and Housing Acts came along to change them.

The main practical effect of this is that:

• you should not use the standard AST agreements found in shops and on the internet, but a tenancy agreement designed for company lets (we provide one at Landlord-Law here)
  
• You don't use section 8 or 21 possession notices. The correct form of notice is an old style Notice to Quit
  
• The procedure and paperwork for evicting tenants is different

Why do people rent property through a company and not individually? There are a number of reasons. For example, it may be tax related. It may be so that they can provide accommodation for a number of staff and directors on a short term basis. Or it could be to provide accommodation for an employee or director who would not pass normal referencing.

You do need therefore, to be careful with company lets. Although they can be lucrative, bear in mind that you do not really have any control over who the company places in the property once let (technically you can take steps to repossess for breach of contract but practically this is difficult to do during the fixed term, for anything other than rent arrears). You therefore need to take steps to protect your position, before the property is let. I would suggest :

• Doing a search against the company at Companies House. If your property is an expensive one, consider buying a more detailed report and (in particular) checking the last few years' accounts
  
• Taking a guarantee from at least one director, preferably two
  
• Checking carefully the references of the guarantors and getting credit checks done
  
• Asking for details of the person(s) who will be living in the property and checking them also
  
• Either letting for no longer than six months at a time, or ensuring that (for longer lets, eg a year) the tenancy agreement has a break clause.

You should also take a tenant/damage deposit. The good news here is that as this is not an AST you do not need to protect it in a tenancy deposit scheme, as the tenancy deposit regulations only apply to ASTs.

If you are careful, as with all tenants, you should, hopefully, be all right.

Letting agents going bust - three top tips for landlords to protect your position

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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Rumour has it that quite a few letting agents (although not all by any means) are in financial difficulties. What does this mean for landlords, and what can they do to protect themselves? Here are some tips:

1. Make sure that your agent has payment protection.
Ideally all client money should be kept in a special clients account, separate from the agents own money. If this is done, the money will still be available even if the agent becomes insolvent. Most reputable agents will do this, and it is a requirement of codes of practice, for example that for ARLA members.

If you are worried about this, perhaps if your agent is not a member of one of the agents professional organisations and there have been serious delays in the payment of rent to you, you might want to consider changing the arrangements for payment of rent so it is paid direct to you in future, by the tenant.

For information, the main professional bodies are:

ARLA - the Association of Residential Letting Agents
RICS - the Royal Institute of Chartered Surveyors
NALS - the National Approved Letting Scheme
NAEA - the National Association of Estate Agents
The Guild of Letting & Management

2. Check what the situation is regarding the tenancy deposit
All tenancy deposits taken after 6 April 2007 in respect of assured shorthold tenancies need to be protected in a government authorised tenancy deposit scheme. Failing this, section 21 notices will be invalid, and the tenant can claim the return of the deposit and a 'fine' of three times the deposit amount. You, as the landlord, will be liable for this, even though it may be the agent who is at fault. So you need to check both that the deposit has been protected, and the tenant has been served the relevant notice containing the prescribed information. Failure to do either of these can trigger the penalty.

Another problem is if the agent becomes insolvent and the deposit is not held in a trust/client account. The tenant will be protected, as the tenancy deposit scheme will pay the deposit to them. However the scheme will then look to the landlord (ie you!) to refund them. Under the law of agency you are liable for the acts (or omissions) of your agent. This sort of situation is most likley to occur now with My Deposits, as the Tenancy Deposit Scheme run by the Dispute Service now only accepts agents who are members of recognised professional bodies, and these all require client money protection.

The safest scheme, so far as the landlord is concerned therefore, for the agent to use, is the Deposit Protection Service. Here the money is actually paid over to the scheme administrators, so there can be no question of the agent running off with it.

3. Keep copies of all paperwork
My final point is regarding the paperwork. If your agent goes under, you will need either to take over the management of your properties yourself, or arrange for another agent to take over. This will be much easier if you have copies of all the relevant documents. This should include, particular:

• The tenancy agreement. This is essential. Make sure that you have an up to date copy of the signed agreement for all your tenants
  
• Notices served. For example the tenancy deposit notice, and any possession and other notices served, ideally with details of how and when they were served and by whom

It would also be useful to have:

• Any referencing documentation. You should be provided with copies of this when the tenant is chosen, so you can satisfy yourself that the tenant found is suitable. This information may also be helpful at a later stage if the tenant defaults on his rent payments.
  
• Other documents regarding the management of the property, such as gas certificates, letters of authority regarding housing benefit, records of servicing or maintenance work done at the property, and the like. Agents are unlikely to provide copies of these unless you ask for them. However if you do ask, they are supposed to provide you with what ever documentation you want (if is your property after all and they are your agents).

If your agent proves evasive about passing over copies of documents requested, a visit to his office might help, particularly if you indicate that you will not be leaving until you have them. Strictly speaking the paperwork is yours and you are entitled to it.

Hopefully your agent is financially sound, of impeccable integrity, and your properties are safe in his hands. However there is no harm in taking a few precautionary measures.

Discrimination against East European workers in rented property

A recent report on the BBC website highlights the fact that many letting agents are discriminating against migrant workers when renting property. In particular against Polish, Portuguese, Latvians, and Lithuanians.

This question of discrimination against ‘foreigners’ in letting property is not new, and is not confined to the UK. If it a difficult topic. On the one hand, no landlord should not be forced to let to someone he does not want to let to. On the other hand it is illegal for him to discriminate on the grounds of race, religion, colour, religious beliefs, national or ethnic origins. How can this be reconciled?

I suppose one answer is that, if the landlord keeps his opinions to himself and does not tell anyone why he is rejecting a particular applicant, particularly if has a reason for rejecting them which is not connected to their race/national or ethnic origins, there is not a lot anyone can do about it. However if he specifically tells his letting agent ‘No Eastern Europeans’ and the agent goes along with this, then it is clearly against the law.

One question I have not seen answered is why Eastern European migrant workers are being discriminated against in this way. Those I have come into contact with personally, have been decent hardworking people. Is it perhaps because it is more difficult to reference recent migrants? Or do landlords fear that they will up sticks and go back to their home country without warning, leaving large rent arrears? Or do landlords find it more difficult to weigh up and judge foreign nationals, and assess their suitability (particularly if they do not speak English well), in the same way that they do with people of their own nationality?

It has to be said that none of these are entirely unreasonable fears. However, applying blanket judgments against a whole nation is not only unfair but obviously wrong.

One final point. The BBC article refers to this sort of discrimination being against the National Association of Estate Agents mandatory code of practice for its members. However many agents are not members of the NAEA. This is perhaps yet another reason why we should have mandatory regulation of letting agents.

What do you think?

Who do you most admire in property?

Perhaps it is a letting agent who (contrary to the bad press which agents often get) has really looked after your properties well and found you great tenants?

Maybe you are a tenant and you think the service provided by your landlord is exceptional?

Or perhaps you know of someone who has achieved something incredible, perhaps overcoming adversity to build up a great property business, or whose service has inspired you and others?

What about your lawyer? Lawyers are generally only used when people are in trouble - has your lawyer really helped you when you needed it, or does he or she run an exceptional service which gives you great support?

Rented properties generally need furnishing. Do you have a supplier with fantastic products at a great price who goes that little bit extra to help his customers?

Or have you been blown away by a service (perhaps an online service) which is really innovative and different?

What about public services? Has your local authority really helped your business, or is there another public service, or person working for a public service, you would like to see recognised?

Why am I asking all these questions? Well, the Landlord & Buy to Let Awards are currently open for nominations. Why not nominate the people or services you thought of when reading the questions above? Even if they don’t win, it will give them no end of a boost to know that someone thinks enough of them to nominate them. And if they win, this could really help their business or career.

Its very easy to nominate someone (and you can nominate as many people or services as you like). Click here (or the Landlord and Buy to Let awards logo on the sidebar) to see information about the awards and a link to the categories. Then click the link to enter someone into the awards. There is then a short online form to fill in, send that off and, bingo! Its done.

You can also nominate your own firm if you like, but its nice to promote someone else. But don't delay too long, as the closing date for entries is 21 August 2009. Why not do it now?

New blog from DPS director

A new blog has recently been started by Kevin Firth, a director of Computershare, the company behind the Deposit Protection Service. The blog is called The Letting Protection Service Blog. There are only a few entries so far, but one of them has a little video, so it looks as if Kevin will be using videos as well as written posts on the blog.

The Letting Protection Service (which I was not previously aware of) is a separate company (although still part of Computershare) offering various services to landlords, such as inventories, guarantees and tenant referencing.

Kevin says "Over the next few weeks, I’ll be using this blog to offer my own tips and advice". I wish him all the best for his new blog.

Advice for landlords seeking to recover commission post OFT v. Foxtons

You are a landlord. You are not a 'professional landlord' (i.e. you do not have a large portfolio and landlording is not your main business). You have paid commission to your agent (who may or may not be Foxtons) in the past, even though they were not managing the property. The commission was charged under a clause which was buried in the small print of your agency agreement and not drawn to your attention before you signed. In the light of the Foxtons case decision, you want to reclaim it. What should you do?

Initially, the answer is "not much", as the recent decision is not necessarily the end of the story. First, the Judge states at the end of his judgement that the practical consequences of his decision are yet to be either agreed between the OFT and Foxtons, or will be the subject of a further hearing. So that needs to be sorted out.

Second, this was a High Court decision, and High Court decisions can be overturned on appeal to the Court of Appeal, (and possibly then again on an appeal to the House of Lords). At the present time, we don't know whether Foxtons will appeal or not.

Whether Foxtons appeal will probably depend on the decision in the other big (even bigger) OFT unfair contract terms litigation, which is the case against the banks on bank charges. There is a House of Lords decision due out at some stage on this (the case was heard at the end of June), so we all need to wait and see what happens.

So overall it is tricky to predict the final outcome in the Foxtons case and how it will affect other clauses providing for commission on renewals in non managed agency contracts. My gut feeling is that Mr Justice Mann got it right in his decision in the Foxtons case, so far as it went, and I think it is unlikely a court will want to substantially alter his judgement (other than perhaps to take it further).

However I am not so sure that the House of Lords (or the Supreme Court as we will shortly have to call it) will feel very happy about coming to a similar sort of decision in the banks case, if this will require banks to pay back millions of pounds in charges to customers, at a time when most of the banks are still a bit fragile after the crash. It is not unknown for HL decisions to be influenced by politics (for example Lord Hoffmans judgement in Birmingham City Council v. Oakley [2001]).

So what should landlords do? Well I agree with others posting on this subject (for example the National Landlords Association and the Residential Landlords Association) which is that they should send a letter now to their agents, requesting them to return the commission paid within 14 days, to establish their claim. However once this is done, my advice is then to wait and see what happens. I will keep posting on this topic, and will try to keep you up to date, as will the landlords associations.

If though, your agent was Foxtons under one of their old agreements criticised by the Judge, or if your agent had a very similar clause which was buried in the small print of your agency agreement, and you don't want to wait, you could consider issuing proceedings now to get a place in the queue of similar cases in the County Court that is no doubt building up. However, no-one can be certain of anything at present, and always bear in mind that if you lose your case, you may have to pay your agents' legal costs.

Hating Foxtons, and another case

I was very amused, while surfing the internet recently, to find that there is a whole web-site dedicated to hating Foxtons - www.wehatefoxtons.com. If you are interested in the landlord business and have a spare few minutes, it is worth a look, if only for the amusing spats between those posting (which include landlords, tenants, and Foxtons employees).

However there is one interesting case, which you can read here, Foxtons Ltd v Willis Estates Ltd, which was heard on 3 June 2009 at the Brentford County Court.

In this case the landlords, no fools, had deleted the renewal commission clause from the Foxtons agency contract before signing. The property was then let to tenants, the tenancy agreement signed, and the tenants paid the initial payments. In the interregnum between this happening and the tenants moving in, someone at Foxtons twigged that the agency agreement had been changed and they were on line to lose their renewal commission. They therefore told the landlords that they had to sign a new agency agreement, and that if they did not they would not release the keys to the tenants and the letting would not go ahead. The landlord signed.

The court case was the agents claim for the commission. The Judge found for the landlords, saying that as the property had been let, there was no consideration for the second agreement (this is a legal term which means that a contract is only enforceable if both sides provide something of value), plus it was void anyway as it was signed under duress.

An interesting case, not only on the renewals commission saga, but also for shedding light on Foxtons business practices. The landlords here recommend that other landlords using Foxtons, get the tenants to pay rent to them, the landlords, direct rather than to Foxtons so they do not have funds out of which to deduct their commission claims.

Letting agents - instead of renewal fees

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

I was a bit shocked, although I suppose not entirely surprised, to read in the excellent 4wallsandaceiling property tribes forum about what some greedy letting agents are doing to replace the renewal commission they are going to lose as a result of the decision in the OFT v. Foxtons case.

They are contacting tenants and persuading them to leave at the end of the fixed term, so they can earn commission on finding a new tenant for the landlord.

In fact they will be gaining twice from this manouvre, as they will presumably get commission from the landlord of the property the tenants are moving too also, having done little work for it.

The agents on the 4walls forum (who don't do this) ask whether this practice is legal. The answer is no. This is probably a good time to take a look at the law of agency, which most people have either forgotten or think does not exist.

Trotting over to the bookcase to get out my book on agency law, I find this rather good quotation from a Judge in an agency case:

"The position of principal and agent give rise to particular and onerous duties on the part of the agent, and the high standard of conduct required from him springs from the fiduciary relationship between his employer and himself. His position is confidential. It readily lends itself to abuse. A strict and salutary rule is required to meet the special situation."

The fiducuary duty is an important one. I have sourced a nice definition from Gillhams Solicitors LLP which you can read here. Agents would do well to study it.

Under agency law there are a number of principles and rules, which are in essence as follows:

• The agent must perform his contractual duties, and follow his principals (ie the landlord's) instructions
  
• He must do this with 'due care and skill' appropriate to the type of work he is doing
  
• He must not delegate his duty (without the principals consent)
  
• He must not put himself in a position where his duties to the principal conflict with his own interests
  
• He must not take bribes
  
• He must not take advantage of his position or his principals property in order to obtain a benefit for himself, and
  
• He has a duty to account (ie he must keep his principals money separate from his own, and hand it over, together with all relevant documents and accounts when asked)

I am sure many landlords will smile ruefully on reading this, their experience having been quite different. From what I hear about many agents (not all of them), they seem to have no idea that they are acting in a fiduciary capacity and appear to be acting in their own interests only.

So what can a landlord do if he finds that his agent has acted against his interests, and persuaded his tenant to leave so he (the agent) can earn a new commission finding a replacement? Well I would that thought that, as this is a clear breach of the agent's fiduciary duty, the landlord can go to court and claim both a refund the commission received by the agent for re-letting the his property, and the commission received by the agent respect of the property to which the tenant moved, along with a refund of all expenses incurred by him as a result of the tenant vacating.

It might be an idea, if a clear example of this practice is found, for a test case to be brought (possibly funded by one of the landlords associations??), so these agents are made aware of their responsibilities.

NLA Property Women Awards

Further to my post yesterday, I have been reminded by the National Landlords Association that they also have awards, and have recently announced the finalists in their Property Women Awards 2009.

I am happy to support the sisterhood and publish their names here:

•East of England: Karen Murray, Irene Turner and Christeen Wilson
•East Midlands: Tracey Abbiss, Rachel Hutchinson and Sarah Stanier
•London: Barbara Gwyer, Kate Partridge and Valerie Pierres
•North East: Anne Jackson, Karen Rutter and Julie Willis
•North West: Pauline Ginty, Malika Jennings and Sylvia Marrs
•Scotland: Elaine Stenson, Pauline To and Gerry Whelan
•South East: Susan Hainsby, Kathy Nevell and Rosemary Robertson
•South West: Anne Jarrett, Caroline Lindegaard and Fiona Macaskill
•Wales: Sandra Cook, Jane James and Elizabeth Paterson
•West Midlands: Gillian Coleman, Glenda Houston and Joanna Phillips
•Yorkshire & The Humber: Samantha Allen, Shona Davison and Sandra Widdrington

There is also a green property women awards, whose finalists are

•Green: Fiona Macaskill, Kathryn Nevell and Elaine Stenson
•Young: Amy Dixon, Elaine Duthie and Sophie Macaskill

Good luck to you all! I trust that there will also be many women entrants to the Landlord and Buy to Let awards.

Tessa is a Judge!!

Just to let you know that Accession Exhibitions & Publishing Ltd (who run the Landlord & Buy to Let Show) have now launched the Landlord & Buy to Let Awards which look to be very exciting. There are a number of award categories (for example landlord of the year, insurance services, customer service, letting agent etc) and entries can be submitted up to Friday 21st August. The event is sponsored by Residential Investments.

Judges are myself, Oliver Romain, Editor, Landlord & Buy-to-Let Magazine, Ian Potter, Operations Director, Association of Residential Letting Agents (ARLA),Tom Entwistle, Proprietor, LandlordZONE, Simon Gordon, Communications Director, National Landlords Association (NLA) and Alan Ward, Chairman, Residential Landlords Association (RLA).

The awards will be announced at a posh dinner at Birmingham NEC on the evening of Friday 16th October 2009, to be hosted by TV presenter and Landlord campainer Konnie Huq.