Communities and Local Government CommitteeWritten evidence submitted by Keith Williams

Background

This submission is made in response to the notification that The Communities and Local Government Committee has decided to conduct an inquiry into the private rented housing sector, and the invitation of submissions by the Committee from interested parties.

In considering the position generally, and the specific topics being considered by the Parliamentary Committee, I believe it important that the position, and views, of private landlords is fully understood and recognised. Such landlords form a significant proportion of those providing houses to let by tenants. Many are not part of any formal organisation, and as such there is a danger of their views and knowledge not being fully recognised by the Committee unless submissions such as this are considered. Accordingly I am writing to you to let you know my thoughts as a private landlord.

In the last 12 months my wife and I have recently purchased and let out for rent two houses. My wife and youngest son also own another property that is rented out. My eldest son is a tenant of a property owned by a third party, (and lets out his own house whilst he is living away which we help manage on his behalf). As such we have an interest in the letting of four houses.

They each agree with the views expressed in this letter and are joint signatories.

Headline Views

I provide information below about our experiences and the reason for our headline views that can be summarised as follows:

1.We support the existing type of six month Assured Shorthold Tenancy Agreements.

2.We support the regulation of Letting Agents.

3.We do not support the regulation of landlords themselves.

4.We do support the regulation of certain aspects of the quality of property that is let.

5.We do not support rent capping.

6.We do not support any increased protection to tenants.

7.We support an improved process for tenants to address poor landlords and for landlords to address poor tenants.

We explain the reason for such views below.

Information to Support each View

1. Type of tenancy agreement

1.1 Each of our properties are let on a six Month Assured Shorthold Agreement, which at the end of the six months becomes a statutory tenancy.

1.2 We chose this as we strongly believe it best suits our needs and those of the tenants.

1.3 We have also found that tenants themselves prefer this type of Agreement.

1.4 It provides us and the tenants with some security that the agreement is in place for a minimum of six months.

1.5 If at any time after the end of the six months we as landlords are not happy with the tenant because they have not looked after the property or acted in a way that breaches the terms within the Agreement, then at the end of the six months we can give two month’s notice to the tenant requiring them to leave the property.

1.6 Equally if the tenant wishes to move out of the property for any reason (which could include that the landlord is not meeting their obligations or simply that the tenant doesn’t want to live there any more) at any time after the end of the six months then the tenant can give just a month’s notice and end the Agreement.

1.7 Alternatively if both the tenant and the landlord are happy with the tenancy agreement, the agreement can continue on a rolling one month statutory tenancy for as long a time as both wish.

1.8 We feel this is best for both the tenant and ourselves. Each party needs flexibility and the chance to end the agreement (with due notice) but equally if both are happy with the arrangement there is no need to keep entering into new agreements every six months which can be costly for both parties.

1.9 It is financially advantageous for a landlord to retain the same tenant after the initial six month period ends as otherwise there will be a period when no rents are received and further agents costs are incurred to find a new tenant. As such it means that the landlords have a financial interest in trying to keep their tenant happy in the property.

2. Regulation of Agents

2.1 We used the services of Estate Agents, who also provide a letting service, for each of the four properties mentioned above. The services we engaged them for were:

Advertising the property for rent.

Undertaking credit and reference checks for prospective tenants.

Obtaining and registering the deposit with a government approved scheme.

Drafting the lease agreement and getting that signed by the tenant.

Preparing an inventory of the property, including photographs of the condition of furnishings etc, and agreeing the inventory with the tenants.

2.2 (We explain why we only used the Agents for these services, and why we undertook others ourselves, below.)

2.3 The range of costs and the quality of service that we received from the Estate Agents varied considerably.

2.4 Generally the Estate Agents provided a good service in taking photographs and marketing the property for rent (which is very similar to what they do regarding houses for sale, so they should be good at it).

2.5 They also provided a good service regarding the inventory (for similar reasons) and by having an Agent prepare this, agree it with the tenant and keep a copy of this, they provide a useful third party service in minimising any disputes at the end of the tenancy regarding any deposit the tenant should give up for damage to the property and its furnishings etc.

2.6 The agents also provide a useful service in undertaking credit and reference checks, depersonalising this issue between the tenant and the landlord and protecting the tenant’s private financial details from the landlord. But the process still gives the landlord the necessary level of assurance that the tenant is able to pay the rent and has a “good” reference/credit history.

2.7 However the Estate Agents were all poor in other aspects for example:

2.8 Each Estate Agent uses their own draft Shorthold Agreement. Whilst each provided the general legal sections for such an agreement their “standard” expectations/requirements within the agreement varied considerably, as did their views as to what should, or should not , be expected of the landlord and tenant. For example, the tenant’s right to change the electric and gas providers, allow visitors (and the period of their stay), the times when they had to keep noise to a minimum. There seems to be no reason why a standard agreement should vary so much and we do think that there should be a norm across the industry (whilst of course allowing landlords and tenants agree any change of wording if they so wish).

2.8 Also when using their own standard drafts, the Estate Agents did not take sufficient care in their refinement eg not correctly making amendments regarding whether pets and/or smoking were allowed or not, or not removing other amendments made for other specific clients that had no bearing on our particular property. On each occasion when the Estate Agent prepared the Agreement we have had to point out several errors on the draft agreement.

2.9 We consider that there needs to be some central body that measures the quality of the “Approved” Agents work on the drafting, structure and completion of tenancy Agreements.

2.10 Additionally, the advice we received from the Estate Agents as to how often we should inspect the property whilst tenanted varied considerably. That causes confusion to both us and the tenants.

2.11 The Estate Agents that we used were all “main street” reputable firms. But as covered above, even then the quality of service we received regarding the finalising of the tenancy Agreement was poor and varied. I believe that regulation of the Agents, with checks on quality and guidance on standardisation of Agreements, would be beneficial to both landlords and tenants.

2.12 Services we did not engage the Estate Agents for include:

2.13 Showing prospective tenants around the properties as we did this ourselves. This enabled us to get a feel for the quality and trustworthiness of the tenant. This is important as a poor tenant can cause damage to the property (which may not all be covered by the deposit), fail to comply with all the terms of the agreement (eg the making of excessive noise etc). It also enabled the tenants to meet us as landlords and form their own views of us. We consider that a good relationship between the landlord and tenant is good for both parties.

2.14 We also take responsibility for dealing with the tenant during their tenancy, including arranging any repairs to the property etc. We do not engage the Estate Agents to manage the properties on our behalf because we want to provide the best service possible to the tenants, which we don’t think the Estate Agents will. We are also concerned that the Estate Agents will just pay any charge raised by a repair person as it doesn’t impact on them financially at all and there seems to be no National Standard of what they should charge for this service or of its quality and cost effectiveness.

3. Landlords

3.1 We are sure that the type and quality of landlords varies considerably (as it does with tenants). But we think private landlords, who own and rent out only a few properties provide an important role in our society and economy. We would suspect that most are conscientious and caring landlords, who provide properties which are good homes for others. They invariably form a good relationship with the tenants and fully comply with all the requirements of a landlord.

3.2 Onerous regulation of such private landlords is likely to make many cease to rent out a small number of properties, which we believe would have a negative impact on the quality of properties provided to tenants, and the economy generally.

3.3 We consider it is the landlords who rent out a lot of properties as a full time business are more likely to be those who do not act in a reasonable way. Perhaps there could be regulation of landlords who own above a set minimum number of properties (eg 10)?

4. Regulation of Properties

4.1 There are already regulations regarding the quality and safety of the properties that are provided to tenants. For example the need to have an annual gas safety check and certificate, and to have an energy performance certificate.

4.2 We believe that there should also be a regulation (rather than a recommendation) regarding the electrical safety in a house (ie the same for gas). All good landlords will have electrical work checked and made safe as a matter of course, so making this a regulation will just support that. But it will also then compel other, less responsible, landlords into doing this too.

5. Rent capping

5.1 Whilst it is generally reported that rents have increased considerably in the last few years, we do not believe that the rents charged by the vast majority of private landlords are excessive.

5.2 The gross rents that we receive for our properties are approximately 5% to 7% of the current value of the house. From this we have to pay interest on the loan for the property at a rate of 3.5%, and annual costs for building insurance, gas safety certificates etc. These costs account for another 0.5% of the house value. As such our “profit” from the property is about 1% to 3% of the property value, from which we have to pay for any repairs and miscellaneous overheads.

5.3 This doesn’t take into account any loss of rent due to non-payment by tenants or periods when the property is not let.

5.4 The net profit is probably a lower percentage than we could secure by putting the equivalent amount of money into a Building Society Savings account, and for the latter we would not have to undertake any work, or be at risk of financial loss.

5.5 In the past good profits could have been made by landlords via property value increases over a number of years. But this is unlikely now for several years—in fact landlords are suffering losses from falling property prices.

5.6 As such we do not support the capping of rents—the rental market is competitive and the market should be left to set its own rates. Tenants will not pay an excessive level of rents for an unsuitable property.

5.7 If a decision is made to cap rents, then that should be at a level that provides the landlord with a reasonable percentage profit based on the value of the property let after their costs, and should only be introduced with stronger laws to enable landlords obtain the rental income (eg for housing benefits to be paid directly to the landlords).

6. Protection to tenants

6.1 Tenants are already well protected if they have a proper six months Shorthold Tenancy Agreement in place as covered at (1) above.

6.2 Tenants have security of tenure of the property for a minimum of six months, and only have to give one month’s notice thereafter to vacate the property whereas the landlord has to give two months notice.

6.3 Even when the landlord has given two months notice it can be very problematic to actually get the tenants to vacate the property, requiring various legal actions, and costs, that can take several months (during which the landlord invariably receives no rent).

6.4 If the tenant has financial problems following for example loss of employment, Government benefits provide enough money to enable them pay a fair rent. So there is no need for any tenant not to pay their rent (unless they chose not to or chose to spend it on other non-essential items).

6.5 If benefits to people do not provide sufficient money to pay a fair rent then the Government should address that by the amount of benefits people receive—or to pay the rent directly to the landlord on the tenant’s behalf. It should not be for private landlords, who as we have shown above make very little profit from renting out properties, to subsidise the living expenses of people on behalf of the Government.

6.6 We therefore do not support any increased protection to tenants than they have now.

7. Improved Process to Seek Redress

7.1 We believe that the legal process for both tenants and landlords needs to be improved.

7.2 For the tenants it can be extremely hard to get a landlord to undertake a necessary repair—either quickly or at all. They have little redress to address that other than perhaps costly legal action or simply moving to another property (which again involves them in costs).

7.3 If there was a body that regulated landlords with a large number of properties (who are more likely to be the “poor” landlords) then that body could deal with such complaints from tenants and address that directly with the landlords—with the possible ultimate sanction of withdrawing their approved landlord status if they did not comply with their landlord obligations.

7.4 For the landlords it can be a very difficult, lengthy and costly process to recover unpaid rent and/or to evict a tenant—even if the landlord has complied with all their obligations and legal requirements.

7.5 The process for redress needs to be more fairly balanced (and not as seems at present weighted heavily in favour of the tenant).

7.6 If there was a National Regulatory body then perhaps part of its function could also be to act as support to both tenants and landlords in any disputes they have between them? I am not sure that there is any such support facility available at present, other than through the Courts.

We hope that the above is helpful to the Committee.

January 2013

Prepared 16th July 2013