How do I become a landlord

Becoming a landlord is quite a straightforward process.  You will have quite a few obligations, mainly ensuring the safety of your tenants by regularly maintaining the property and having contractors on hand to carry out emergency repairs when required.  The property and all your paperwork will also need to be in order before you move forward in the process.  For NRLA Landlord guidance on the current Covid 19 situation, click here.

Following these steps will ensure that you get everything covered.

1. Ensure that you are legally entitled to let the property

1. Depending on what type of mortgage you have, you need to notify your mortgage lender that you intend to let the property.
2. If the property is a leasehold property, you need to check your lease to see if you can sub-let it to a tenant (you may need to obtain permission from the freeholder).

2. Can you afford the costs?

When you let a property to a tenant there are initial costs involved to set it up.

These include:

• Checking with your local council to see whether your area has a local licensing scheme.
• If the property you are looking to let to a tenant will likely have multiple occupation tenants, you need to obtain an MHO licence.
• Assessing whether you need to make any repairs to the property.
• Obtaining an EPC Certificate and depending on the energy rating given on the property improving its rating performance to an E.
• Deciding whether to rent it out with appliances, furniture etc or leave it completely empty.  If you let it out with appliances (i.e washing machine/dishwasher etc) you will be expected to repair or replace the appliance if any issues arise).
• Obtaining a yearly gas safety certificate.
• Obtaining a 5 yearly electrical certificate.
• Buying battery-operated smoke alarms for the property or having them hard wired.
• Obtaining buildings insurance.
• Paying a yearly Data Protection Fee to the ICO (approx £40 per year).
• Paying for the services of an Estate Agent to find you a tenant (see point 5 below).
• Paying for:
  • A reference check of each tenant (see point 5 below).
  • A tenancy agreement (unless you download a free template yourself).
  • An itinerary of your property and its fixtures and fittings before the start of each tenancy (some Estate Agents will do this for you for a fee) (see point 5 below).
  • A deposit protection service (MyDeposits) charge a fee to give you a certificate that will enable you to hold the deposit in your own bank account (see point 9 below).

3. What changes you need to make to a property before you can let it to a tenant

Local Licensing Scheme

In some areas, landlords must apply for a licence when they rent out a property.  Once you apply, your council will then check whether you are fit to be a landlord and also make certain stipulations concerning the management of the property and that the appropriate safety measures are put in place.  If there is a local licensing scheme in your area and you fail to apply for a licence, you can be forced to pay 12 months back to a tenant and could be stopped from renting out a property in future.

Damp/Leaks

• If your property has damp, get a contractor in to put it right.
• Check kitchens and bathrooms for leaks etc.  If any issues, get a contractor in to put it right.

EPC

• Obtain an Energy Performance Certificate.  New Government guidelines state that properties with a rating of F and G must be improved to an E or above before they can be placed on the market to a new tenant.  Improvements can cost on average £1,200.  You can be fined if you don’t get an EPC when you need one.

Gas

1. If the property has a gas supply, you will need to obtain a gas safety certificate prior to you letting the property to a tenant.  You will need to renew this every year whilst you are letting out the property.  All you need to do is to find a gas-safe registered engineer to inspect and test all your gas-related appliances and accessible pipework.  The engineer will then issue you with a certificate and a copy should be sent to the tenant.
2. Any installations or works that need to be carried out on your property in relation to gas must be carried out by a gas safe registered engineer.
3. Provide carbon monoxide detector(s).
4. You must adhere to The Smoke and Carbon Monoxide Alarm (England) Regulations 2015.

Electricity

1. An electrical periodic inspection must be carried out by a registered electrician every five years, a copy of which should be sent to the tenant at the start of each tenancy.  The Government has introduced tougher electricity standards to protect tenants in this respect.  For details, click here.
2. Exposed wiring.  if you have any exposed wiring, you need to get a contractor in to put it right.  If you wouldn’t live with it, you shouldn’t expect your tenant to.
3. Ensure that electrical installations and all appliances provided are safe and stay in proper working order throughout the term of each tenancy.
4. All electrical appliances should have the CE marking.
5. PAT test all appliances.

Fire & Safety

1. All fixtures and fittings you supply should be fire safe.
2. Ensure all your windows and doors open freely so that tenants have access to an escape route at all times.
3. Provide smoke alarm(s) for each floor of the property.  If you install a battery-operated, smoke alarm, you need to ensure that it is checked and working before each new tenant moves in.  You should also email the new tenant to advise him or her that the smoke alarms should be checked every 3 months to ensure that they are working for the duration of the tenancy.
4. Provide a fire extinguisher and a fire blanket.

Insurance

1. You will need to obtain building insurance (and give a copy of the policy to your tenant).
2. You may need to purchase Landlords Insurance for your protection (optional).

Safety Responsibilities

1. Ensure that your safety responsibilities are in order.  Click here for details.

Data Protection & Landlord Privacy Policy

1. You will need to pay a yearly data protection fee to the Information Commissioners Office (ICO) and provide the tenant with your Landlord privacy policy.  The ICO requires all persons who handle personal data for business purposes to register with them.  To find out more, click here.

Trees and Shrubs

Trees and shrubs that are planted too close to a property can cause serious tree subsidence problems with your or the neighbouring properties.  When you are a landlord, you should regularly check your property for overgrown trees and shrubs, cut back or remove anything that could cause damage to your or a neighbour’s property.

Once all these steps have been put into place, you are now ready to move forward in the process.

4. Decide what length of tenancy you want

Normally you have two options, either a 6-month tenancy or a 12-month tenancy.

It is important to work out financially whether it would be more cost-effective for you to have a 12-month tenancy instead of a 6-month tenancy depending on your circumstances and how long you want to let the property for.  Finding a new tenant every 6 months, protecting deposits and estate agent fees can be time-consuming and costly.  If your tenant leaves after a 6-month tenancy agreement, you would need to pay for referencing fees and finders fees to an Estate Agent to find a new tenant not to mention the hassle of generating new tenancy agreements, itineraries of your property etc.  Think this through carefully before you proceed.  If you do choose a 6-month option, you could use OpenRent to find you a tenant which is far cheaper than using a regular estate agent.

5. Get an Estate Agent to value your property and choose a service

• Contact at least three Estate Agents and arrange for them to view your property.  Each Estate Agent will give you an estimate of its rental value.
• Ask to see the Estate Agent(s) standard tenancy agreement.  You have the right to make additions of your own within reason if you use theirs.
• Confirm that someone from the Estate Agent will be with the potential tenants during the viewing.
• Once you have decided which Estate Agent to market your property, you need to haggle the cost of their services.
• If you are happy to handle the viewings yourself, use OpenRent.

Services:

1. Estate Agent to find you a Tenant only service (Finders Fee)

If you choose this option,

Just obtain a tenant finders fee from each Estate Agent (usually one month’s rent plus VAT).  A finder’s fee usually covers the cost of finding a tenant, providing a tenancy agreement and can also include the itinerary of the property’s condition, fixtures and fittings prior to a tenant moving in.

Ensure you physically meet each tenant before you agree to any tenancy (see point 5 below).

Once the estate agent has found a tenant that you are happy with, you can either ask the estate agent to reference them for you (fees range from £30 to £60 + VAT) or find a tenant referencing company to do it for you (fees range from £20 inc VAT).

2. Estate Agent to find you a Tenant and Manage the property on your behalf

This type of service is usually an upfront fee and a monthly management fee thereafter.  It normally includes the cost of finding a tenant, providing a tenancy agreement, and can also include the itinerary of the property’s condition, fixtures, and fittings prior to the tenant moving in.  The management service includes helping with renewals, conducting regular inspections of your property at intervals specified by you, rent collection, arranging gas safety/electrical inspections, dealing with selective licensing issues, and liaising with the tenants on your behalf.  Always check with the estate agent exactly what the management service covers and get it in writing.  With rent collection, the estate agent will arrange for payments of the rent from the tenant to either go to them directly before paying you or straight into your bank account.

Property management can cost between 10% to 25% of the total rent.  Again you should at this point work out whether it would be more cost-effective to have a 6 or 12-month tenancy agreement.

Ensure you physically meet each tenant before you agree to any tenancy (see point 5 below).

Once the estate agent has found a tenant that you are happy with, you can either ask the estate agent to reference them for you (fees range from £30 to £60 + VAT) or find a tenant referencing company to do it for you (fees range from £20 inc VAT).

Even if the estate agent manages the property for you, they may still need to get in touch with you directly if there are any issues and you may still need to find your own contractors to put things right depending on what type of service you need.

3. Find a tenant and manage the property yourself by locally advertising your property on social media.

This can be tricky and we would not normally recommend this but if this is the best course of action for you, read on.

Once you know how much the rental value of the property is, you have the option of advertising this yourself on social media, a website, or local groups in the area of the property.

You could also use OpenRent.  They find you a tenant and you conduct the viewings yourself.  The cost of using OpenRent is far cheaper at the outset as you conduct viewings and select the tenant yourself.

• Ensure you physically meet each tenant before you agree to any tenancy (see point 4 below).
• Once you have found a tenant, you would need to use the services of a professional referencing company to reference the prospective tenant at your cost (fees range from £20 inc VAT).
• The referencing company will conduct checks of the tenant’s credit history, current employment and previous landlord.  You will then have this information to decide whether this tenant would be suitable for your property.
• You would need to supply your own tenancy agreement.

6. How to find the right tenant

When you become a landlord you are effectively running a business.  When you meet a prospective tenant, never let your emotions take over.  You could end up making a very bad business decision.   A prospective tenant can have good verbal face-to-face communication but when you probe deeper, you may find a very unreliable future tenant on your hands.

Here are some good tips to use to help you make a decision:

• Is the tenant presentable and speaks well?
• Advise the tenant that you expect the property to be returned in the same condition – see how they react to that.
• Ask to see bank statements for the past three months, check their income and expenses to see if they can afford the rent.
• Ask for their last three months’ payslips.
• Ask for a photo ID to ensure they are who they say they are.
• Check how long they have been on the electoral roll in their previous property.  If they are not registered anywhere, this is not a good sign.
• Get a reference from their current employer and previous employer.
• Get a reference from their previous and current landlords.
• Ask for a guarantor – a parent will be fine.
• Consider rental insurance cover – it should payout if your tenants don’t.
• Never be lured by”I can pay you two months upfront”, if the facts and figures don’t stack up, don’t do it.

7. When you have found a tenant both parties will need to sign a tenancy agreement.

Tenancy Agreement

If you use an estate agent, they usually have their own for you to use or you have the option of getting one yourself. Click here for a template.

You can ask your Estate Agent to arrange for the signing of the tenancy agreement or you can do this yourself.

1. The Landlord and the Tenant(s) need to sign two copies of a tenancy agreement on each signature page and as an added precaution, each page should also be initialed by the Landlord and the Tenant on the bottom right-hand corner.
2. Once the Landlord and Tenant have completed this, one original copy needs to be given to the Tenant and the other original copy needs to be given to the Landlord.  Now both parties have an original copy.
3. Ensure you scan and save an electronic copy of the tenancy agreement for your records and also so that you can use it later on in this guide.

Now it is time to protect the deposit and send the tenant certain information.

8. How to prepare for the tenant to move into the property

1. Ensure you have a written and a photographic itinerary of all the fixtures,  fittings, appliances and each room in the property.  You can ask the estate agent to do this for you or you can do this yourself.  You may need to refer to these if you end up in a dispute at the end of the tenancy.
2. Taken photographs of all the meters in the property (gas, electric and water) so that you have evidence of the readings to protect you from being held liable for any utilities.  Submit those readings to your provider.
3. You should also consider videoing the property before as you leave it for the last time before the tenant moves in.
4. Contact your local council tax offices to confirm the details of the tenant who will be taking over the council tax payments.  If they require a copy of the tenancy agreement, send over the signed scanned copy by email.

9. How to protect a Deposit received from a Tenant

When the tenant moves in, you need to protect their deposit.

When you rent your property to a tenant, you will need to protect the deposit on an assured shorthold tenancy that started after 6 April 2007. Currently, you must do this within 14 days of taking the deposit.  You can protect the deposit by way of a custodial scheme or an insurance-based scheme.  The custodial scheme holds the funds for you, the insurance-based scheme allows you to hold onto the deposit but register it for a fee with a company.

1. Once you have decided which scheme to use, each scheme’s website/documentation will have guidance on exactly what you need to send to the tenant.
2. Print off two copies of the Deposit Protection Certificate, sign both copies and initial at the bottom right-hand corner of each page.
3. Ensure you send a copy of the deposit protection certificate and other information (click here to find out what information you MUST give to your tenant) by post and email within the time frame stipulated.

The schemes in England and Wales are:

• Deposit Protection Service
• MyDeposits
• Tenancy Deposit Scheme

There are separate tenancy deposit protection schemes in Scotland and Northern Ireland.

If you receive a valuable item as a deposit instead of money (e.g. a car or watch), you don’t have to put it in a TDP Scheme.

For in-depth guidance here is the government website that gives you all the information you need to do this.

Holding deposits

• You don’t have to protect a holding deposit before an agreement is signed.
• Once the tenant enters into a tenancy agreement, you must then protect it.

Deposits made by a third party

If someone else has paid the deposit (rent deposit scheme or parents), you must use a TDP scheme.

10. Send the relevant documentation to your tenant on moving day

Prepare an email to the tenant and attach the following information:

• A scanned copy of the signed tenancy agreement.
• A scanned copy of the signed deposit protection certificate and relevant documentation (click here for details).
• A copy of the gas certificate.
• A copy of the electrical report.
• A copy of your Landlord Privacy Policy.

11. Tax Implications

When you become a landlord, you will need to pay tax on any profit you make after deducting expenses and allowances.  For advice on how to work out your tax obligations as a landlord and how to work out your rental income if you rent out the property(s), click here.

There are new changes to tax relief for residential landlords from April 2020, to view these, click here.  The new changes mean that you will no longer be able to offset your mortgage interest against your tax.  Depending on your circumstances, that can mean that you may receive a higher income tax bill.

We recommend that you speak with an accountant.

What happens if I don’t protect my tenant’s deposit?

Firstly, click here for Gov.UK’s guidance on this.

Your tenants can apply to a county court if you don’t use a tenancy deposit protection (TDP) scheme when you have to.  They can do this at any time during the tenancy.

If the court finds you haven’t protected the deposit, it can order you to either:

• Repay it to your tenants.
• Pay it into a custodial TDP scheme’s bank account within 14 days.
• The court may also order you to repay your tenants up to 3 times their original deposit within 14 days of making the order.

Click here to find out what information you MUST give to your tenant in writing as soon as they have signed the tenancy agreement.

What happens if the tenant wants to leave early?

If you have a good tenancy agreement, you should have a clause that covers this situation. In any event, the tenant is responsible for paying the rent for the term of the tenancy unless you have a break clause in the agreement.  If no break clause is in place, they will need to pay their way out of the agreement – the cost of that is up to you.

What happens at the end of the tenancy?

Two months before the end of the tenancy, you should contact your tenant by email and by letter to ask them to confirm if they wish to stay or to leave.

If they want to stay:

• You should request a viewing of the property to ensure the property is in good condition.
• Arrange for a new tenancy agreement to be generated and sent to the tenant to sign (as above).
• You may need to make changes to the deposit protection certificate to extend the term that you are holding the deposit.
• You will need to arrange a new gas certificate.

If they want to leave:

• You need to start looking for a new tenant.  Whilst still in the property, your tenant should be acceptable to viewings until a new tenant is found.
• You can advise the tenant you need to visit the property before the end of the tenancy.  This will help you to determine whether you need to make any repairs before a new tenant moves in or you can leave it until they have moved out if this works better for you.
• At the end of the tenancy, visit the property and check it carefully, make notes and take photographs of any damages etc.
• Liaise with the tenant, talk with them about any issues.
• Once both parties are in agreement, you need to return the deposit to your tenant within 10 days.
• If you are in a dispute with your tenant, you both need to agree on what amount is to be returned.
• Ensure you advise your local authority of the leaving date of your tenant.  If you have not found a new tenant by the leaving date, you will be responsible for the council tax payments until a new tenant takes over.

What can be deducted from the deposit at the end of a tenancy?

Deductions can only be taken when there is physical damage to property (not wear and tear).

What is wear and tear?

Light marks on the carpet would be classed as wear and tear, however, nail varnish, iron burns or damage caused through negligence would not.  If the carpet was cheap and flimsy, you cannot expect it to last the distance if you have let the property to a large family.  Consideration must be taken on whether the item was of original good quality when making a judgement.

Cleaning/repair at end of the tenancy

In considering whether cleaning/repair is necessary or complete replacement at the end of the tenancy, check your photographs to decide what condition everything was in.

How much can I deduct from a deposit?

The amount cannot be decided by anyone other than you, the landlord.  Check out the guide to deposits disputes and damages from the TDS.

Here is a great website to give you further advice and guidance on this.

Disputes

Use your tenancy deposit protection (TDP) scheme’s dispute resolution service if both parties cannot agree on how much deposit is to be returned.

Contact your TDP scheme regarding their dispute resolution service.  The schemes are:

• Deposit Protection Service
• MyDeposits
• Tenancy Deposit Scheme

Help and advice

You can get more help and advice from:

• Citizens Advice Bureau
  
• Solicitor

Landlord Insurance:

There is currently no legal requirement (as of Feb 2016) that you must have Landlords’s insurance.

A Landlords’ insurance policy would cover you for non-payment of rent, loss of earnings, damages to your property and any re-housing costs.  You could be covered for the building and/or contents that belong to the Landlord and if the tenant suffers an injury in the property, it covers liability for that too.

Some people opt to have just normal buildings insurance on the property and have the tenant take out their own contents insurance but to be sure, you should discuss exactly what you need with your insurer to make sure you get the cover you need.

How to evict a Tenant (Landlord Help)

Here is the government’s website that gives you all the information you need and what steps to take.

If you want to do this yourself, you may want to try Landlord Action.

Landlord Action’s three-step service: step one (serving notice), step two (instigating court proceedings) and step three (eviction).

Lastly and most importantly don’t forget you need to pay tax on your earnings.  Click here for details.

Find further how-to guides:

How to become a landlord	What is council tax	Re-Mortgage a Property
How to rent a property	How to Extend a Lease Agreement	Insurance you need for a Property
How to protect a tenant deposit	Improve your Property to Sell	Insurance
Surveyors	Conveyancing Solicitor	Mortgage Finder