November 28, 2018
Whenever I attend National Landlord Day - the biggest event run for Landlords in Scotland each year – it is always a good time for me to reflect on the year past but also think about the year ahead, and what that might bring.
In the following article I will look back at 2018 and then, seperately next week look forward to 2019.
LOOKING BACK...
This last year for Chapmans has been extremely busy – both in terms of growing the business and team but also in bedding down all the changes that were instigated back in the 2014 Bill – including the new Private Residential Tenancy ("PRT") regime, the new Code of Practice and GDPR.
As we all like statistics I thought a few might be helpful to set the scene!
As of today’s date Chapmans have:
- Issued 66 new PRTs
- Served 1 notice to leave
- Received 4 notices to leave
- Increased our rental receipts by 34% - suggesting strong rental growth as our net number of properties has only increased by 15%
- 1 visits to Tribunal – None as a complainant thankfully but One as a guest - sat in as an observers to see what it is all about and take away the ‘fear factor’ of the unknown.
What fears did we have about the PRT?
Some of the biggest fears we and the industry had about the new regime were about the fact that there would be no initial term, the removal of the no fault ground of repossession and the fact there would be no specific student clause for ending a student tenancy. Some of the other new changes were also watched with an eager eye – such as electronic signing, and the new notice periods.
What are our thoughts now?
Below I explore the key areas of concern in turn.
1.No Initial Term
This has generally not been an issue – Landlords had concerns that a Tenant would move in and then simply give their notice to leave 2 days later. However, in reality this has not borne fruit. Most people don’t take moving lightly…it is stressful and expensive, council tax and utilities have to be switched, post redirected, broadband set up – it is hard work at best!
However, there are instances when things do go wrong, i.e. a boyfriend and girlfriend break up, they suddenly manage to buy a house, a job proposition in a different city proved too hard to turn down. In terms of business, changes like this can be frustrating when they happen but we do not think excessively short tenancies will become a major feature in the market.
In reality more concerns about the loss of the initial term have come from Tenants - they are anxious that they are going to all the cost and upheaval of moving only for the Landlord to be able to give them 28 days’ notice within the first 6 months and expect them to move out. They have been concerned that they haven’t been able to get the full security of knowing this isn’t going to happen and have to operate in good faith.
We are also seeing (and encouraging where appropriate) a gradual shift towards the popularity of Landlords investing in unfurnished properties. The cost of someone moving in and the ability of a tenant to really make that property feel more like their own, should go a long way towards encouraging the tenant to stay for the longer term.
One of the biggest impacts we have seen of not being able to have a fixed term lease is the effect on Tenants looking to move from overseas and those without a UK based credit history or guarantor. Because the new PRT lease is in effect open-ended, there is a slightly higher risk for Landlords offering tenancies to Tenants from overseas. In order to mitigate this we look to take 2 full months’ deposit (which is the maximum we can take by law) and 6 months’ rent upfront. As the Tenant can also give their notice at any stage we may need to refund any overpaid rent, so we simply drip feed the rent out to Landlords.
We have also had quite a bit of competition for our premium flats in the likes of the Quartermile Development and have recently achieved rents surpassing historic averages to offset this increased risk. Our experience gives us comfort in this area as we find these Tenants will always look to move out and back home at the end of the academic year and because we have large deposits we have full comfort we can return the property to good condition in the unlikely event of a poor tenancy.
The new PRT Regime also has a more robust route for repossession in the case of rent arrears – having both a discretionary and mandatory ground of repossession. A number of eviction cases have been successfully presented to the First Tier Tribunal and Housing Property Chamber.
2. Removal of No Fault Ground of Repossession and No Student Clause
Students – this has been an interesting one and we do see this landscape further changing and having an upward pressure on rents and a changing shift as to when these properties are marketed (traditionally, in Edinburgh, they were marketed in March before exams for a lease start date of 1st July or 1st September). However, this September the phone did not stop ringing for any properties that were suitable for students. It felt like there was a mad scramble for properties as students arrived back after the summer break and scrabbled about for a home. This was a double edged sword – on the one hand we had no issue in getting applicants for our properties but on the other hand it quickly became clear that Tenants were applying for multiple properties at the same time in desperation to secure just one. We soon became wise to this though and had to be even faster at turning round applications whilst not reducing the quality and rigour of our referencing process.
Partly as a result of this (and also the shorter notice periods – more to follow) we have also made a few changes to our application process and invested in an online application form to help speed the pr
ocess up further.
3. Electronic Signing
The new Private Residential leases can now be signed electronically. This has been fantastic as it has allowed us to secure the tenancy for the Landlord as quickly as possible, sign up guarantors speedily and process a lease signing with multi parties based in multiple locations in a really efficient and professional manner. However, we still insist on a full hours session with the Tenants before they get the keys to a property so they fully understand what they are signing up to, how the management will work and to make sure they appreciate their responsibilities as well.
4. Notice Dates and Timescales
Under a Short Assured Tenancy we could expect a Tenant to give us 2 months’ notice of their ‘Intention to Leave’ which gave us a good level of time to engage with the Landlord, re-market the property and find a good Tenant - all within a minimal void period. However, now with only 28 days’ notice to work with, it is imperative that we can communicate quickly with the Landlord and re-market the property as soon as possible.
As we remain on top of the small maintenance jobs and know our properties well, we know in advance if we think we need to do anything in-between lets – such as refresh of décor etc. However, if we are to keep down the number of days the property is empty then we are going to be relying more and more on our communications with our Landlords to make these decisions timeously. We do think larger agencies will come under pressure with the timescales but we are confident that our size, flexibility and energy will allow us to continue to keep our Landlord’s occupancy levels extremely high.
Other observations and reflections I would like to make are on the following…
** Education
This has been, and will continue to be, an on-going exercise due to the sheer volume and pace of change. We are constantly educating Tenants about the new PRT, about the fact we cannot allow them an initial term etc and also about the notice periods. On the counter side we also have the challenge of imparting this information to Landlords in a way that is quickly and easily condensed and the new risks and rewards fully understood.
** Tribunal
2018 saw the much greater use of the First Tier Tribunal and Housing and Property Chamber. All property related proceedings now run through this and the intention was to make it much more accessible and straightforward. Although we have had no direct dealings with them we have observed from afar...
The initial teething issues seem to be bedding down – it is my understanding that they had 4 times the number of applications than they were expecting with ensuing staffing issues. This now seems to have been addressed and the process itself appears to be more straightforward, the hearings seem less daunting and feel more collaborative - without minimising the authority of the Tribunal.
With any new redress body there is always a concern that overnight every single tenant with really minor issues will suddenly pursue this grievance through this channel and cause untold extra work and anxiety. However, I don't think agents shouldn’t be afraid of this– as long as they have good processes and make sure they do their job well and by the book this shouldn't be a major concern. That said, a welcome upside from the Tribunal is that it gives Landlords a right of redress if their properties haven't been well managed and we feel that Chapmans are in a good position to then engage with these Landlords and provide a better service should they wish to move.
** Code of Practice
The Government estimated 1700 agents would apply to the register – of which only c700 have applied to date and only 127 have been approved. SAL estimates the number to be closer to 2500 but no one knows due to the diverse nature of the sector from one man bands, 'Accidental Agents', small to medium sized businesses to large corporate players. Either way, we feel pressure must be maintained on the government to process these faster, but, more importantly, seek out those who haven’t even registered yet. If you work on the premise that if you are registering you are likely to be more above board than those that are in hiding!
** CSR
I continue to be actively involved in the Edinburgh Care Forum and am constantly learning about the challenges of planning for care and later years. Due to my involvement with this amazing group of experts and professionals I was recently able to secure a fantastic tenancy for one of our Landlords and for a a lovely tenant who is a victim of the Thalidomide drug. By combining m
y understanding of Guardianships, Live In Care, Self Directed Support and my ability to scrutinise the Trust Fund statement along with utilising my knowledge of the rights and obligations of a Landlord, I was able to secure a long-term Tenant to the great delight of all involved.
I am now in discussions with a MND Charity and a Christian Housing Charity to see if I can further help and assist in making private sector properties more of an option for these sorts of Tenants.
Look out for my 'Looking Forward - 2019' article I'll be posting next week.
As always, if anyone has any questions, please don't hesitate to get in touch.
Laura