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The legal minefield of buy-to-let

PUBLISHED: 18:11 28 June 2011 | UPDATED: 19:37 20 February 2013

The legal minefield of buy to let.

The legal minefield of buy to let.

Buy-to-let property has long been an attractive investment, as Guy Stephenson of Spratt Endicott Solicitors in Banbury explains

The legal minefield of buy-to-let

Buy-to-let property has long since been an attractive investment and has proven lucrative for professional landlords during the recent economic downturn when demand for rental properties has increased. Buy-to-let demands more legal assistance, and this article seeks to briefly examine the main legal concerns.

Having chosen the property to purchase, a buy-to-let mortgage may need to be secured; this involves arrangement fees. Other costs incurred can include letting agents fees, insurance, and service charges and ground rents if the property is leasehold. Part of the solicitors or letting agents fees will comprise the drafting of the tenancy agreement.

A tenancy created on or after 28 February 1997 will automatically be an Assured Shorthold Tenancy (AST) unless the landlord has served a notice on the tenant stating the contrary (or if, for example, it is a business tenancy, tenancy of a licensed premises or at a rent of over 100,000 or a holiday letting).

In instructing the solicitor or letting agent to draft the tenancy agreement, a buy-to-let landlord will have to consider the following issues.

Firstly, the length of the term. The tenancy can either be a fixed term, the end date being specified in the agreement, or a contractual periodic tenancy which will run indefinitely from one rent period to another. The frequency of the rent payments is, therefore, also important.

Secondly, a landlord will have to decide whether or not to require a deposit. Since 6 April 2007, landlords taking deposits will have to join a tenancy deposit scheme (TDS). If a landlord fails to join a TDS, the landlord may be liable to financial penalties and may be prevented from recovering possession of its property from the tenant. There are two types of TDS, custodial whereby the landlord pays the deposit into the scheme and it is held there until the tenancy ends, and insurance. This is where the landlord retains the deposit but secures it by paying a fee and insurance premiums to the scheme administrator. The premiums are used to pay the tenant if the landlord were to misappropriate the deposit.

The final important consideration is the contents and repair obligations. Due to buy-to-let tenancies normally being short term, the contents of the property should be noted comprehensively and repair clauses should be specific. This will minimise any disputes at the end of the tenancy or during, should a withdrawal from the deposit be necessary.

In addition to the above agreed responsibilities placed on the landlord and tenant by the tenancy agreement, there are statutory legal requirements. The landlord, for example, must provide an Energy Performance Certificate, ensure that gas and electrical supplies are safe, and repair, if necessary, any sanitary installations, the structure, exterior and heating systems. Equally, the tenant has the responsibility to pay the Council tax, rents and other amounts agreed.

Spratt Endicott Solicitors have a team of specialists to provide advice on all property related matters. For more information, please contact Guy Stephenson on: 01295 204059, email: gstephenson@se-law.co.uk, or visit our website at www.se-law.co.uk

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