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A legal guide for 'buy to let' landlords

The ‘buy to let’ market has seen a significant increase in the recent years. This type of property market investment creates great potential for a return but legislation and new reforms can make the property investment market difficult to understand.

The following guide aims to explain the rights and legal obligations of landlords. If you would like to speak to one of our speclised property solicitors at Jones Whyte, please give us a call on 0141 413 3423.

Buy To Let image

Finding the right property

In order to have a successful investment, it is necessary to choose the right property to buy. Considering the right market is therefore a crucial first step. Whether you are wishing to choose to rent your property to families or students, there are various factors to consider. Speaking to letting agents within the area you intend to buy will be worthwhile. It will allow you to establish how the local market is currently performing, for example.

Generally, it is best to choose a property that will be reasonably priced and easy to maintain. It therefore may be a reasonable idea to stray away from older buildings in order to avoid additional maintenance costs.

Registration

Prior to renting out the property you have purchased, it is necessary to register with the local council in order to ensure that the minimum legal requirements are met.

Properties rented out by accredited landlords are in higher demand than those of non-accredited landlords.

Landlord Accreditation Scotland provides details on how to achieve the status. Essentially, confirming that you meet their standards and criteria will strengthen you ability to become an accredited landlord.

HMO Licence

A house in multiple occupancy licence (HMO licence) is necessary if you intend to rent your property to three or more unrelated tenants.. Renting your property out to three unrelated students for example, will require you to hold an HMO licence but renting to a family of four would not.

There are additional criteria you will be required to meet before the council will grant an HMO licence. The council will need to assess whether the property meets all required standards and that it is managed properly. In addition to this, the council will have to establish that you are fit and proper to hold such a licence. Failure to obtain an HMO licence and comply with the legal requirements can lead up to a fine of £50,000.

Once you have registered, your licence will be valid for three years. You will need to renew your licence prior to your registration expiring.

Exemption to registration

There are also circumstances when you don’t have to register with the council to rent your property out and these are as follows:

-properties which are holiday lets

-properties rented out to family members

-properties with resident landlord

-properties which provide care services

-properties managed by religious orders  

Landlord expenses

Once you have purchased a property, it is necessary to establish how much rental income you might potentially make. This process will allow you to make a comparison of landlord expenses versus potential return. You can therefore ensure that you will have all the necessary information and good knowledge to establish whether becoming a buy to let landlord is the right investment for you. For further advice on landlord expenses visit your local letting agency .

Mortgage costs

Taking out a mortgage to buy a property to let will be your biggest monthly expense. There a various mortgage providers and therefore you will have a number of various possible options.

Speaking to a mortgage advisor at such a stage is crucial in order to ensure you will get the best possible rates. It is always useful to avoid variable rates as rates could increase substantially and consequently inflict additional costs upon you.

Letting agents costs

Using estate agents to market your property will expose you to more potential tenants. That being said however it is essential to consider that you should budget for the additional expense.

It is possible to instruct the estate agency to deal with rent collections, tenant enquires and any problems, which may occur during the tenancy. If you wish to proceed with the approach of getting your estate agent to manage the tenancies on your behalf, you should be prepared to pay 10%-15% of annual rent on this service.  

Maintenance of the property

It is difficult to work out what the maintenance costs of a property will be but it is good to be prepared and budget for smaller but more frequent expenditures.

Refurbishment costs

Every property requires refurbishment and therefore expenses in relation to this are unavoidable. The costs will depend on the type of property and size of it, but it essential to budget for refurbishment expenses. Landlord guidelines estimate that the rough costs spent on a property ranges between £2,000-£3,000 every 5 years.

Landlord insurance

Most mortgage providers will require you to take out landlord insurance to ensure you are protected in all possible situations.

It is also good practice to ensure you take out a comprehensive insurance to cover the building as well as the contents of the property. There are various types of insurance and the cost of it will vary on the type of the property you will be insuring as well as how comprehensive you wish the cover to be.

Void periods

When considering how much profit you will make, it is essential to account for the potential periods of your property being empty. Whether you wish to market to rent your property out to students or families, it is good to allow room for the possibility of the property not making any profit in situations such as repairs or tenancies changes.

Tax on rental income

Receiving an income from letting a property out means that you will need to complete a self-assessment form. This all depends on how much income you will make from letting your property out.

Rental income not only includes payments made by your tenants in relation to rent but also covers any other payment your tenants will make for the services provided to the property such as cleaning of the communal areas.  

Generally speaking you can deduct any of the expenses you incur through running of the property. Payments that you can include in deductions are cleaning fees, letting agent fees, mortgage interests and any other costs such as insurance.

Tax on rental income is taxed on the same basis as your employment income and therefore for guidelines on this, you can visit the HMRC website.

It is also recommended that you seek independent advice from a suitably qualified accountant or financial adviser for full advice on such matters.

LBTT

Land and Buildings Transaction Tax is a form of tax that is applied to both commercial and residential properties in Scotland.

The following table will provide you with guidance of how much LBTT you will have to pay on a property you purchase.

Up to £145,000                                                                                                           0%

Between £145,000 - £250,000                                                                                   2%

Between £250,001 - £325,000                                                                                   5%

Between £325,001- £750,000                                                                                   10%

£750,000 or more                                                                                                      12%

When considering becoming a landlord, it is therefore crucial to consider how much money you intend to buy the property for and check how much LBTT will be payable before committing to a purchase.

Legal Responsibilities

Although you might rent your property out via a letting agent, you as the landlord will be responsible to ensure that you comply with the legal requirements.

Register with the local council

As discussed above, as a landlord, you will need to register with the local council or apply for accreditation. Your local council will provide you with guidelines on how to complete the necessary registration forms.

Meeting Safety Requirements

As a landlord you will require to ensure that your property meets the Repairing Standard and that, at least the following standards are met:

-smoke alarms will need to be installed throughout the property, normally on each floor;

-a gas safety certificate will need to be available within the property;

-water supply must work in accordance with the requirements;

-all electrical appliances must be safe for use;

-if the property has a coal fire, carbon monoxide detector has to be placed in the room.

Information for your tenant

It is your responsibility to provide your tenants with your details, namely name and address.  In addition to this, your tenant will need to receive a copy of tenancy agreement detailing their rights and responsibilities during their tenancy. Since December 2017, all newly created private sector tenancies are Private Residential Tenancies. This replaced Assured Tenancies.

Renting your property

Either you or your letting agency will take details of your tenants in order to ensure that they have can legally rent a property. Prior to the tenancy commencing, you will require to obtain forms of ID and other information about your tenants to ensure you will comply with the regulations.

Energy Performance Certificate

The property you will be letting out requires Energy Performance Certificate to be obtained prior to the tenancy. It is a recent requirement that the property will require to have a minimum rating of E on the Certificate. Failure to comply with this requirement can face you as a landlord with a penalty of up to £4,000.

Protecting tenant’s deposit

Another legal responsibility is to register any deposit paid by your tenants with a tenancy deposit scheme. Deposits are usually returned at the end of a tenancy, unless there is damage to the property or its contents.

It is good to know that if there is a dispute over the deposit, there are a number of ways you can deal with them. Seeking advice from independent sources might be the most appropriate solution to resolve the matters.

You can get independent legal advice from local authorities, housing advice centers, your solicitor or various other independent sources.

Repairs

Landlords are responsible for ensuring that the structure of the property as well as the exterior is up to the necessary standards. As a landlord, you will be responsible for problems that occur with drains, roof, walls and various other factors.

Additionally, carrying out checks at the start and during the tenancy to ensure there are no defects within the property and everything complies with legal requirements and meets the Repairing Standard criteria is essential.

Access to the property

Repairs, maintenance or inspections to the property will mean that as a landlord, you will require access to the property. When access is necessary, it is good to remember that you will need to provide your tenants with notice and arranging a suitable time to enter the property. Usually 24 hours notice is given as a minimum unless in an emergency.

Being the owner of the property does not necessarily mean that you can access it whenever you wish to do it. Ensuring that you provide your tenant with written notice if there is any repairs or maintenance that will need to be carried out within the property will help foster good relations between you and your tenants. .

 In order to terminate a tenancy you will need to follow the correct procedure. If the tenancy is a private residential tenancy, it is usually terminated when your tenant either provides you with notice that they wish to terminate the tenancy or they agree to leave the property.

If your tenant wishes to terminate the tenancy, you as a landlord are entitled to a notice period. Generally the tenant will be required to give you at least 28 days notice or the period of time the tenancy agreement stipulates. This should allow you to have enough time to place the property back on the market to find another tenant. The tenant should give this notice in writing.

If on the other hand, you want the tenant to leave the property you will need to notify them.

There are however situations when this causes a great deal of difficulty if your tenant refuses to leave the property to allow you to regain possession. You will need to provide your tenant with a minimum of 28 days notice to inform them that you are intending to apply for an eviction order. Period of notice can sometimes be even longer and extent up to 84 days -  thisdepends on how long the tenant has resided within the property or the terms of the tenancy. As a landlord, you will also be required to give one of the permitted grounds for eviction.  

If at the end of the notice period the tenant is still within the property an eviction order can be obtained from the Housing and Property Chamber of the First Tier Tribunal.

There are a lot of factors you will need to consider before making a decision of whether you wish to become a buy to let landlord. Ensuring that you budget for the potential expenses and are aware of the legal requirements is essential. As a landlord, you will need to be prepared for disputes and legal issues arising. If there are any legal aspects you do not fully understand or feel that you require further information on, it is worthwhile speaking to a leasing solicitor before making any decisions. 

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