Conveyancing essentials for buy-to-let landlords
Jackie Turkel is a property lawyer at Parfitt Cresswell
Becoming a buy-to-let landlord can be an effective way of investing your money for a steady return, particularly when interest rates are low. However, things can go badly wrong, usually due to ignorance of the law. What do you need to know before you start?
1. Check lease prohibitions. Leasehold properties often have restrictions or prohibitions on subletting. In some cases, no subletting is permitted at all, but, more typically, the freeholder’s (or intermediate landlord’s) consent will be needed to sublet the property. Fees will be payable (sometimes substantial) when you apply, and you may not be given consent (or have the fees returned). Restrictions may be imposed in order to obtain consent. We see the following examples regularly: Not rented to companies, only allowed if fewer than 50% of the flats are to be owner/occupied. Where subletting is permitted, leasehold properties typically stipulate that the whole of the property must be sublet as opposed to just a part e.g. a room or a flat separately from a garage. Retirement properties typically have the strictest prohibitions on subletting.
2. Choose the right mortgage. If you’re obtaining mortgage finance for a property, the application to the proposed lender needs to be for the specific type of tenancy that you intend or is already in place. You may otherwise find yourself in breach of your mortgage conditions and put yourself at risk of action being taken against you by the lender. Lenders stipulate the terms that the tenancies must comply with, in particular notice periods, the type of tenancy (e.g. must be an Assured Shorthold Tenancy (“AST”) or Standard Occupation Contracts (“SOC”) if in Wales), exclusions of particular tenants (e.g. excluding holiday lets, HMOs, corporate entities, relatives, local authority), also a minimum rent sum (e.g. the ground rent in a Lease must be exceeded) plus others. Blanket bans on renting properties to DSS tenants is unlawful and discriminatory and contrary to the Equality Act 2010 and so such prohibitions have been removed from mortgage offers. You may be required to provide the lender with the existing tenancy agreement before securing mortgage finance if a tenant is already in situ.
3. Check apportionments and overpaid rent (if taking over existing tenants) – It is not uncommon, particularly with the cost of living crisis, for tenants to have paid a large amount of rent up front (or overpaid on rent). On completion, you need to collect this from the seller along with apportionments of ground rent, service charges and buildings insurance contributions. You might otherwise not receive rental payments for a number of months. It is also important to check that any rental deposit is held in one of the government-approved tenancy deposit schemes (TDP) and that you make similar arrangements for deposits when taking over the tenancy. This is now a legal requirement and no longer a matter for conveyancers to arrange directly with the seller.
4. Remove existing tenants before you complete (if required) – If an existing tenant is to be removed before you complete your purchase, you should ensure that a Section 21 notice has been served by the seller. The seller would be in breach of contract if the tenant refused to vacate or the Section 21 notice is invalid (which may happen for a number of reasons). There are imminent changes to the law expected that will end ‘no fault’ section 21 evictions. i.e. A landlord will not be able to terminate tenancies without giving a reason. As a buyer we would also advise waiting until the property is vacant before exchanging contracts. You will then have an opportunity to inspect the condition of the property before you complete the purchase.
5. Get an Energy Performance Certificate (“EPC”) rating – Rented properties are required to have an EPC with a rating of no lower than “E”. However, from December 2025 this is likely to increase to no lower than “C” for newly rented properties and, from December 2028, for existing rented properties. We do not know what the future may hold; we might well see a demand for energy-efficient homes that meet the government net-zero carbon targets. Wales has more stringent obligations on landlords already, following the introduction of Rent Repayment Orders for unlicensed HMOs. As a landlord you need to consider these future demands when purchasing and in any planned refurbishments.
6. Draw up a tenancy agreement – We strongly advise getting legal advice on the tenancy agreement itself (and your mortgage lender will probably demand it). This should ensure that the terms comply with the requirements for the property being an Assured Shorthold Tenancy. Lenders have specific concerns to ensure that tenants do not have additional rights as ‘Secure Tenants’ which could mean that the tenant has the right to remain in the property for their lifetime if they chose to.
7. Buy appropriate insurance – Buyers should ensure that the buildings insurance policy is specifically for the type of rental property, as standard buildings insurance policies will often not suffice if a property is tenanted (or vacant for an extended period of time). Some lenders will insist on having sight of the borrowers’ proposed buildings insurance policy before agreeing to release the mortgage advance.
