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SERVICES

Residential Investment Property (England and Wales)

Introduction
Valuation and Survey
Already tenanted properties
Landlords duties in relation to the condition of the property
Assured Shorthold Tenancies
Houses in Multiple Occupation
New Letting of the Property
Flats above Shops
Letting an apartment or flat
Taxation

Introduction

Almost any property can be an investment property. It does not have to yield income either. It is unusual, however, to invest in a property purely for its capital value growth without any expectation of income in the meantime. Most investment property is bought with a mix of expectation of both rental income and capital growth. In a typical investment scenario, the investor will buy a property with the expectation that almost all of the outgoings will be met by the income yield and that a capital growth "nest egg" will be built up for the future.

Whether you are buying a property to live in or to invest in it, the job of the solicitor is rather similar in each case. There are, however, some differences in the conveyancing approach. These are highlighted in this section. We also explain aspects of the investment purchase which are not normally part of a solicitor's job.

Valuation and Survey

Solicitors do not get involved or make enquiries about the valuation of a property. That said, valuation will be at the core of your decision as to whether you want to buy the investment property. You may have been provided with information or literature from an apparently trusted source setting out the value of the property in order to persuade you to buy it. We suggest that you should not rely upon information given to you without at least obtaining your own independent valuation. We advise you to pay for one, even if it is limited with the valuer not being able to inspect the property. Sometimes you may be sold a property and asked to pay an introduction fee. In law, this is evidence of a buyer's agency contract. It places a legal obligation on the introducer to ensure that the property is at or very near to the value that it is represented to be. Even if you have paid an introducer's fee we still advise that you should not rely upon any statement as to the value unless the introducer has produced a copy of a professional valuation to verify what he has said.

Already tenanted Properties

If the property is already tenanted, then it is the solicitor's job to investigate the lease, tenancy agreement or other legal relationship between Landlord and Tenant that exists and advise on it. This means examining documents and, where necessary, raising enquiries. The enquiries will yield information about the tenant himself and his record as a tenant. If the property is residential, one of the first things that the solicitor will check is whether the tenancy is controlled, regulated or protected.

Landlords Legal Duties in relation to the condition of the property

A landlord has the following legal duties to keep and maintain the property and its contents in good order. A breach of these duties can result in a claim being made by a tenant or member of the public. It can also result in enforcement action by a local authority. We categorise these duties in A, B, C and D below. During the conveyancing process, we can make limited enquiries with the vendor about the condition of the property but these should not be relied upon. Instead, we advise that you have a survey. If a local authority has taken action, this should be revealed in the searches that we carry out on your behalf.

A Duty to a Tenant

Every tenancy has express or implied covenants in them. If the property is residential, there are covenants implied at common law or statute. The Landlord of a residential property has the following core duties

(a) to allow the tenant quiet enjoyment of possession of the property
(b) to facilitate services to the property
(c) to provide space and water heating
(d) to keep the structure of the property in repair
(e) to maintain the common parts.

B Duty to all users of the property

to keep those parts of the property that it occupies free of foreseeable harm to all users of it. This is the landlords duty of care under the Occupiers Liability Act. This will cover the common parts of the property and structure but not the internal part of it which is occupied by the tenant.

C Duty to comply with regulations

There are many regulations relating to different safety aspects in a property. A breach of these regulations would almost certainly be a violation of the common duty of care towards the tenant or to a user of the property. These regulations include building regulations, environmental health regulations, fire regulations, Health and Safety regulations, electrical and gas regulations and regulations relating to hazardous materials. It should be noted here that a breach of any of these regulations could result in a damages claim a landlord if it should be the cause of an accident. An ongoing breach of any of these regulations might also mean that it represents a hazard which the local authority can act upon (see D below).

D Duties as an owner of property to keep the property habitable

There is a broad duty on an owner to maintain a property fit for habitation. "Fit for habitation" is now old terminology since the passing of the Housing Act 2004. Under the Housing Act 2004, any deficit in the condition of the property is assessed as either a category 1 or category 2 hazard. A category 1 hazard is the most serious. Where a category 1 hazard exists, the Local Authority must use one of its powers to either stop the property being used or to bring it up to the right standard. Where a category 2 hazard exists, the Local Authority has an option to use its powers.

Assured Shorthold Tenancies

ASTs have now been used in England and Wales since 1987. They have stood the test of time because they strike a balance between the Landlord's right to possession on demand, the protection of the tenant from unwarranted dispossession and the need to for supply of property to let. Briefly, the tenant has a right to a minimum security of tenure of six months. Regardless of the length of the tenancy, the landlord can terminate the tenancy on two months notice to quit. As long as four months of the tenancy have passed, the Landlord can serve the two month notice which will expire at the end of 6 months. ASTs are now usually the only form of tenancy agreement which is acceptable to a mortgage lender under a typical buy-to-let mortgage.

Houses in Multiple Occupation

Houses in Multiple Occupation (HMOs) are subject to more regulation than any other type of residential investment property. A house in multiple occupation is a dwelling unit which comprises of more than one household. The most common type of HMO is a house containing separate bedsits with perhaps shared facilities such as a WC or kitchen. In those cases, the duties of landlords (including those under Health & Safety, fire regulations and building regulations) are much higher. Since the Housing Act 2004 came into force, it has been necessary for landlords of HMOs to obtain letting licences from the local authority. If the premises is an HMO there are potential conveyancing hazards. Breaches of regulations should be searched for in particular. Compliance documents such as regularization certificates may need to be obtained. We advise you to obtain a survey in every case where the property is an HMO. Special enquiries may need to be put to the local council following receipt of the local search. Experience shows that there are a substantial number of investors have been lured into buying this type of property because from an investment point of view, it shows a superior rent to capital ratio as compared to a typical single household residential property. Beware of this. The price may actually be low because of inherent legal problems.

New letting of the property

Although solicitors are not usually involved in this process which happens after completion, we mention here the need to be vigilant. You will probably need a letting agent. A good letting agent can take all of the worry away from you at a fee of about 10% of the rent. Sometimes they make an extra charge for finding a new tenant. The choice of letting agent may be crucial to your investment and it is no harm to ask the letting agent as many questions as you can think of (such as how does he vet a tenant) and ask for a list of some of his clients who would be happy to act as referees. A good letting agent will thoroughly vet new tenants and advise you of any difficulties in finding a quality tenant. He should also act promptly when there is a problem (such as the tenant being in arrears of rent) or if there is some other problem.

Flats above shops

Sometimes your investment property is part residential and part commercial. The discussions on this page are all relevant to the residential part of the unit. For a discussion about the commercial premises under a flat click the link below relating to Commercial investment property (England and Wales). See also the notes below in relation to letting an apartment or flat.

Letting an apartment or flat

If your property is a flat or an apartment, it will be a leasehold property (unless it is commonhold). In almost all leases, there are some restrictions or conditioins relating to the letting or subletting of property. For example, there may be a covenant not to sublet without the landlord's consent. There may be a covenant that you must produce or register a copy of any subletting document (i.e. your tenancy agreement with the tenant). There may also be a registration fee to pay the landlord each time you let. Remember that breach of a lease could have serious consequences. Whatever the restrictions or conditions in the lease, these will be pointed out to you before you sign the contract to buy your property.

Taxation

There is a lot to say about this subject. We have provided more comprehensive information on separate pages. The taxes which affect investment property are Stamp Duty Land Tax, Capital Gains Tax, Inheritance Tax and Income Tax. For further information about taxation, please click here.