What legislation do letting agents need to look out for in 2020?
Last year was a very busy year for new legislation in the lettings sector, with the Homes (Fitness for Human Habitation) Act 2018, the Tenant Fees Act 2019 and the implementation of mandatory Client Money Protection (CMP) membership for all agents.
The above changes represented some of the most major shake-ups the rental industry has ever seen and changed the lettings landscape forever.
If anything, though, 2020 is set to be even busier, especially now we have a government with a large (80-seat) majority and greater clarity over Brexit. In effect, the government has free rein to introduce anything it wants to Parliament and it will have a pretty good chance of getting through.
What’s more, there will no longer be the bitter divisions and logjams in the Commons caused by Brexit – which meant any other business was left on the shelf. The government has big ambitions for the property industry, and the rental sector in particular, and it now has the power and authority to push these reforms through.
The introduction of new legislation is rarely plain sailing, of course, but it should now be much quicker than it ever was in the divided days of the Theresa May government or the early days of Boris Johnson’s tenure.
What, though, do letting agents need to be aware of in 2020?
From June 1 2020, the Tenant Fees Act 2019 will be extended to cover all existing tenancies, which means nearly all tenant fees are banned even if a tenancy started before June 1 2019.
As things stand, letting agents can’t charge fees other than rents, deposits, holding deposits and charges for defaulting on contracts to new tenants – but from June this will be extended to all tenancies, regardless of their start date. You can find out more about the legislation here.
Another major piece of legislation from last year will also be extended, with the Fitness for Human Habitation Act being expanded from March 20 to include existing statutory periodic tenancies. Until that date it applies only to tenants who signed contracts on or after 20 March 2019. The legislation applies in England only, with responsibility for these standards in Wales falling under the scope of the Renting Homes (Wales) Act.
Additionally, the rules on energy efficiency will be strengthened in April 2020. From April 1, all existing tenancies will fall in line with the law introduced in 2018. This means landlords or their agents are unable to let to new tenants unless their property has an Energy Performance Certificate (EPC) rating of E- or better.
Anyone who rents a home with a rating of F- or G- will no longer be able to legally let them out, and could face substantial fines if they do. Certain exemptions are in place, but most privately rented homes will need to be compliant.
The RLA says landlords will be expected to pay up to £3,500 towards energy efficiency improvement works. But if work to bring the home up to standard will cost more than that, landlords can apply for an exemption. There is talk of the minimum standards being further strengthened in the years to come, so you may wish to advise your landlords to prioritise improving energy efficiency now, so they’re ahead of the game.
Lastly, the phasing out of mortgage interest tax relief will come to its conclusion in April 2020.
Mandatory CMP for agents
In April 2019, new rules were introduced to make membership of a Client Money Protection scheme compulsory for agents. However, following technical issues, agents were given a ‘grace period’ of 12 months to set up a client account.
April 2020 marks the end of that grace period, all agents must be members of a scheme by then or face fines of up to £30,000 for non-compliance.
It will no longer be enough to show you are making genuine efforts to be part of a scheme, as was the case in the grace period.
CMP is available through several providers. Letting agents who belong to a trade body may already be covered.
In England, the approved schemes are Client Money Protect, Money Shield, Propertymark, RICS, Safeagent (previously NALS) and UKALA Client Money Protection, with different rules in place in Scotland, Wales and Northern Ireland.
As part of the rules, introduced to make sure landlords and tenants are compensated if a letting agent can’t repay their money, agents must hold their clients’ money in an account with a bank or building society authorised by the Financial Conduct Authority, and secure a certificate confirming membership of the scheme they join, providing it to anyone who asks, free of charge.
Agents must display the certificate in any office where they deal with the public and on their website.
Changes to capital gains tax
From April, the rules surrounding capital gains tax (CGT) will change radically. Until now, CGT has been paid on profits made through the sale of any property that isn’t the owner’s main home. Equally, owners can seek lettings relief (a tax break) if they once lived in the non-principal home themselves.
From April, though, this will be scrapped and landlords will only be able to claim lettings relief if they share the property with their tenant.
In addition, landlords will need to pay the full amount of CGT owed on a sale within 30 days, rather than having until the next tax year.
The rules surrounding capital gains tax are comprehensive, but this Which? page explains it all in a great amount of detail. This blog, meanwhile, goes into further detail on the changes themselves.
Legislation in the offing
The government has heavily mooted its plans to scrap Section 21 evictions and introduce mandatory electrical checks on rental properties – the latter of which has broad industry support, while the former certainly doesn’t. The government says the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 have been laid before Parliament, and are likely to be agreed by the Commons and the Lords in the coming weeks.
This would mean landlords being obliged to carry out electrical installation inspections and testing for all new tenancies in England from July 1 this year, or from April 1 2021 for existing tenancies.
There are also likely to be mandatory examinations and qualifications for agents as part of the RoPA working group’s collaboration with the government to drive up standards in the estate agency industry. This isn’t likely to come in for a while yet, but it’s something for agents to be aware of.
Lastly, in a surprise move at the start of January, the Housing Secretary Robert Jenrick announced plans to revise the government’s model tenancy agreement to allow for ‘well behaved pets’ in properties – in a boost to pet-loving renters.
There is a lot for letting agents to contend with – both confirmed and potential – but being prepared, thorough and on the ball with all new legislation will help you to cope.