1. Management fees
Many landlords pay a letting agency or management company to run their rental property for them, which is normally charged as a percentage of the rental income. Their services will include finding tenants, carrying out reference checks, taking a deposit, organising contracts and dealing with ongoing tenant queries and issues, as well as contract renewal. This cost can be avoided if landlords wish to self-manage. Landlords who choose to manage their own properties must be completely up-to-date on the latest regulations and legislation. Some landlords simply will not be able to keep up with the management without using an agent, such as those with multiple properties and those who live too far away to provide an adequate service.
2. Council tax
Council tax is charged on every residential property in the UK (with some exceptions and discounts). The cost will depend on the valuation band of your home, what the local council charges for that band, and whether you are entitled to a discount. When a property is tenanted, it is up to the tenants to cover the cost of the council tax, but the bill must be paid by the property owner for rental properties that are not tenanted. Some local councils offer a discount if the property is a second home or is empty, but owners must check with their local authority if this applies to them.
3. Service charge
Many flats and apartments with communal facilities will be subject to a service charge. This normally pays for things like maintenance and repairs of communal areas and gardens, servicing lifts, and upkeep of communal heating and lighting. When you buy a leasehold property, you should be made aware of these charges and will be liable to pay them as soon as ownership is transferred. For properties that are subsequently let out, it is up to the landlord whether to pass this charge on as an additional cost to the tenant, in which case it must be set out in the tenancy agreement. Otherwise, you might recoup the costs by including it in the rent charged.
4. Ground rent
If you own a leasehold property, you may be liable to pay ground rent to the freeholder, which can vary greatly from a small nominal fee to thousands of pounds a year. Again, this will be set out prior to any property purchase, but if you are buying a leasehold property it is advisable to get a full picture of this before progressing any further.
5. Void periods
A void period is when a tenant moves out, and no immediate replacement moves in, meaning that all property costs must be covered by the owner until a new tenant is found. When selling a rental home, properties that already house tenants can either be sold with vacant possession on completion, or sold subject to an ongoing tenancy, in which case the tenancy will be handed over to the new owner on the day they get the keys.
This avoids void periods for the new owner, which can be costly and are something every property investor must consider when factoring in their risk and returns.
6. Repairs and maintenance
Homeowners are responsible for the costs of any general repairs or maintenance of a property – although the extent of this will vary depending on whether it is a freehold or leasehold home. For rented properties, the landlord is responsible for repairs of the property structure and exterior, as well as basins, sinks and baths, heating and hot water, gas appliances, pipes, flues and ventilation, electrical wiring, and any damage caused by attempting repairs.
According to the Landlord and Tenant Act 1985, damage caused to a property by either the tenant or visitors – such as friends or family – of the tenant must be reported to the landlord, and any repairs or replacements must be paid for by the tenant. Housing charity Shelter advises that those in private rented accommodation should use their inventory to record details of any damage that is repaired with the landlord’s agreement to avoid issues at the end of the tenancy. If the tenant leaves the property without repairing any damage they have caused – not including wear and tear caused by day-to-day living – the landlord could deduct money from the security deposit to pay for it. Exceptions include damage that is caused by neighbours or due to crime, both of which must be paid for by the landlord. This could include, for example, a neighbouring property causing flood damage to your property, or windows broken by a burglar or vandalism.
7. Insurance
Landlords must obtain specialist insurance for renting out their property, as traditional owner-occupier residential insurance won’t provide full cover. You can find out more about this in this article.
8. Safety requirements
As a landlord, you must ensure your rental property is a safe place for tenants to live. Each year, you must appoint a qualified engineer to carry out a gas safety check on each gas appliance and flue and issue you with a certificate, and complete any repairs recommended. You must also make sure the electrical system and any appliances provided are safe, and from July 2020 this may require a five-yearly check from a qualified person. For fire safety, you must provide fire extinguishers in an HMO, and provide smoke and carbon monoxide alarms.
