One of the biggest bones of contention for leaseholders is paying for buildings insurance. They can't source it themselves and therefore have to accept that not only do a number of landlords/managing agents buy insurance in bulk and direct from the insurer through a specially established broker, they don't pass the discount on in terms of cheaper premiums.  Instead they add them to the cost of the policy as a markup, allowing them to charge anything up to 200% above what the leaseholders could get in the market place if the lease and the law allowed them to!

Below is an example extracted from a C.A.R.L newsletter of how insurance scams work:

1. The insurance broker, authorised and regulated by the FSA charges the managing agent or landlord £1,121 for buildings insurance;
2. The broker levies IPT (Insurance Premium Tax) at 5% at a cost of just over £56, which is paid to Revenue and Customs;
3. A demand for £2,768 is sent by the landlord to all of the leaseholders under the heading ‘Property Insurance’.
4. The leaseholders then divide the cost amongst them, unaware of the disproportionate fee the landlord has included.

It should also be remembered that buildings insurance is one of the 4 areas of a lease where capital growth can be obtained which probably goes some way to explaining why, in 2004, legislation was supposed to extend the remit of the FSA to regulate landlords/ managing agents that provide insurance services was never enacted Why? Because the RICS opposed it and so because there remains no legal obligation to disclose insurance commissions, the less scrupulous agents and landlords aren't disclosing!

The following information is sourced from the LEASE website.

Where leaseholders pay a service charges which includes an amount payable either directly or indirectly for insurance, under the Schedule to s30a of the Landlord and Tenant Act 1985, they can request in writing a written summary of the current insurance policy. They are entitled to see the policy and any associated documents at the office or request that copies be sent to their home address, or be made available for collection from the office.

If they are members of a recognised Residents Association, the Secretary can request it on their behalf. It must be provided within 21 days from the day on which the request is received by the landlord.

The summary must show:

• The amount for which the property is insured.
• The name of the insurer
• The risks that the policy insures against

Failure to comply without good reason is a criminal offence subjected to a fine of £2,500 on conviction.

Facilities To Inspect The Full Policy

Within 6 months of receiving the summary, leaseholders (or the Secretary) may request that facilities be available whereby they can not only inspect the full policy and associated documents but they can take copies and extracts. Compliance is required within 21 days from the day on which the notice is received.

The managing parties will need to arrange access to where the policy is held (which cannot be charged for). Proof of payment must also be made available for inspection. Alternatively leaseholders can request (in writing) for them to be sent or to be made available for collection.
Note: if the latter option is requested then a 'reasonable' fee can be charged under administration costs and the policy holder must respond within 21 days of receipt of the request.

Note: Referred to in Sections 15.10 and 15.11 of the RICS Service Charge Residential Management Code.

More information on buildings insurance is written in the following article by David Whitney of Painsmith Solicitors: The Thorny Issue of Buildings Insurance

In 2008, the recommendations of the Rugg Review of the PRS were that all landlords be nationally licenced. Since then, so-called 'rogue' landlords have been getting press headlines such as 'landlord fined for putting the lives of tenants at risk'', 'landlord fined for not dealing with damp', 'private landlord fined £7,000 for unsafe conditions', etc etc. The common thread running through such headlines is that they are either HMO's or properties under Selective Licencing and when breaches occur then the councils act accordingly. But what about the rest of the PRS that isn't covered by such licencing? 

Read more...

In 2008 the Rugg Review proposed that all landlords should pay a fee and be issued with a licence. It's now 2012 and the liklihood of it being implemented is as far away as its ever been (apart from the London Borough of Newham who want to licence all PRS landlords in their borough). Despite the fact that the collective response to the proposals was initially favourable, the reasons for it not being implemented go far beyond Mr Shapps assertion that landlords don't want any more red tape and should be allowed to get on with being landlords.

Read more...

Landlords often don't want to pay the higher rates of a buy-to-let mortgage so they purchase a normal residential mortgage where its terms are more favourable. The problem for renting tenants when this happens is that this  mortgaa residential mortgage does not recognise a tenancy so if their landlord defaults on the mortgage, the lender is under no obligation to consider the tenant and on the day that the fixed term AST ends, has the right to issue a s21 Notice to vacate the property within two months.

If the AST has already expired by the time the property is repossessed and the tenancy has become a periodic tenancy of either a week-by-week or month-by-month then again the lender has the right to issue a s21 Notice immediately with the tenant again having two months to vacate the property.
Note: A s21 Notice cannot be served if the tenant has been in situ for less than 6 months - this is a statutory right.

If the tenant remain in situ for more than 2 months after a s21 Notice has been issued then they become an unlawful occupant and risk being evicted by the bailiffs and potentially face criminal proceedings. Although no separate court hearing is needed, a written notice must be sent if a bailiff is appointed. Additionally if rent is withheld for more than 2 consecutive months the lender in possession of the property can issue an eviction notice under Ground 8, which gives just 14 days to vacate.

The following information has been part-sourced from HousingRepossessions.

Exceptions

There are exceptions, however. Citizens Advice says that in very limited circumstances, a tenancy may be binding on the landlord's lender if any of the following situations apply:

• The tenant was already living in the property at the time of the mortgage being granted, either as a sitting tenant or when the landlord took a second mortgage. If there is any uncertainty as to when the landlord's mortgage started, tenants should either ask or get advice to find out whether the tenancy is binding. An adviser may be able to confirm this via the court, the lender, and/or the Land Registry;
• If there is an agreement for the tenancy to be specifically recognised in some way such as the lender asking for the rent to be paid to them directly or indirectly by another route. It is however important to remember that if lenders do this they will not call it rent - they will call it something else.

RECEIVERS OF RENT

Increasing numbers of buy to let lenders are appointing receivers of rent to collect rent and manage occupied properties when the landlord has defaulted. This gives the lender time to not only decide what to do with the property, but it also offsets the mortgage interest against the rent, which in turn helps reduce the landlords' arrears and allows tenants to keep their homes.

The tenancy remains the same so the rights of the tenant remain the same too. In most cases this means that the tenant has at least the right to a written notice and a court order before the lender can evict. As the new landlord, the lender is required to follow the correct eviction process.

COURT PROCESS

Suspended Possession Order

When possession cases come to court lenders usually ask for a '28-day possession order' which means exactly what it says. However, although the lender may have compiled its case properly, the judge has a wide range of powers that allow him to postpone judgement, either by adjourning the case, extending the possession order period or by granting a suspended possession order.

When opting to suspend possession the judge must be satisfied that the borrower can pay not just the monthly instalments but an additional monthly sum to clear the outstanding debt over a 'reasonable' period. In order to make a fair decision the borrower should ideally provide proof of income and expenditure but judges often take their word that the payments are affordable.

Reasonable Period

Five years used to be considered a reasonable period by the courts to clear the arrears but this changed in 1996 with the Cheltenham & Gloucester v Norgan case seeing the judge decide that a reasonable term could be extended beyond five years - in fact up to the end of the mortgage term. So, in making a decision on arrears the judge may make reference to the Norgan minimum. This is the absolute minimum amount that a court can accept when granting a suspended possession order. Most lenders feel that a reasonable period is about 1- 4 years and will try to convince a judge accordingly.

All Monies Charges/Payable on Demand Mortgages

There are however, some mortgages where the usual powers of the courts are not applicable, known as 'all monies charges' or occasionally 'payable on demand' mortgages. With this particular mortgage, the borrower has no monthly payments to make unless the lender decides to formally demand the whole debt be paid. It probably secures a bank account and/or an overdraft and is often entered into to enable the borrower to finance a business. Certain conditions may be applied such as requiring a set amount be paid by the borrower each month into his current account but if the term is breached the bank may decide to terminate the agreement. This may also show on the mortgage deeds as an all monies charge.

Where it gets even more confusing is that some of these mortgages do actually have a fixed term and monthly payments making them pretty indistinguishable from an ordinary mortgage. Added to this is the fact that neither the lender or their solicitor will necessarily draw attention to this (whether deliberately or in oversight) it will end up being dealt with as if it were an ordinary mortgage.

If the judge is satisfied that the entire mortgage debt (and not just the arrrears) can be cleared within a 'reasonable' period, he can again, make a suspended possession order. This 'reasonable' amount of time willl normally be deemed to be just a few months because the loan has been taken to secure a business debt making the mortgage a commercial arrangement.

Lenders themselves might agree to enter into a suspended possession order with the borrower if they can agree a payment plan to repay the debt in which case the judge can still grant the suspended possession order which may state that it has been made by 'consent'. This shows that whilst the judge did not have the power to impose it on the lender himself, the lender agreed to it. Borrowers need to then start looking at how to repay the whole debt.

SUMMARY

Whilst it has been suggested that there should be an additional clause to an AST to require landlords not to violate their mortgage terms, it appears that this  is hard to enact, let alone investigate. Another problem for tenants is that even if they secure a property from an ARLA registered letting agent, their Code of Practice doesn't include establishing that the landlord has informed the lender that the property is being rented out and has provided proof. Instead it only says that
landlords 'must inform the letting agents'. All this does is prevent the letting agent from being deemed negligent if no such information is forthcoming. Renting a property from an estate agent offers no protection either as the lender is unlikely to divulge anything about the mortgage under the Data Protection Act.