SHORT LETS

Are they allowed?

Short lets, of less than six months, can be very profitable, as the rents are much higher. But, before ever embarking on a short let, check that these are allowed by both the freeholder and the local council. Some boroughs stipulate that all lets must be at least six months in length.

If allowed, they are useful when:

• you are going away yourself on an extended holiday or short job contract and need to somehow pay the mortgage in the meantime;
• you cannot let out your flat on the usual AST;
• you have the property up for sale and want to sell with vacant possession.

Your responsibilities as a short let landlord

Short lets come into a special category of their own, and not all agents handle them. Agents specialising in short let provide short let information packs, which you should obtain and read carefully beforehand.

With short lets, you the landlord are expected to provide everything in the property; including towels, linen, cutlery and all furniture and fittings. As with ASTs, all furniture should be compliant and all fittings must meet current safety requirements.

The short let agency will take the entire rent plus deposit upfront and also deduct tax at source before passing any money on to you.

This is a legal requirement.

You as the landlord will also retain responsibility for utility bills, and reputable agencies make stringent checks to ensure the short-let tenant does not suddenly double the use of gas and electricity. There will also be strict rules governing telephone, internet and cable or satellite use.

You are also required to inform your mortgage lender of any subletting, including a short let.

Short lets operate at all levels of the market and even quite ordinary flats can be popular. But remember that even if the lease permits these lets, some local boroughs do not allow them as they are seen to be taking away hotel trade.

HOLIDAY LETS

Are they allowed?

Most residential leases emphatically do not allow holiday lets, defined as lets of one month or less. This is because they are considered a business and, as such, come under different tax rules than ASTs or short lets, where the profit is considered to be unearned income. Holiday lets, again, are not allowed on many leases for the same reason as short lets, plus the fact that in some buildings you are not allowed to be carrying on a business.

Holiday lets are not covered by the various Housing Acts as these lets are supposed to be for a genuine holiday rather than providing somebody with a home.

If allowed, make no mistake, holiday lets are hard work! Most visitors will stay for no longer than two weeks, and if the let is for more than four weeks it cannot count as a holiday let. You have to provide everything down to the last teaspoon, and have the place thoroughly and professionally cleaned after each let. These days, it is not unknown for holidaymakers to book a flat just for a weekend which increases wear and tear on the property.

Although holiday lets command maybe three times the rental of ASTs, they are easily six times the work. Also, it is unlikely the flat will be let year-round. With holiday lets, you have to take all the rental money upfront, plus a large deposit which is returned at the end of the holiday.

Do not ever try holiday lets without confirming that this is allowed under the lease. Most Residents’ Associations frown on holiday lets and short lets and, under extreme circumstances, persistent offenders could have their leases forfeited.

The main reason for this is the issue of security and of not knowing who is coming in and out of the building, and who has a key.

LEASING TO A HOUSING ASSOCIATION OR LOCAL
COUNCIL

Many letting agents do not handle this sector, but social tenants exist and are getting more numerous. Also, to be realistic, in some areas this is the only tenant pool there is.

Here again, you must first obtain permission from the freeholder or Residents’ Association as in this case you would be leasing your flat to the social landlord for maybe three to five years, and they will be housing people who are ‘in need’ rather than those who might be wonderful tenants.

Accordingly, the checks that are made before ordinary tenants move in, are not made, as the only criterion is that of ‘need’. And once you have leased your property to the social landlord, you absolve all responsibility for it for the duration of the agreement.

But beware because again, you could be served with a forfeiture notice if your social tenants are persistently badly behaved.

Many landlords like leasing to social landlords because they get a good deal, which may include a golden hello and cleaning and decorating of the property. There is no commission to pay, there are no agents’ fees, and the rent is guaranteed – whether or not the social landlord or tenant receives it.

LETTING OUT YOUR OWN HOME

Strictly speaking, you are not allowed to rent out your own home on a homebuyer’s mortgage, but must have a proper buy-to-let mortgage in place. However, if you are going on an extended holiday or work project for three months or so, it is not feasible to keep chopping and changing mortgage types.

However, you should always let your mortgage provider know, as you may not be insured if anything happens while you are not living there yourself.

Also, all the usual rules apply when renting out your own home such as, does the lease allow short lets or holiday lets?

If letting your own home through an agency, you will have to ensure that all furniture, fittings, appliances and certificates are in place, just as you would with specific buy-to-let.

It is very common these days for flat owners – especially young flat owners – to want to rent out their flats while on work assignments abroad. This enables them to keep their home and pay the mortgage.

But you would have to ensure that the property meets current regulations and requirements.

Never let to friends

And please, please do not ever be tempted to do things cheaply and let in an ad-hoc fashion to friends. Although this advice also applies when renting out a freehold house, it becomes ever more urgent when it comes to leasehold flats. You may be reluctant to set up a formal type of tenancy with a friend and not bother with an inventory, or you may consider it a breach of friendship and trust to give them a version of the lease. And if they then breach any terms, you may find it difficult to tell them about it.

If you are tempted to let out your flat to a friend, make sure you treat them exactly as you would a stranger, otherwise, don’t take the risk.

TAX MATTERS

If you earn any rental income at all from your flat, you will have to declare this to the Inland Revenue and pay tax accordingly. When renting out a flat on an AST or short let, you can claim letting fees, inventory fees, ten per cent wear and tear, repairs and refurbishment and also service charges and ground rent.

You may in addition be able to claim travel and telephone costs, plus the costs of recovering unpaid rent.

As holiday lets are counted as a business, they are taxed as such, therefore you can claim many more things, but the flat has to be available to let for 140 days a year and actually let for 70 of those days to count as a genuine business.

When you sell a flat that is not your main home you will be liable for Capital Gains Tax of up to 40 per cent on the profit made. This is the capital profit, not on income from rentals. But there are many things you can set against this tax such as cost of renovation, building levies and installing central heating or new windows, for instance.

It is always a good idea to take professional advice about tax matters, as you also incur tax liability if you are letting property abroad or if you live in another country but remain a UK citizen.