If you live in a flat you may have issues with leaks and flooding from neighbouring flats, especially those above. Where such issues exist, tenants are likely to look to their landlord to make good, but it is not always that simple.
Where a leak or flooding damages the structure such as walls, plasterwork or ceilings of a rented property it is the landlord’s responsibility to make good under their statutory duty to repair. However, such a responsibility only exists if they are made aware of the damage. But, once notification is given, the landlord should undertake such repairs within a reasonable period to a reasonable standard. Landlord’s may rely on their insurance policy to pay for such repairs and tenants may need to provide access to any insurance surveyor.
If a tenant’s possessions have been damaged due to any leak or flooding the landlord may not necessarily be liable for such damage. Where the damage has been caused by a leak or flooding from a third party’s flat then the tenant may pursue a claim against such a third party on the grounds of nuisance. If the tenant has insurance for their possessions then the tenant is strongly advised to make a claim on such a policy and leave it to the insurance company to pursue any third party. Where no such insurance exists, the tenant may need to pursue court action against the third party to recover any money for the damage to their possessions.
A landlord may be liable for a leak or flooding that causes damage to a tenant’s possessions if they own the property from which any leak or flooding originates or if the damage to the tenant’s possessions occurred because the rented property is in disrepair.
Prior to April 6th, landlords could claim tax relief on their mortgage interest payments. This meant that landlords could offset their mortgage interest against their rental income for the purposes of self-assessment. So, for example, a landlord that collects an annual rental income of £5,000 and pays mortgage interest annually of £4,000, would previously only pay tax on the difference between the two which is £1,000.
However, this has all now changed. The mortgage interest relief has been restricted and will be completely phased out over the next 4 years as follows:
Tax year 2017/18 – 75% of mortgage interest will be fully allowable at the landlords prevailing tax rate and the remaining 25% available at the basic rate;
Tax year 2018/19 – 50% of mortgage interest will be fully allowable and the remaining 50% available at the basic rate;
Tax year 2019/20 – 25% of mortgage interest will be fully allowable and the remaining 75% available at the basic rate; and
Tax year 2020/21 – mortgage interest deduction will only be given at the basic rate.
Using our simple example above, under the new system by 2020/21 landlords will no longer be able to offset all the mortgage interest of £4,000. Instead landlords will only be permitted to offset 20% of the £4,000, that is £800, which could push a basic rate taxpayer into a higher tax band.
These changes will not apply to limited companies and furnished holiday lets. However, anyone wishing to change their property ownership structure may need to take advice on any CGT and stamp duty implications as the ownership change would involve a transfer of the property.
Paying for buildings and sometimes content insurance for a property you own is always recommended. Many landlords believe that paying for insurance for a property they do not occupy is a waste of money, particularly if it is rented unfurnished. In fact, the opposite is true.
Where landlords have a mortgage, it is a standard requirement to have, at the very minimum, buildings insurance to cover the rebuild cost of the property. Content’s insurance is usually optional. We are aware that some mortgage companies are actively auditing landlords and seeking evidence of their buildings insurance policy. Landlords who fail to provide the evidence could face termination of their mortgage or may have the insurance purchased for them with the costs being added to the mortgage along with significant administrative charges.
Where landlord’s rent out unfurnished properties they usually conclude that they do not need any insurance. However, even where the property is unfurnished there is still a cost to replace such things as carpets, curtains and white goods. Some buildings insurance policies may include a small level of insurance for contents which may be sufficient. But, it is important that where landlords are relying on this, they check their policy carefully to make sure they have an adequate level of insurance.
Building’s insurance will usually cover any structural or fabric damage such as burst pipes in the winter or fire whether caused by the tenant or not. Without such insurance, the cost to make good any damage could run into thousands of pounds on top of which landlords may face the additional cost of temporarily housing tenants during the period the property is uninhabitable. Most landlord insurance policies will cover burst pipes, fire, subsidence and even floods but, again it is important to check your policy.
Landlord’s insurance can also provide third party liability cover to protect against a compensation claim if someone is injured or killed or their property is damaged. Such claims for compensation could be made by tenants, their visitors, passers-by, and even tradesmen. Other optional insurance cover includes rent guarantee insurance if tenants fail to pay rent or cover for legal fees and the costs of an eviction.
Where landlords have insurance, they are not obliged to make a claim on their policy. The excess on some policies is such that it makes little financial sense to make a claim for smaller matters, especially where any repair costs are less than the excess. It is therefore for the landlord to decide when and if a claim should be made with consideration given to any potential increase in the insurance premium payable on renewal.
Landlord insurance policies will not cover a tenant’s possessions, simply because the insurance company has provided cover to the landlord for the property and contents they own and not that of a third party. Tenants should therefore be advised (a standard provision in the tenancy agreement is usually sufficient) to obtain their own policy. However, they cannot be compelled to do so or required to buy any specific policy.
Finally, landlords need to ensure that they comply with any conditions of their insurance to ensure that they do not lose their cover. Such conditions may include restrictions in respect of short or holiday lets, renting to employed tenants only, and restrictions on asylum seekers or company lets.
We always advise that landlords obtain at the very least landlord’s buildings insurance. If the property is leasehold, then building insurance cover is usually obtained by the freeholder. Any policy that is purchased should be carefully considered to ensure that the right cover is in place to protect against potentially high remedial or compensation costs.