Hello readers,

As I am sure you will agree, owning rental properties is an excellent way of increasing your wealth and, if structured properly, a method of passing wealth down through the generations.

In fact, being involved in my parents’ two buy-to-let properties from a young age led to me on the path to starting a letting agency, Home-Share Lettings Ltd.

Whilst this is all so very true, inheriting rental property can sometimes come with its challenges – particularly if you do not have a reasonable knowledge of the compliance requirements that you need to meet.

I thought I’d pull together an article giving you some of my top tips around things that you’ll want to make sure are covered off from the beginning.

Ownership status

The first point you will want to check is the property ownership status. For example, if the inherited property is in a personal name it will have very different tax implications than if owned by a limited company.

In addition to the tax implications, there will be different requirements for transferring the property to the new ownership structure depending on its status.

If the property is in a personal name, you will need to seek advice about getting it transferred to you and if owned by a limited company, you will probably need to be added as a shareholder.

Of course, who the property transfers to and how that happens depends on whether a will is left and what it says. Either way, be sure to speak with a property solicitor and make sure everything including the land register is updated.

Tenancy agreements

The first thing to do is make sure you have a tenancy agreement in place. Several rental properties I have taken over management of in the past don’t have a tenancy agreement or the fixed period has expired and the tenancy is on a rolling monthly arrangement.

Once you have checked the tenancy exists and the start/end date, you will need to make sure it has the right landlord details on.

For example, if the property ownership is in a personal name you will want to be sure to transfer the tenancy to your name and if in a limited company, make sure the contact details (such as addresses) are all up to date.

Initial compliance audit

Something extremely important is compliance. If this is not correct and up to date you could find yourself in a difficult situation – particularly is anything goes wrong. Here are a few things you will want to check:

• EPC – Is it up-to-date and was the tenant provided with a copy when they moved in or if updated mid tenancy, do they have a copy of the most up-to-date one. All rental properties need to have a minimum rating of an ‘E’.
  
  
• Electrical Installation Condition Report (EICR) – An EICR is required for every rental property and should be updated every five years. Check the property has one and have the tenants been provided with a copy. If it does not, speak with an NICEIC or NAPIT certified electrician who will be able to complete one.
  
  
• Gas safety – Check the property has a gas safety certificate from within the last 12 months. If it does not, you will want to make sure one is carried out with the tenants provided with a copy of the certificate.
  
  
• Smoke and carbon monoxide alarms – A single let property needs to have a smoke alarm on each floor and a carbon monoxide alarm within 1 – 3 meters of any fuel burning appliance (such as a boiler or log burning stove). I recommend doing a check to make sure the alarms work and for single let properties, a battery powered alarm is fine.
  
  
• How to Rent guide – Every tenant in the UK needs to be provided with the most up to date How to Rent guide when signing a tenancy agreement. Check this has been done and if not, I recommend resending with a signed receipt.
  
  
• Insurance – If the property has a mortgage, you will need to be sure it has adequate insurance and whether that can transfer to you or needs to be re-arranged. You may wish to have some form of liability insurance in place.

Mortgages

If a mortgage is in place, I recommend you speak with a competent broker who will be able to advise you here as whilst you will need to continue making sure payments are made, the mortgage does not automatically transfer.

It’s my understanding that some lenders may permit the mortgage to transfer, but others may require a new application. Either way, the mortgage company will want to do some due diligence (such as identity, credit and income checks) before agreeing any changes.

Management

You will want think about who will manage the property. Will you manage it or instruct an estate agent?

If you will be managing the property, I recommend you visit the tenants to introduce yourself and also carry out a maintenance inspection. You might choose to use the services of a managing agent just for tenancy renewals and finding new tenants.

If you choose to instruct a managing agent, my advice is to speak with three, find out their fees, how they work but most importantly their reviews and reputation. Do they offer a service you feel your tenants will find positive?

Fees for managing agents tend to vary from 10% – 15% plus VAT of the monthly rental payments.

Reserves, tax and cashflow

The last point in my top tips is to do with finances.

Of course, you will want to make sure you have access to the bank account and make sure tenants are paying, but think about whether you have a good level of reserves (I tend to recommend at least six months’ worth of mortgage payments and 2% of the property value for maintenance.

As well as the cashflow element, I recommend speaking with an accountant to make sure all is in order when it comes to taxation – which is different dependant depending on ownership status.

If you’ve inherited a rental property then I’m here to help and answer any questions you might have. Feel free to reach out on email at hasan@home-share.co.uk.

Hasan