Know Your Client - All about the Landlord
The private rented sector has evolved dramatically and as the industry has embraced technological innovations, systems and processes to ensure that all the necessary compliance is adhered to on behalf of landlords, yet there is one glaring problem that is not always properly addressed - identifying and verifying the legal owner the rental property.
Over the last 12 months we have conducted lettings audits which consist of a 40 point check list, some of which relate specifically to the property owner. Identifying the legal owner is of paramount importance, not just at the point of an audit, but more so when a landlord instructs an agent to act on their behalf.
Knowing the legal owner of a property is essential not only because letting out a property holds significant responsibilities and obligations, but also because the Due Diligence of ensuring who the legal owner is will avoid many serious disputes, in particular, fraud.
Due Diligence
In the lettings industry it is not a mandatory requirement to register with HMRC if for example, rents received are below 10,000 euros rent per month, nonetheless, even the bare minimum of verifying the legal owners of rental property is a crucial part of the lettings process and knowing the clients that are instructing the agent, has become increasingly important to minimise risk.
So, what is the bare minimum information that a letting agent should be requesting from landlords?
Proof of Address - where is the landlord resident? Will their given address have other implications that the agent needs to consider? The landlord may be a Non-Resident Landlord and therefore, if the landlord is resident outside the UK for 6 months or more, letting agents or tenants should operate the NRLS. The landlord’s address should also alert the letting agent as to what needs to be done in relation to the licensing of the rental property. If the property requires a licence, the landlord must appoint a person or company in the UK who can hold the licence for them.
Landlord Photo ID - Some landlords have been known to letting for many years and therefore there is sometimes a little complacence in relation to obtaining Photo ID, yet, for those who have not met the landlord, it is a key part of knowing the client and it is essential to ‘see’ for all involved who they are doing business with.
Land Registry Searches - One of the most useful pieces of information for letting agents to obtain can be found on the Land Registry. Access is not free and therefore, an email address and a debit or credit card will be required to use this service, and once payment has been made, the Title register, or the Title plan can be downloaded. The Title Register gives access to the Proprietorship Register, the Title Register and the Charges Register, all of which include useful information not only about the legal owner, but about restrictions and easements that may be registered against the property. Please note, that the transfer of land from one owner to another OR a change of the owner’s name may take a while to show up on the Land Registry.
Read guidance on getting information about property and land, including alternative sources of information.
Mortgage Consent and Mortgage Statements - This can be a bone of contention for some letting agents who may face residence from landlords who refuse to supply this information. Remember the whole point of ensuring that the landlord is compliant also protects them. If the lender in question does not permit the landlord to sublet, the landlord could face serious penalties and the letting agent could face a claim for negligence from the tenant.
Vetting Limited Companies, Corporates, Housing Associations, Local Authorities, Trusts and Charities
Not all landlords are individuals and so some of the information listed above may not suffice when gathering information about Limited Companies, Corporates, Housing Associations, Trusts or Charities.
For example, the Government tax changes announced in 2015 that phased out the ability of landlords to offset mortgage interest payments against their rental income from 2017 saw an increase in landlords move their properties to a Limited Company structure.
So, the starting point for vetting landlords who are using a Limited Company set up for their portfolio will be Companies House and cross referencing the addresses and director names provided, will be extremely important.
The Economic Crime and Corporate Transparency Act received royal assent on 26 October 2023 and as a result there will be new responsibilities which includes landlords who have set up Limited Companies.
The first set of changes will be introduced on 4 March 2024, with more focus being placed on a new identity verification process to help deter those wishing to use companies for illegal purposes. Anyone setting up, running, owning or controlling a company in the UK will need to verify their identity to prove they are who they claim to be.
What about Powers of Attorney and Probate?
When a person presents themselves as the Power of Attorney on behalf of a client landlord or tenant, it is important to follow a strict process to ascertain that a Power of Attorney in place.
Figures show that since 2014/15, the numbers of Lasting Powers of Attorney (LPAs) registered with the Office of the Public Guardian (OPG) have more than doubled and the reasons for this range from an increased need for protection due to changes in personal circumstance to illness or lack of capacity.
There are 2 types of LPA - Health and Welfare and Property and Financial Affairs, therefore when, for example, the representative of a landlord states that they have Power of Attorney, it would definitely be related to Property and Financial Affairs. Therefore, this will mean that the representative will have the ability to make decisions about property and money which may include paying bills, giving consent to let.
However, it is crucial that the representative provides the relevant document which will state they have Power of Attorney and the type of LPA granted. A copy of the document must be made, and the original will be returned to the representative. It is also important to take copies of the representative’s photo ID.
Please note - the Power of Attorney automatically ends if:
Attorney or donor dies
Attorney or donor becomes bankrupt (LPA)
Marriage or civil partnership between the donor and the attorney is dissolved or annulled
The attorney lacks the mental capacity to make decisions
The Court of Protection can cancel an LPA if an attorney is not acting in the persons best interests.
When a landlord or Tenant Passes Away
Dealing with the passing of a tenant or landlord can be quite daunting and often the enormity of this type of situation can divert one’s attention away from ensuring the correct questions are asked.
Whilst it is difficult to ask for information at a difficult time, one must request the Death Certificate, a Copy of the Will, the details of the solicitors (where applicable) and the names and photo ID of the Executors. Due Diligence is paramount to ensure that those managing the deceased’s estate are correctly identified. An executor is someone who is named in the Will and will be responsible for dealing with the estate of the deceased.
Probate
It is the executors that will apply for probate. The Grant of Probate is a legal document which gives authority to share out the estate of the deceased according to their wishes and instructions found in the Will. Many executors will act without the assistance of a solicitor, however, if the estate of the deceased is complicated, they are likely to seek legal advice.
After probate is granted, the Personal Representatives named on the Grant can begin the process of dealing with the estate. This may include closing a bank account or selling or transferring property. The Grant of Probate allows the Personal Representatives to legally distribute what is named to the beneficiaries in the Will.
However, not all landlords will have made a Will, therefore, legal advice should be sought by the letting agent.