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Landlord contingency funds

Most landlords want their businesses to run smoothly and will be aware of the need for some form of contingency funding. This is a vital safeguard against the emergencies which sometimes occur – a landlord cannot say 'I can’t afford it'.

Landlord contingency funds Landlord KnowledgeIf a tenant rents a property with gas central heating, he has a right to expect that heating problems will be rectified. But what of the ‘accidental landlords’, who find themselves in possession of a property which they either can’t, or won’t, sell and decide that private renting is a means of retaining the property and earning some income from it? Are they always as aware as they should be that because they have never had a boiler problem or a leaking roof, these can occur and then will need to be addressed?

Any property let out must be maintained to the same standard throughout the course of the tenancy and any electrical appliances provided must be replaced, should they fail. Failure to be aware of the possibility of unforeseen circumstances, could eventually lead to loss of the property, quite possibly a factor in many repossession cases (to say nothing of loss of reputation).

The Council of Mortgage Lenders offer some advice to landlords, stating that 30-35% of a year’s gross annual rental income should go into a contingency fund. This is to cover rent arrears, void periods, maintenance and refurbishment. It should also cover replacement of white and brown goods, if these are provided as part of the tenancy. Until comparatively recently, many landlords provided no white goods, but as standards and tenant expectation have risen, it is not unusual for kitchens now to have fitted appliances. If these fail, obviously they will need repair or replacement.

Where properties are mortgaged, rent arrears and void periods can lead to disaster, if there is no fund available to fall back on. 30-35% seems a large contingency fund and it is to be hoped that it would not be used, but needs to be there, if something does go wrong.

Some landlords would find it difficult to operate in the suggested manner and still make a profit, but they should heed the advice and do as much as they can. Even if landlords cannot keep a separate account for contingency funds, they need to have almost instant access to a sum to use for this purpose.

The Council of Mortgage Lenders also provide helpful guidance on how often a property should require decorating. Many landlords will realise that invariably when a tenant leaves, whether it is after 6 months or 2 years – some, if not all, of the property will require redecoration. However, if you get a perfect tenant who stays for a substantial period, landlords should probably think about re-decoration every 3 to 5 years.

Some landlords will feel that they escape the cost of redecoration, because long standing tenants have done their own. This is perfectly understandable. but remember, even the perfect tenant may decide to move and you may then be faced with a beautifully decorated property – in chocolate brown and magenta. Very stylish but you cannot rely on a new tenant liking it, so be prepared to put it back to neutral colours for new tenants. Be wary about the permission you give for decorating and always make it clear, it will need to be brought back to more neutral tones and they would be expected to pay for this, from the deposit. Kitchens, bathrooms, boilers and interior doors may need replacement every 5 to 15 years.

Windows, exterior doors, gutters and barge boards, pathways, driveways and radiators may need changing every 15 to 25 years. Some of these periods seem a little short, but as the list does not include re-wiring and re-roofing which are major works, it is perhaps as well that some of the other items will often not be necessary until the tenancy has been running for a long time.

Whatever the circumstances of a landlord entering the private sector, it must be treated as a business and the business plan should have a fund available to cover emergencies. Without it, he may survive for a time – but business, any business, should be about more than survival.