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Landed Estates – The Problem with Property

The role of the English Country Estate has changed extensively in recent times. Although they are often still the dominant landowner within the locality, the estates role as a major employer has dwindled in the majority of cases due to the mechanisation of agriculture and attempts by successive governments to encourage owner occupation, which has reduced the requirement for providing workers cottages and other residential property.

A change in the residential portfolios role has left many landed estates with the headache of what to do with such properties, which by their very nature can be costly to maintain especially where they are not generating an income stream or providing accommodation as part of a service tenancy. No longer can estate owners and landlords afford to ignore their residential portfolios.

Faced with the problem of having vacant properties, many estate properties have either been let to retired workers or local residents. Often this has been at a time where housing policy such as the Rent Act 1977 afforded the tenant significant security of tenure and protection from rent increases. Where a protected tenancy exists, the level of rent may be significantly below the current market rate and this hampers the estates ability to re-invest in the property.

Alternatively properties have been either occupied on an Assured Shorthold Tenancy at a market rent or been sold off in order to solve a cash flow issue or reduce a liability.

In recent times the residential portfolio has therefore caused problems for estates, and there remains a question over whether we are actually making the most of such assets.  Perhaps it is time to view the residential portfolio as a solution and not a problem?

Some estates view residential lettings as onerous and as an ineffective means of raising additional income.  However, receipts from residential lettings and diversification projects such as holiday lets and bunk barns can provide a reliable source of income, the importance of which should not be under estimated. This is especially so against the backdrop of poor agricultural commodity prices.

Residential lettings are by their very nature time consuming and high maintenance, as with any form of real estate, however income from residential lettings can be a good way of releasing additional working capital by aiding cash flow, whilst agricultural land can be more susceptible to price fluctuations.

Residential lettings are therefore an important component of any estates long term strategy but it is important not to fall foul of the increasing amount of legislation. To illustrate this point, a number of important pieces of legislation have been implemented within the last 12 months. This includes the introduction of “Right to Rent” checks under the Immigration Act 2014, the requirement for the installation of devices under the Smoke and Carbon Monoxide Alarm Regulations 2015 and Energy Performance Certificates (EPCs) etc.

The right to rent checks place an onus on the landlord or letting agent to satisfy themselves that prospective tenants have the right to reside and thus rent in the UK. Generally this is undertaken by establishing the presence of particular identification documents. Failure to undertake these checks could ultimately lead to a fine of up to £3,000 per adult occupier.

The Smoke and Carbon Monoxide Alarm Regulations 2015 are an example of further legislation that affects private rented accommodation. Essentially the Regulations stipulate which properties must be fitted with these alarms and where they should be placed in addition to ensuring that they work upon commencement of the tenancy, plus regular checks carried out. A breach of these regulations can lead to a fine of up to £5,000.

From 1st April 2018 additional legislation is being introduced regarding minimum Energy Performance standards. Unless exempt, a newly let property will need to attain a minimum rating of “E” or above, however this legislation will then be operative retrospectively for existing tenancies from 1st April 2020.

It is paramount that estate owners are fully versed with the requirements of such legislation and they should be aware that this is only a glimpse at the laws that govern residential lettings. Anyone unsure of how this legislation may affect them is advised to seek professional advice.

From a tax perspective, the letting of an estate property to a private individual and not an employee may be viewed as an investment as opposed to a trading activity. Historically some estates have been wary of these potential tax implications, favouring the more generous reliefs that agricultural land and property can qualify for. However the recent case of Brander Vs HMRC (2010), more commonly referred to as the Balfour case, should provide some re-assurance to estates that the presence of investment properties does not necessary preclude the availability of Business Property Relief (BPR) under Inheritance Tax, however this is a very complex area of law and in such cases professional advice should be sought with your Accountant regarding the segregation of business activities.

Managing residential property has become a specialist role, in part due to the abundance of new legislation relating to statutory safety tests and dealing with problematic tenants to name but a few. In amongst all of this however there are clear benefits and opportunities to retaining a well maintained and managed portfolio.  Residential incomes now make up an ever increasing proportion of the total estate income and estate owners would be wise to re-evaluate the importance of their residential portfolio as part of their overall business and review the income this sector now generates.

GSC Grays offer a wide range of tailor made solutions to owners of rural land and property. From one off strategic reviews of assets and operations, advice on residential management, through to add hoc or full-time estate management consultancy we can help. For more information please contact your nearest GSC Grays office or visit www.GSCGRAYS.co.uk

 [team-member name=”Alexander Morrison”]

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