Many landlords nowadays are looking to transfer their properties to a limited company in order to avoid some of the new tax rules.
There is quite a bit of advice out there on the tax issues (including in our online tax course) but this post is looking at an aspect of this you may not have thought of.
It’s about consumer law
What is consumer law?
Consumer law is legislation which has been passed to protect consumers from being treated unfairly by businesses.
For example, legal contract documents made between a business and a consumer are now subject to the unfair terms rules. I wrote about this in my 33 days of tips series as they apply to tenancy agreements.
However one of the most important cases was the OFT v. Foxtons case in 2010 which involved letting agent contracts with landlords. Foxtons lost this case as the Judge held that their clause requiring ongoing commission where Foxtons did no work was unfair.
Another consumer law which benefits landlords is the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which give consumers a 14 day period during which they can cancel the contract and recover any fees paid.
This will apply where landlords retain a letting agent (typically by signing an agency agreement) after at least one meeting off the agents business premises (eg after viewing the property).
If the agent does not notify the landlord of his cancellation rights then the landlord can cancel at any time for up to a year – and recover all fees paid.
It is also arguable that a landlord will be able to cancel if the agent has induced him into the agency agreement by unfair practices under The Consumer Protection (Amendment) Regulations 2014.
For example, if the agent’s service has been misrepresented.
But is a landlord a consumer?
This answer depends on the context.
- Insofar as contracts with tenants are concerned, landlords will almost always be treated as a business /supplier. However
- Insofar as contracts with letting agents are concerned, they will often be treated as a consumer – and so will be protected by the consumer legislation.
In particular, landlords who have another job, so managing property is not their main business, will almost certainly be treated as a consumer – even if they have quite a large portfolio.
There is no rule, for example, which says that landlords will not be treated as a consumer if they have more than five properties. If their main occupation is something else – for example, if they are a doctor or an actor – then they will be treated as a consumer and will be entitled to take advantage of the consumer protection laws.
However, a landlord will NOT under any circumstances be treated as a consumer if his property is managed through a limited company. A limited company is always treated as a business.
Consumer protection – something to take into account
Consumer law is probably not the first thing you will think about when deciding whether or not to set up a company for your properties. However, it is something you should consider.
Many landlords have benefited from the consumer law rules – for example when agents seek to claim commission for long periods of time when they are doing no work. You will be able to challenge this if you own your property personally but not if you own them through a company. Not under the OFT v. Foxtons case anyway.
Find out more
If you want to find out a bit more about consumer law, you may want to watch David Smith’s talk to our 2017 Conference. This is available as part of our Conference Course or you can buy the talk on its own here.