Are You an Accidental Fraudster?

You might think of yourself as a follower of rules, a law-abiding citizen, maybe even an upstanding member of society, but are you actually accidentally committing fraud? 

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If you’re sure that you follow all the landlord laws, we’ve got a few tips that you may find enlightening (or even alarming) – as there are things you routinely do as landlords, perhaps without a second thought, that may mean you’re unwittingly breaking the law. 

Might you in fact be a fraudster, without even realising it?

We’re aware this sounds fairly alarming, but before you start hiding files in cakes or attempting to flee the country, let us fill you in on the details, so you can right your wrongs before the long arm of the law catches up with you.

Before we begin though, in the interests of putting your mind at rest, you should know that this sort of thing doesn’t only happen to landlords. For example, did you know that as a parent, if you’ve taken out car insurance for your child in your name to get a cheaper deal, you are technically committing insurance fraud? 

In a similar vein, have you ever ‘borrowed’ someone’s streaming service log in details, so you don’t have to sign up to Netflix or Disney+? Used multiple email addresses to take advantage of free streaming service trials? 

Or, have you ever bought an item of clothing with the intention of wearing it before returning it? It’s called ‘deshopping’ and some retailers are now changing their returns policies in a bid to clamp down on ‘serial returners’. 

…And all of this is actually fraud too.

Now, back to landlord-related matters. Are you looking to save money, but unwittingly putting yourself at risk of fines, or even jail time?

If so, we wanted to share some of the money saving ‘tricks’ that landlords may be using, which are actually illegal.

Which landlord shortcuts are actually illegal?

1. Not registering/protecting your tenants’ deposit

Tenancy deposit schemes (TDP) are in place to keep the tenants’ money safe and make sure they get back what they’re owed at the end of the tenancy.

TDP’s help avoid any disagreements and give tenants peace of mind that the money is safe. It also gives you assurance that the money to pay for any damage is secure.

Tenants can check whether their deposits are protected via various schemes and apply to their local county court if they think their landlord hasn’t used a tenancy deposit scheme when they should have. More information is available on the Government website, here.

2. Delaying updating your gas/EICR/EPC certification

All these certifications are now mandatory legal requirements. To have something tested, landlords need to give their tenants 24 hours’ notice in order to gain access to the property. 

But as it’s a legal requirement, the tenants should agree. If a local authority believes a landlord to be in breach of the duties set out that these regulations require, they have to serve a remedial notice to the landlord, who must then carry out the action recommended.

If a landlord is found, beyond reasonable doubt, to have breached their duties under the regulations, the local authority may issue a notice of intent to impose a financial penalty of up to £30,000.

Our free Document Storage Tool products can help you avoid fines. EPCs, EICRs and Gas Safety Certificates are a legal requirement, and our free tool helps you keep on top of them, reminding you when they are due, so you can’t ‘forget’ when they need an update. 

3. Fulfilling all the legal requirements of an HMO

Houses in Multiple Occupation (HMOs) are a commonplace way for a landlord to make more money. 

If you plan on renting the property out room-by-room with shared common spaces, rather than as a single property, you could potentially get more rent. 

Usually, an HMO is a house rented out by three or more people, forming more than one household. And a large HMO has at least five people forming more than one household. 

The steps you should take to ensure you are properly covered to do this include getting extra legal protection, ensuring you have proper fire safety measures in place, that the correct gas safety and electric checks are made, that the property isn’t overcrowded, and there are enough shared facilities in good repair.

To find out what constitutes an HMO and for further advice on what steps you need to take, see the Shelter website. 

4. Taking cash in hand

You can ask to be paid any way that suits you. This can be by cash, cheque, direct debit or standing order. But you can refuse to take a cheque and accepting cash can create risks. 

To manage rent properly, it is advisable for it to be paid at the same time every week or month. It’s worth considering that if the rent is being paid cash, are you in a position to visit the property to collect it at the same time every week or month? 

And once in possession of the cash, can you issue receipts in order to maintain the correct bookkeeping details? If not, the tenant could claim they had paid, or you could claim you had not received the money. And you must declare the cash in your self-assessment tax calculations.

As a cautionary tale, this case, as reported by The Evening Standard, saw a couple who rented multiple properties to ‘ghost tenants’ to avoid paying council tax, fined almost £190,000 by Waltham Forest Council.  

What fines could be involved?

If you don’t do things above board, even unwittingly, you could find yourself slapped with a huge fine. But as fines are often decided by the local authority and not courts, smaller fines are doled out much more often.

A landlord was recently jailed for six months, suspended for a year, after being found guilty of illegally evicting a tenant and locking him out while he was working a night shift. 

The landlord, who has not been named, must pay compensation of £3,000 to the tenant, plus £250 to Sedgemoor Council in Somerset. 

This month, a landlord was also fined £40,700 for failing to licence an HMO, saying it was an ‘honest mistake’.

Five former tenants were awarded the maximum compensation for the period from September 2019 to August 2020 after a First Tier Property Tribunal found the landlord had only applied for a licence at the end of the tenancy on the HMO in Camden’s Oakley Square. You can read more about this here.

In short, it pays to know your rights and responsibilities, so you don’t get fined. In the case above the landlord did apply for the correct licence, it just wasn’t in time.

Might there be prison time involved?

Sadly yes. In 2018 The Guardian reported the case of a landlord who faced jail time if he didn’t pay a record £1.5m penalty fine for breaking planning laws.

But what about those who believe they are making honest mistakes? Landlords could be caught out by simply chatting on Facebook groups and asking questions of others. For example, an innocent chat about how to keep some of a tenant’s deposit money, even if the property is being handed back in perfect condition, could land you in hot water.

Contents Insurance for Tenants

Landlords can also face jail time of up to five years or get an unlimited fine for renting to someone who they ‘knew or had reasonable cause to believe did not have the right to rent in the UK’. Check our complete Right to Rent Guide to make sure you’re up-to-date on the latest rules and regulations.

Could you ruin your landlord career by making a simple mistake with your tax or some other accidental fraud? We offer a lot of webinars on join.mashroom.com, including a full tax series, that can help you avoid exactly this.

If you want to save money legally, we suggest looking the following:

  • Spending a bit of time and money sprucing up the property every few years actually makes you money in the long run, if you could then command a higher rent
  • Budget for regular updates to your properties, particularly the kitchens and bathrooms
  • Remortgage as often as you can to ensure you are getting the best deal. 
  • Look into short term lettings – could renting out through Airbnb or for a holiday market create more cash than long-term lets?

But above all, ensure you know the law when it comes to renting a property and that you aren’t making an accidental mistake, which could end up costing you thousands …or worse.

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