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  • Property Management

    Mitigating business risk through inventories

    Welcome to Day 2 of our new week of themed content, here on Property Tribes, where we are looking at different business risks in the property sector and how landlords can mitigate them.

    This is all part of our year long "Smart Landlord" campaign, celebrating the 10th anniversary of Property Tribes and, hopefully, over the past decade, Property Tribes content has assisted landlords in avoiding the pitfalls by making someone else's hindsight their foresight and sharing tips on how to reduce risk.

    This graphic illustrates the process of risk mitigation in business:

    For this week, we have identified three main types of risk:

    1.  Risk of financial loss

    This could be through a tenant not paying the rent, buying a bad property deal, suffering void periods, interest rate rises, making poor business decisions, having a tenant on Universal Credit without having direct payment to landlord, a "black swan" event such as a major local employer shutting down.

    2.  Regulatory risk

    This covers everything from Government intervention, increasing legislation, and fines for non-compliance - which can be up to £30K.  There are now over 180 Government statutes and regulations that landlords have to adhere to in order to provide a compliant and safe home for tenants.

    3.  Rogue risk

    Encountering a rogue tenant, lettings agent, property trainer/guru, builder, or some other person or business you transact commercially with.

    Ultimately, all of these will result in financial loss, not to mention stress and emotional heartache, so smart landlords look to mitigate their risk at every opportunity.  They know that prevention is ALWAYS less expensive than cure!

    Inventories definitely fit into the "prevention" mindset of a smart landlord.

    The Association of Independent Inventory Clerks have joined with Property Tribes on this important topic.

    AIIC write:

    It has never been more important to make sure that all parties involved in a tenancy have the protection of an independent inventory report in place in the UK’s private rented sector.

    Indeed, this month has seen the government and the Tenancy Deposit Scheme release guidance around inventory reporting.

    The government’s Ministry For Housing has published:

    > If the property is not left in a fit condition, you can recover the costs associated with returning the property to its original condition and/or carrying out necessary repairs by claiming against the tenancy deposit.

    > You should justify your costs by providing suitable evidence (e.g. an independently produced inventory, receipts and invoices). They advise that it is preferable for an independent person to undertake check in and check out reports (e.g. a specialist inventory clerk).

    The independent inventory is now critical for both tenants and landlords to make sure they are protected prior to the move in and exiting of a tenancy. This way there can be no error in how the tenancy started and ended and where any issues and liabilities lie.

    Member clerks at The Association of Independent Inventory Clerks carry out extensive and forensically thorough reports to make sure that every aspect within a property is recorded and there can be no error when the tenants get to the end of their tenancy agreements.

    David Cox the CEO for PropertyMark stated:   “The sector must not underestimate the importance of a thorough inventory".

    However, Daniel Zane, Chair of the AIIC (The Association of Independent Inventory Clerks and founder of My Property Inventories) warns that caution must be taken, as not all inventories are there to protect both parties. The landlord, agent or tenant can still legally compile reports and as yet no one has to state if there is a connection to the property via the party that has compiled the report.

    Zane advises tenants, landlords and agents to: “look out for the AIIC logo or use our safe clerk listing to find a suitable inventory clerk that has no interest in the property, owner or tenant. Our clerks offer the level of protection most would assume a detailed inventory report offers”.

    Property Tribes caught up with Sian and Steve of Inventory Base at the ARLA Conference to discuss how landlords should place more importance on inventories for risk mitigation:

    As well as being in "prevention" mode, smart landlords can insure against virtually every risk in property, and the Alan Boswell Group award-winning team are at PT members service to ensure they get the right level of cover.  Call the ABG team on 01603 649736 .

    Another additional way to mitigate risk is to join a Landlord Association and take advantage of all their support services and training.  Property Tribes is partnered with the Residential Landlords Association and PT members can enjoy 25% discount off joining.

    This is how the rest of the week is shaping up:

    Monday - the launch of week and looking at how landlords can insure against risk - with Alan Boswell Group.

    Wednesday - mitigating risk through the use of a reputable lettings agent with David Cox, CEO of ARLA.

    Thursday Mitigating business risk via due diligence

    Friday - Mitigating business risk by using verification

    SEE ALSO  -         7 ways for newbie landlords to mitigate risk

    UP NEXT -            Five very good reasons to instigate mid-term property inspections

    DON'T MISS -       This one picture will convince of the value of an inventory and inspections.