The Renters’ Rights Bill – More rights but more risk?
The Renters’ Rights Bill makes good on Labour’s promise to ban ‘no-fault’ evictions and strengthen tenants’ rights. However, unlike the Renters (Reform) Bill, introduced by the previous Government, which was not passed before the general election, there have been fewer attempts to mitigate the impact on the property market. In this article we look at some of the key changes that will be introduced by the Bill and what they could mean for institutional landlords.
Abolition of Fixed Term Tenancies
The Bill will abolish Assured Shorthold Tenancies, converting them into Assured Tenancies with a rental period of no more than one month. This shift eliminates the security of fixed-term agreements for landlords who were able to assess their options at the end of the fixed term. Unlike the final draft of the previous Government’s Bill, the tenant can terminate their tenancy at any time on two months’ notice, from the outset of the tenancy.
There are no transitional provisions, meaning that all existing tenancies will convert to Assured Tenancies on a fixed date (except where there are ongoing possession proceedings). Depending on how quickly the Bill proceeds through Parliament, and when the date for the change is decided, landlords may have a very limited window in which to prepare for the changes.
Abolition of Section 21
As expected, the Bill will abolish Section 21 of the Housing Act 1988 (which allows landlords to evict tenants without providing a reason) and will force landlords to rely on one of the Section 8 grounds for possession. The abolition of Section 21, in and of itself, is not necessarily unwelcome. Section 21 is an extremely complex procedure because of the extensive list of preconditions that need to be complied with by a landlord before being able to serve a valid notice. This has made it nearly impossible for a landlord to serve a valid Section 21 Notice without professional advice. However, to counterbalance the loss of Section 21, landlords had hoped that the Section 8 grounds would be expanded, and many landlords will consider that the Bill falls short in this respect.
Changes to Possession Grounds
The Bill does amend and add new Section 8 possession grounds to the Housing Act 1988, but they do not address all the circumstances in which a landlord may wish to obtain possession. Crucially, unlike the previous Government’s bill, the Renters’ Rights Bill does not add a mandatory ground for repeated serious rent arrears. This means that where a tenant repeatedly falls into rent arrears, but not enough to rely on mandatory Ground 8, they will have to use one of the discretionary grounds relating to rent arrears. This means persuading judges that it is reasonable to make an order, which will likely lead to increased court costs and uncertainty for landlords who seek to rely on those grounds.
Even worse news for landlords is that Ground 8 has been weakened so that tenants will have to be in 3 rather than 2 months of arrears before a notice can be served. The notice period for Ground 8 has also been extended from 2 weeks to 4 weeks.
As with the Renters Reform Bill, there will still be new grounds for circumstances in which landlords wish to move themselves, or family members, into the property or wish to sell it. However, these grounds cannot be used in the first 12 months of the tenancy and the notice period is 4 months.
The Renters Reform Bill had introduced changes to attempt to make it easier to evict tenants using grounds relating to anti-social behaviour. The new Bill fails to do so. Landlords will have to convince a judge that the tenant’s behaviour is likely to cause a nuisance or annoyance and that it is reasonable for the court to make a possession order. As Section 21 was the preferred way for landlords to obtain possession in such circumstances, we expect to see an increase in the number of landlords using the anti-social behaviour grounds.
Section 8 Preconditions
Under the provisions of the Bill, the only preconditions to Section 8 are that the landlord:
- has complied with the deposit protection rules; and
- must be registered with the proposed Private Rented Sector Database.
However, these preconditions only have to be complied with before a possession order is made, rather than before a Section 8 notice is served. This is a welcome improvement on the preconditions for Section 21. With Section 21, if any of the preconditions have not been complied with before serving a Section 21 notice, that notice would be invalid, and any court proceedings issued based on that notice would fail. Under the Bill, the preconditions have to be complied with before the court makes an order. This appears to allow the landlord to rectify any defects after the notice has been served, and after court proceedings have been issued, but before the date of a possession hearing. It also leaves open the possibility that if the preconditions are not complied with at the time of the possession hearing, the landlord could seek an adjournment to allow them to be rectified. However, it remains to be seen how the courts will deal with such circumstances, and it could be that a claim is dismissed if the preconditions are not complied with at the date of the possession hearing.
Ban on Rental Bidding and Rent Increases
The Bill mandates that landlords advertise properties at a fixed rent and prohibits letting them at a higher amount. This restriction could lead to higher advertised rents as landlords attempt to secure the highest rent possible. The Bill also limits rent increases to once per year, in line with market rent, and allows tenants to challenge increases through the Tribunal.
Awaab’s Law
The Bill requires landlords to address certain hazards within a prescribed timeframe. The specific hazards will depend on regulations yet to be published, but they will likely include issues such as damp and mould. Institutional investors must ensure that they can quickly identify and remedy these issues, which may require significant investment in property maintenance and management systems, particularly across a large portfolio.
Other Changes
The Bill includes measures to prevent discrimination against tenants with children or those receiving benefits and grants tenants the right to request pets, which landlords cannot unreasonably refuse.
As previously proposed, the Bill will require landlords to register themselves and their properties on a Private Rented Sector Database. Registering will involve a fee. How onerous this is for landlords will depend on the fees required. Institutional landlords consisting of large portfolios across different companies could find themselves facing high costs and a lot of administration to ensure compliance.
Conclusion
Overall, the Renters’ Rights Bill builds on the work of the previous Government, but is more focused on the interests of tenants, which could create challenges for institutional investors. The changes to possession grounds, restrictions on rent increases, new maintenance requirements and the Private Rented Sector Database will likely contribute to increased financial risk, operational complexity and legal costs. It remains to be seen how many of the proposed changes will operate in practice. Landlords should ensure they are ready to adapt to these changes when they are introduced, which could be as early as next year.
