Farewell to the AST?

Following the reforms to the leasehold system, the government has issued a new consultation paper. Nicola Muir looks at the detail. The Ministry of Housing, Communities & Local Government has been busy. Hot on the tails of the reforms to the leasehold system, which I reported on last month, the government has now published a follow-on consultation paper: A New Deal for Renting – Resetting the balance of rights and responsibilities between landlords and tenants. This is code for abolishing assured shorthold tenancies. The consultation seeks views by 12 October 2019 on four issues: the impact of removing assured shorthold tenancies, and whether there are any circumstances where a tenancy should be ended without the tenant being at fault; whether the reforms should relate to both the private and the social sector; how the existing grounds for possession in Schedule 2 of the Housing Act 1988 (the 1988 Act) should be reformed and whether any additional grounds should be added; how the courts could consider applications for possession orders under section 8 of the 1988 Act more efficiently. The attentive reader will spot that there is no reference to the introduction of rent controls – there will be no return to the Rent Acts. Background There are 4.5m households in England living in private rented accommodation. The vast majority of these households will be occupying under an assured shorthold tenancy. The most common reason by far for such a tenancy ending is that the tenant has decided to move out, but under section 21 of the 1988 Act, the landlord can terminate the tenancy against the tenant’s will on giving two months’ notice following the expiry of the fixed term. The availability of this “no-fault” option leaves tenants feeling insecure and unable to plan for their future. Landlords do not, of course, need to rely on section 21 if the tenant has breached the terms of the tenancy because a fault-based procedure is available in section 8 of the 1988 Act. However, this requires the landlord to prove the breach and can lead to lengthy and expensive court proceedings. The latest statistics show that from claim to repossession takes an average of 22 weeks and this is before the notice period is added. The consultation paper recognises that landlords need to be able to rent properties safe in the knowledge that their investment is protected. This means landlords knowing that they can swiftly take action when things go wrong through a redress system that works fairly. Ending section 21 evictions With section 21 removed, all future tenancies will be assured tenancies – which was, of course, the default position prior to the Housing Act 1996. Assured tenancies can either be for a fixed term or periodic. The government is consulting on whether there should be a minimum period for any fixed-term tenancy. This would give landlords the assurance of a guaranteed rental income for a defined period and tenants the certainty of established terms and conditions, without the worry of having to routinely negotiate new ones. As an assured tenancy will continue as a statutory periodic tenancy at the end of the fixed term, tenants will have more flexibility to move on if there is no fixed term. The abolition of section 21 will require the government to think of new ways to police measures aimed at protecting tenants, such as the provision of gas certificates and the protection of the tenant’s deposit. Under the Deregulation Act 2015, the landlord cannot serve a section 21 notice unless the various statutory hoops have been jumped through at the start of the tenancy. If the landlord can’t serve a section 21 notice anyway, a new stick will need to be introduced to ensure compliance. Rent Historical evidence suggests that rent controls can backfire by discouraging investment in the rental sector, leading to declining property standards. The consultation paper does not, therefore, seek any views on protecting tenants against increasing rents. It does, however, recognise that there must be some mechanism for ensuring that landlords cannot hike up the rent by an excessive amount just before a fixed-term tenancy agreement is due to expire, thereby forcing the tenant to leave. Landlords will still be able to adjust the rent in line with market levels by negotiating a new fixed-term contract with the tenant or, if a statutory periodic tenancy has arisen, by using the procedure under section 13 of the 1988 Act which allows for an annual increase to the market rent once a year. As this procedure allows for challenge of the figure in the First-tier Tribunal, I suspect we may see an increase in contractual periodic tenancies which allow for rent reviews in line with the Retail Price Index and thereby avoid the section 13 regime. Bringing tenancies to an end Various extensions to the existing grounds for possession in Schedule 2 of the 1988 Act have been mooted.  The most common ground relied on is mandatory ground 8 which allows a landlord to terminate a tenancy with a monthly rent if there are two months’ rent arrears both at the date when the section 8 notice is served and at the court hearing. The process can be abused by tenants seeking to buy themselves time by reducing the arrears to just below the threshold in time for the hearing, forcing the landlord to start the process again. The government has therefore proposed re-structuring ground 8 so that: the landlord can serve a two-week notice seeking possession once the tenant has accrued two months’ rent arrears; If there is still a month’s (or over) arrears at the date of the hearing, the ground will be mandatory; If the arrears are less than a month at the hearing but the tenant has built up arrears and paid them down on three previous occasions, the ground will be mandatory. Otherwise, the arrears will found a discretionary ground for possession. Views are also sought on how the right to evict on the grounds of anti-social behaviour can be strengthened and it is suggested that ground 14A (which provides for a situation where a domestic abuser can be evicted from the property after the victim has left and has no intention of returning) should be extended to apply to private as well as social landlords. Provisions could also be made to prevent an abuser terminating a joint tenancy which they hold with their victim against the victim’s will. There is concern that landlords can have difficulty in accessing their properties to carry out essential safety and maintenance duties because their tenants routinely refuse them entry. The consultation paper therefore asks whether ground 13 (tenant’s neglect of the property) should be amended to enable a landlord to evict a tenant for obstructing a landlord from carrying out its obligations. Ground 1, as currently drafted, allows a landlord to regain possession if, prior to the tenancy being granted, they have given the tenant notice that they may wish to take the property back for their own home. It is proposed that the narrow scope of the current ground should be widened to allow family members to move into the property. It is not uncommon for landlords to buy a property for their children to live in, but letting it until the children are old enough to occupy. The requirement that the landlord lived in the property before it was let could also be removed although it is proposed that the requirement for prior notice be retained. The government is also exploring whether a landlord should be able to use ground 1 during the fixed term of the tenancy, providing prior notice is given. There could be a protected period of two years to ensure the tenant has some certainty. This would, hopefully encourage the grant of long fixed-term tenancies. A new ground allowing a landlord to terminate if they are selling the property may also be introduced. The ground could be operated during the fixed term but not within the first two years of the tenancy. Accelerated possession The consultation paper recognises that the abolition of section 21 will need to be underpinned by an enhanced, simpler, faster process through the courts. Various steps that would reduce the average time to possession by two weeks are proposed but these are unlikely to provide much comfort to landlords who can currently use the “no-fault” procedure to avoid lengthy proceedings. The government is, however, exploring whether the accelerated possession procedure currently available for section 21 claims could be adapted for use for claims brought under the mandatory grounds in Schedule 2. Final word It is not intended that any of the proposed changes will be retrospective. Landlords will, therefore, be able to use the existing section 21 regime in relation to all existing tenancies. It is proposed that there will be a six-month window after the new legislation is passed before implementation to allow landlords to prepare.  View the new consultation here >> Nicola Muir is a barrister at Tanfield Chambers