A ‘new deal’ for residential tenants

On 15 June 2022, the government published its much-anticipated white paper setting out details of the Renters Reform Bill. The Bill, which seeks to realign the landlord and tenant relationship, introduces changes which will fundamentally overhaul the existing basis of the private rented sector. While there is a clear focus on quality of life and safety in the home, the key change is the removal of “no-fault evictions”, which will afford tenants much greater security, but will make the job of renting homes significantly more complicated for landlords. Security of tenure Assured shorthold tenancies are currently the most common form of tenancy agreement in the PRS. Under such agreements, landlords are able to grant a fixed term tenancy. Once the fixed term has expired, they can terminate the tenancy by giving the tenant two months’ notice without needing to give a reason. These notices are known as “section 21 notices” (section 21 of the Housing Act 1988) and subsequent possession proceedings are known as “no-fault evictions”. Section 21 notices give landlords the ability to control who lives in their property, which in turn gives them the ability to threaten rent increases, and it is this lack of security that the paper seeks to address. Once enacted, all tenancies will be rolling with no fixed end date, otherwise known as “periodic” tenancies. It will also only be possible to terminate a tenancy if a landlord can demonstrate a reason. Under the current law there are grounds which a landlord can rely on in Schedule 2 of the 1988 Act, which include rent arrears, antisocial behaviour and the “moving in ground” if a landlord or landlord’s partner wishes to move into the rental property. The government proposes to address the limited nature of these grounds by expanding the “moving in ground” to include close family members, and by introducing a new ground for landlords who wish to sell their properties. In both cases, two months’ notice will be required. Purpose-built student accommodation will be exempted from the ban on section 21 if the provider is registered for a government-approved code. In addition, the government proposes to introduce a new mandatory ground for repeated serious arrears, and a lower notice period for criminal or serious antisocial behaviour. The notice period for the existing rent arrears ground will be increased to four weeks, and the government will prevent tenants from being evicted if they are in arrears due to the timing of welfare payments. Tenants will be able to terminate their tenancy at any time by giving two months’ notice. Other key changes Rent review clauses will be banned. Landlords will only be able to increase rent once a year by serving “section 13 notices” (again, under the 1988 Act) on a minimum of two months’ notice. Tenants can challenge the increases in the First-tier Tribunal. The government proposes to introduce a legally binding Decent Homes Standard. This is already in force in the social rented sector. Landlords must ensure that properties are free from the most serious safety hazards, such as fall risks, fire risks and carbon monoxide poisoning, and that properties do not fall into disrepair. Kitchens and bathrooms must be adequate, located correctly and “not too old”, and there must be sufficient noise insulation. Landlords must update facilities once they reach the end of their lives. Local councils will be able to enforce the Decent Homes Standard. A mandatory digital property portal will be launched. Landlords will be required to register their property on the portal, including information on whether the properties comply with the Decent Homes Standards. It will also contain information for landlords on their rights and responsibilities. Local councils will be able to take enforcement action against private landlords that fail to join the portal. It is also proposed that an ombudsman will be introduced, which will be mandatory for all private landlords who rent out property in England. The government claims that this will be “quicker, cheaper, less adversarial, and more proportionate than the court system”. Tenants will be able to seek free redress for complaints including dissatisfaction with the landlord’s behaviour, property standards, and a delay in carrying out repair works. The local council will be able to take action against landlords that fail to join the ombudsman. The ombudsman’s powers will include compelling landlords to issue an apology, provide information, take remedial action and/or pay compensation of up to £25,000. A repeated failure to comply with a decision could result in a banning order. The government proposes to introduce a package of wide-ranging court reforms that will allegedly target the areas that particularly frustrate and hold up possession proceedings. Delays in possession proceedings are widespread and have been worsened by the pandemic. These can be very costly for landlords due to lost rent and legal fees. The proposals include simplifying claim forms, digitising a range of court and tribunal processes, considering prioritisation of cases, and strengthening mediation services. There is little information on how and when these reforms will be implemented. The government will mandate entry for all eligible offences on the Database of Rogue Landlords and Property Agents, even if the offences do not result in a banning order. The offence data will be publicly viewable. There is a novel proposal which will make it easier for tenants to rent with pets. Landlords will only be able to withhold consent for pets if the grounds for withholding consent are “reasonable”. Tenants will also have the right to challenge a landlord’s decision, although there is no guidance on when withholding consent will be considered to be “unreasonable”. The Tenant Fees Act 2019 will also be amended to include pet insurance as a permitted payment, meaning that landlords can require pet insurance to ensure that any damage to their property is covered. The government will make it illegal for landlords or agents to have blankets bans on renting to families with children or those in receipt of benefits (so-called “no DSS” bans). Advice for landlords As things currently stand, there is no indication of when the Bill will become law. Given that it needs to go through a number of stages before receiving royal assent, this is likely to take at least a year. There will be two implementation dates for the transition from ASTs to periodic tenancies: after the first implementation date, new tenancies will be periodic and governed by the new rules; and after the second implementation date, all existing tenancies will transition to the new system. However, current and future landlords should start thinking about its potential impact now. Section 21 is often relied on to remove difficult tenants or tenants in arrears. It will be more difficult to obtain vacant possession and will not be possible at all unless a reason can be made out. The Bill’s progress should be closely monitored so that any necessary notices are served before it comes into force. Landlords should be aware that it will no longer be possible to guarantee a timeframe for a tenancy, and portfolios should be reviewed in light of this. Systems should be put in place to deal with the additional administrative burden of serving a section 13 notice every time the rent is increased. Landlords should also be aware that there will be a higher risk of being taken to court by tenants challenging rent increases and refusals to allow pets. If you do not want pets in your property under any circumstances, it may be safer not to let it at all. Landlords who currently operate a “no DSS” policy should consider if they are willing to be exposed to additional risks. Finally, properties should be reviewed to ensure that they comply with the Decent Homes Standard. Impact on the housing market The government is explicit that the purpose of the Bill is to “level the playing field between landlord and tenant”. There is no doubt that improving tenants’ abilities to rent safely and securely is a positive step. However, the proposed reforms will mean that landlords no longer have the flexibility to bring tenancies to an end if and when necessary, and the most serious impacts are likely to be felt by smaller landlords who rely on rent for income. Although the government states that it will introduce additional grounds for possession, it remains to be seen how these will be defined in the legislation and treated by the courts. In the midst of a housing and cost of living crisis, the Renters Reform Bill may well decrease the number of private landlords willing to let out their properties. This, in turn, could have the unintended consequence of making it harder for tenants to find suitable affordable housing, which was a key driver for the reforms in the first place. Natasha Rees is a partner and Elizabeth Oxendale an associate, both in commercial real estate property litigation at Forsters LLP Image © Andrew H Walker/Shutterstock