Renters Reform Bill: will there be unintended consequences?

Balraj Birdi reflects on proposals that could herald the most substantial changes to PRS regulation in more than 30 years. On 16 June 2022, the Department for Levelling Up, Housing and Communities issued a white paper – A fairer private rented sector – setting out proposals in line with the government’s 2019 manifesto as to how reform of the rental system could provide a fairer private rental sector for tenants. The intention stated by the government is that the proposals will be implemented via a Renters Reform Bill, due to be introduced in the 2022/23 parliamentary session.  Since there is currently no draft legislation in circulation, we cannot be certain of the proposals, but we can consider what the future of the private residential rental sector may look like. If made law, the proposals set out in the white paper will represent the most substantial changes to regulation in the private rented sector in more than 30 years. It is the government’s aim to redress the balance between landlords and tenants in order to correct perceived unfairness, give tenants greater security in their homes and address the current power imbalance in certain aspects of the sector.  Two key proposals  1. The abolition of contractual rent review clauses – rent review will be governed by statute instead. The proposals stipulate that reviews may only be carried out once per year and rents may only be revised in line with the open-market rent for the property in question. Bringing all rent reviews under one statutory system will help towards simplifying the process for tenants by eliminating the current patchwork of differing contractual review clauses, and help to ensure that they do not pay more than is reasonable.  2. The abolition of “no-fault” evictions – landlords will now need to show evidence of tenant default or prove they have a good reason for requiring possession under a number of statutory grounds before the courts will order the tenant to vacate. As such, contractual break rights will also be prohibited. In effect, tenants who comply with the terms of their tenancy agreement will, in most cases, be entitled to a tenancy for life. The government has acknowledged that it is unfair to create a situation where landlords are left with tenants who do not pay their rent or fail to comply with the terms of their tenancy agreements. Therefore, while the plan is for no-fault evictions to be abolished, there will also be an overhaul of the grounds for evicting tenants who are in breach of tenancy agreements, with the government aiming to improve the possession system for landlords. This will be coupled with improvements to the court process for obtaining possession, which the government has acknowledged does not currently meet the needs of landlords, not least because of the delays experienced.  Effect on large-scale landlords While it is clear that there is an attempt from the government to seek the right balance between landlord and tenant, there is still a concern that removing no-fault evictions may leave inadequate rights for large-scale landlords who build and/or maintain and operate private rental schemes.  The private rented sector has attracted substantial institutional investment over recent years (which of course was not present in the pre-Housing Act 1988 era) and continues to do so owing to its attractive index-linked rental returns, coupled with the ability to refurbish and relet properties when required, usually at increased rents.  The proposals in the white paper do not allow for landlords to terminate owing to refurbishment purposes, which will cause difficulties where repairs or refurbishment works are required that cannot be reasonably undertaken with tenants in situ. The proposed termination right where a landlord is looking to sell the let property is clearly to be of little use to build-to-rent/PRS landlords whose primary focus is typically full occupancy with minimal void periods. As such, it seems this right is likely to benefit the smaller buy-to-let landlords only. Rent provisions The government has been quick to reiterate that the rent review proposals will not be a return to the rent controls of the 1980s. Landlords who currently rent their properties at market rent and with reasonable market rent review provisions will be able to continue to do so, albeit within a new statutory framework. Ultimately, if a landlord and tenant are unable to agree the new rent level, it is likely that the onus will be on the landlord to incur the cost of applying to the tribunal for determination of the open-market rent. As a result, the rent review process is likely to become more costly and require landlords to produce more detailed documentation and record-keeping. Pause for thought While the proposals will require a level of adjustment from landlords in the private rented sector, their impact, in ending the unfair practices of a small minority, will be of benefit to the sector. For example, unscrupulous landlords will no longer have the power to demand rents in excess of open-market levels and use the threat of no-fault evictions as leverage. Although this is heralded as a huge positive for the industry, it is important to also take into consideration the potential for unintended consequences stemming from the proposals if they become law in their current guise.  The white paper can be downloaded from the government website. Balraj Birdi is partner and head of residential investment at Eversheds Sutherland Photo © RODNAE Productions/Pexels