Renters’ rights: plugging the PRS gap

COMMENT There is no doubt the Renters’ Rights Bill will be law soon and has clear benefits for tenants, who will no longer be at the mercy of landlords serving a section 21 notice, which currently forces tenants to leave a property. On the flip side, in the face of more regulation, uncertainty on rents and longer periods before proceedings for rent arrears can be commenced, there is concern that private rented sector landlords will leave the rental sector. This will reduce rental supply in an already undersupplied market and will place greater emphasis on delivery via new build-to-rent schemes. Some of the key changes in the Bill include capping advance rent payments, abolishing section 21 “no-fault” evictions, ending bidding wars and an update to section 13, which enables tenants to challenge rent increases with no risk and no cost. A PRS landlord ombudsman will also be introduced to provide quick, impartial and binding resolutions for tenants’ complaints about their landlord. All change Although some renters are set to reap the rewards of these changes, this is not the case for everyone. Data from Housing Hand, which supports landlords and tenants with its guarantor services, asked renters how prepared they felt for the Bill’s arrival. Staggeringly, of nearly 1,700 respondents in January, just one in three private renters is aware of the proposed Renters’ Rights Bill, while only one in four understand how it may affect them when it comes into force. For instance, one key challenge will be restricting landlords from receiving advance payments of rent. This may be advantageous for some but it is clearly a challenge for the self-employed, international renters and others without credit history or those who are unable to provide a suitable guarantor and would otherwise have relied on paying up front to demonstrate their ability to take on a tenancy. Equally, the Bill enforces an end to the practice of rental bidding by prohibiting landlords and agents from asking for or accepting offers above the advertised rent. Landlords and agents will be required to publish an asking rent for their property and it will be illegal to accept offers above this rate. As such, there are concerns this will simply result in higher asking rents, with bidding wars still taking place below that price. When it comes to rent review, if a tenant believes a proposed rent increase exceeds the market rate, it can then challenge this at the First-tier Tribunal, who will determine what the market rent should be. Under the current system, tenants can challenge rents they view as unfair, but the First-tier Tribunal can rule the rent should be higher than the level the landlord was asking for and tenants can be obliged to backdate payments to the date of the landlord’s request. Under the new system, these risks are removed, opening up the potential for tenants to challenge rents with no risk, if they have the means to do so. Once the bill becomes law, rent increases will take effect from the date of the tribunal’s decision. Given the FTT already takes three to six months to determine cases and the more usual contractual position which would be a backdating to the date in the review notice, this seems unfair to landlords. Limits on landlords Such turbulence in the PRS sector will likely drive landlords away. Greater uncertainty around tenure and rent, as well as the administrative burden and cost involved in the PRS landlord ombudsman and PRS database, in addition to the existing system of selective licencing, will further exacerbate issues, with PRS landlords leaving the market and a lack of supply of rental accommodation. While renters deserve a professional and efficient rental system, this should be balanced against the dangers of falling supply in what is currently a strong market that encourages inward investment and entrepreneurialism. As PRS landlords leave the market due to changes to renters’ rights, a significant void in housing must be filled. BTR offers an effective model which has the ability to increase supply quickly by building large-scale rental developments. There are development challenges which also add to this “perfect storm” – Gateway 2 and the planning system, not to mention the turbulence created by Donald Trump. We must hope the relatively stable income stream that BTR can offer continues to make it an attractive asset class for investors, allowing BTR developments to continue to succeed. There are clearly wider current economic challenges affecting investor appetite and it is vital the government considers how to create the right market conditions. For example, by better resourcing the Building Safety Regulator and ensuring proposed planning reforms are implemented as efficiently as possible. Delays in planning and construction have a big impact on project viability and act as a brake on supply. BTR caters to a wide tenant base, through both single-family and multi-family housing, offering a viable alternative to those who will struggle to find a home in the PRS market following these changes. Louise Marin-Bataller is a senior associate at Forsters