Hanna Mcrobbie and Christian Cheng consider the Renters (Reform) Bill.
On the 17 May 2023, the Government introduced the Renters (Reform) Bill to Parliament, ending the industry speculation on proposals for renovating the existing law on private tenancies.
In this article we review the key changes found in the Bill from both landlord and tenant perspectives, along with the implications on proprietary rights and the future of the housing market.
End of Section 21
As expected, the Bill includes the removal of section 21 ‘no fault evictions’. This is a notable change to the effective proprietary rights of owner and occupier.
Private tenants will no longer face the threat of needing to vacate their homes through no fault of their own, strengthening their community security. They will also be empowered to challenge poor landlord practice and unfair rent increases without fear of eviction. Landlords face criminal liability for attempting to evict tenants on frivolous grounds or reletting or remarketing properties within three months of using the ‘moving or selling’ grounds to obtain possession. In breach of either, landlords face a maximum £30,000 financial penalty or criminal prosecution.
For landlords, this removes the only lawful means of regaining possession of properties without formal litigation – a significant downgrade of their proprietary rights. It also means landlords will now have to negotiate disputes with tenants ‘playing the system’ (e.g. keeping rent arrears below the eviction threshold etc.) whilst they benefit from security of tenure.
Conversely, the section 8 ‘anti-social behaviour’ clause has been amended from “likely to cause” to “capable of causing”. The impact of this change will be fully dependant on the courts’ interpretation, but it is undoubtably intended to strengthen landlords’ rights against anti-social tenants.
However, section 8 remains a discretionary ground, and the courts will continue to use reasonableness and proportionality to determine whether eviction is appropriate for the behaviour.
There will be likely be some challenge against the removal of section 21, both within parliament and externally from landlord associations looking to secure stronger proprietary rights. However, as main purpose of the Bill, it is unlikely to be removed or amended significantly.
Periodic Tenancies
Clause 1 of the Bill introduces another huge key change to renting formalities with the ban of fixed term tenancies including assured shorthold tenancies (ASTs). The change is intended to simplify existing tenancy structures and the Bill proposes that all rental properties will have periodic tenancies that roll over each month without a specified end date, with purpose-built student accommodation being the only exemption. This also resolves the current issue of long leases with high ground rents qualifying as ASTs and enables mortgage opportunities for affected homeowners and prospective buyers.
Tenants will need to provide two months’ notice when leaving a tenancy, which is twice as long as standard provisions. However, they will no longer be locked into lengthy agreements where landlords are failing to meet their obligations. For tenants of social housing, this also protects them from a demotion to an AST.
The additional notice period allows landlords more time to find replacement tenants. However, landlords could face prosecution or receive fines if they are found to be in breach (even accidentally) of the new requirements.
Rent Provisions
The Bill amends the statutory procedure for rent increases, which previously allowed landlords the power to leverage a tenant’s occupation for a higher rent. Rent increases will be limited to once per year with a minimum notice period of two months and must be in line with market prices. Tenants will be able to challenge any increase by applying to the First-Tier Tribunal (Property Chamber). For those in social housing, defined as ‘relevant low-cost tenancies’, rent increases will also be permitted once every 52 weeks with one months’ notice.
For tenants, the provisions introduce a statutory safeguard and recourse to litigation; however, this is a lengthy process and not always accessible. Whilst the threat of litigation may prevent landlords from introducing huge rent increases, it is unclear at present how the tribunals will deal with this potential surge in applications from disgruntled tenants who will predominantly be litigants in person.
Landlords can still use rent arrears as a ground for possession under section 8, with an exemption for those awaiting Universal Credit. Repeat rent arrear offenders will face compulsory eviction if they have two months’ rent outstanding for at least one day, on three separate occasions, within three years.
Pet Clauses
Clause 7 provides an implied term to all assured tenancies that a tenant may keep a pet with the landlord’s consent and that consent cannot be unreasonably refused (although the provision does not apply to social housing). Landlords will still retain the right to refuse pets, but they will need reasonable justification (e.g. breach of lease with superior landlord). However, damage caused by pets can quickly escalate. This can far exceed the current statutory maximum 5 week rent deposits allowed, and there is no mention of increasing the permitted maximum deposit. To account for this, the Bill provides that a concerned landlord can require pet insurance as part of the reasonable consent.
Landlord Ombudsman Scheme
Clause 24 of the Bill requires all residential landlords to join a new redress scheme, which is intended to provide fair, impartial and binding resolution to housing disputes. An underrated consideration is that this scheme is unilateral, accommodating tenants’ complaints only. This accounts for the unequal landlord-tenant dynamic, but smaller landlords will feel the burden of increased bureaucracy from formal complaints that were once resolved informally and may leave them unequipped to challenge rouge tenants.
Residential Property Portal
Clause 32 of the Bill introduces a provision for the government to establish and operate a database of residential landlords, including those against whom banning orders have been made.
For tenants, this will provide an accessible, up-to-date directory of landlords and properties that can be checked before renting a property. This adds a layer of centralised regulation to renting, but as local authorities have the power to issue fines and not the database operator, council services may be set for significantly increased workloads.
For landlords, the expected regulation comes with registration fees and potential fines for non-compliance. Privacy concerns and extra bureaucracy together with the risk of criminal sanctions for breaching requirements may make letting out properties increasingly less attractive, particularly for landlords with small portfolios.
In summary, the reforms have potential to significantly change the power dynamics in the rental market. However, there are several potential side-effects of the Bill, including mass evictions before enactment, as well as a huge increase in litigation. Many landlords have expressed concerns that letting properties will be more trouble than it’s worth, and those that do carry on will likely increase rents, with further obligations and interest rates at the highest levels in fifteen years.
A lot of the finer details are yet to be worked out with a missed opportunity for long-awaited rental caps and the roll-out of the Decent Homes Standard, which would make it illegal for landlords and agents to have blanket bans on renting to families with children or those in receipt of benefits. Ultimately, there is still a long way to go for the developments to truly reform the UK’s housing market.
