10. März 2020
Residential property - March 2020 – 1 von 4 Insights
It is fair to say that such a resounding Conservative victory in the general election was not the outcome many predicted. However, the government has now set out its plans for this Parliament with an ambitious Queen's Speech which focuses on delivering on its pre-Brexit promises.
From a residential landlord's perspective, the Renters' Reform Bill represents a prominent part of the Queen's Speech, with its headline policy being that the principle of 'no fault' evictions – enshrined in the provisions of section 21 of the Housing Act 1988 (section 21) – is to end.
The ability of a landlord to serve notices under section 21 to remove a tenant has long been a staple of the rental market. Provided that a sufficient notice period was given, and the notices themselves were validly drawn and served, a landlord could relatively easily regain possession of a rented property for any reason they chose (or, indeed, no reason at all). Tenants had possession of their property for the initial term, usually 6 or 12 months and, after that, their tenancy would roll over onto a month-by-month basis unless or until the landlord asked the tenants to leave.
Critics of section 21 say that tenants deserve to know that – provided they did not breach the terms of their tenancy – they could stay in occupation of their property indefinitely. Being able to remain rooted in one place, it is argued, is important for family stability, schooling, work and building communities. It has also been said that the ability to end a tenancy without any reason means that landlords hold too much power, and that tenants are put off from raising issues in case they are served notice to leave.
Proponents of section 21 say that it makes landlords more particular about the tenants they take on and that its abolition could push up rents.
The section 21 procedure was complicated by the introduction of the Deregulation Act 2015 which requires that, in order to serve a valid section 21 notice, certain pre-conditions need to have been met prior to the commencement of the tenancy. These include the service of a 'right to rent' booklet, as well as the provision of gas safety and EPC information.
This particular legislation does not allow for any non-compliance with the pre-conditions at the outset of the tenancy to be remedied once the tenancy has begun, so there has been considerable confusion regarding what could be done if they were not dealt with. This is a particular issue if landlords want to charge a property but could not evidence that all of the necessary information had been provided at the outset, as it means that section 21 notices cannot be validly served.
Although cases have been brought to court around the edges of the question of what could be done to remedy a technical non-compliance, no definitive answers have been forthcoming. It is not clear whether the Renters' Reform Bill will deal with the point, and there is nothing mentioned in the consultation regarding it doing so, but certainly some clarity would be useful when the new policy is being drawn up.
The Renters' Reform Bill deals with the abolition of section 21 with the promise that there will be other ways for landlords to take possession of their properties, but that it will be via a court process. The consultation suggests that the landlord will have to prove grounds for wanting to bring a tenancy to an end, and it is suggested that the new grounds follow those already contained within the Housing Act 1988.
Such grounds would therefore include situations where the landlord can prove to the court that it plans to use the property itself – which the consultation suggests is widened to include family members of the landlord who wish to take occupation of the property – or that the landlord has planning permission to develop it.
One particular ground which is being looked at is where the landlord wants to sell the property, but does not want to do so with a tenant in occupation. The usual position is that a new owner of the building takes the property subject to any existing tenancies (unless the landlord had served notice under section 21 to bring the tenancy to an end prior to the sale), so it will be interesting to see whether this ground is brought through into the draft legislation.
An alternative to the uncertainty of the court procedure might be to introduce longer fixed term tenancies, which then end on a certain date in the future. However, whether that is feasible will depend on the circumstances and it may not be the solution in every case. Having fixed terms and break clauses means that the market may not be as flexible as it currently is, and there is a greater risk of argument if more complex agreements are used without parties necessarily feeling it prudent to take legal advice on their contents.
The changes being mooted look likely to take some of the flexibility out of the rental market, and we are likely to see more complicated, longer term tenancies granted particularly to families who will almost certainly welcome the increased stability that the proposed regime should provide.
The most recent English Housing Survey has shown that on average tenants stay in a property for 4.1 years, so there is certainly an appetite from tenants for longer term lettings. This is not in itself problematic for landlords, as they will have a guaranteed income over an increased period, provided that their professional advisers work together to ensure that the agreements are such as to ensure a sufficient return during that time.
With there being a shortage of private sector housing available, the government must draft the Renters' Reform Bill carefully – particularly in respect of the mechanisms for repossession – so that landlords remain willing to entrust their properties to the open market.
von Lisa Bevan