The Renters' Rights Act 2025 through a lending lens

In-depth analysis

Introduction

The Renters' Rights Act 2025 (the Act) received Royal Assent on 27 October 2025, with its most significant reforms taking effect from 1 May 2026. The Act is far-reaching in scope. It offers significantly improved protection to tenants and lessens the certainty landlords, lenders and borrowers have historically relied upon in the private rental sector. Its measures are numerous and include the abolition and conversion of assured shorthold tenancies (ASTs) to periodic tenancies, restrictions on rent increases, the establishment of a new landlord database and the removal of a landlord's right to serve a "no fault" eviction notice on a tenant.

This legislative shift reshapes the assumptions upon which residential property-backed lending has historically been based and alters its risk profile, demanding a review and update of loan documentation. In this article, we explore each of the Act's provisions that impact real estate finance loans, and offer practical drafting advice for those operating in this sector.

Changes to the private rental sector

ASTs become ATs

From 1 May, any AST, whether new or existing, will be automatically converted into an assured periodic tenancy (AT). With certain exceptions, fixed-term tenancies will no longer be permitted.

The Act provides:

ATs are to be periodic with periods of no longer than one month
the tenancy period must correspond with the rent period which also may not exceed one month
any provision intending to create a longer rent period will be of no effect.

Removing tenancy end dates signifies a clear departure from how the real estate finance market has operated in recent decades in the private rental sector. Fixed-term ASTs afforded a degree of predictability, in the form of defined endpoints to landlords, enabling them to manage occupation. Lenders and borrower landlords were able to make clearer assumptions on continuity of income and of possession strategies. In contrast, periodic ATs are open-ended by design. Tenants may remain in occupation indefinitely, subject only to compliance with their obligations and the landlord establishing a statutory ground for possession.

Documentary considerations:

Tenancy references: lenders and borrowers will need to consider any references to tenancies under the existing regime in facility agreements, security documents and ancillaries and update them to reflect the new framework.
Consent to let/letting conditions: standard lender consent to let clauses, which often reference AST terms (as well as section 21 notices and fixed-term minimum periods as discussed below), will need to be examined and revised.
Conditions precedent: where vacant possession or the existence of an AST is a condition precedent to drawdown, these conditions may need to be redrafted. Lenders will need to consider whether they consider a periodic tenancy on Act-compliant terms to be acceptable security.

Abolition of no-fault evictions under section 21

Section 21 of the Housing Act 1988 (HA 1988) allowed landlords to recover possession without establishing tenant fault, referred to as the "no fault" eviction procedure. This was often the most predictable and the fastest route to possession. From 1 May, this will be abolished, meaning possession can only be obtained by serving notice under section 8 HA 1988 or by relying on one or more statutory grounds in Schedule 2 of the HA 1988 (as amended by the Act).

Establishing section 8 grounds requires tenant breaches such as rent arrears, property damage, or antisocial behaviour but receiving an order for possession has often taken longer than the notice period a landlord might stipulate. The presence of non-performing tenants over a period of time can have a significant impact on the value of a lender's security and a borrower landlord's ability to service its debt efficiently.

Other section 8 grounds (such as sale of the property or landlord occupation) have mandatory minimum notice periods and restrictions on use (for example a 12-month "no eviction" period at the start of a tenancy for sale or occupation grounds).

Documentary considerations:

Loan-to-Value (LTV) covenants: where LTV is tested by reference to vacant possession or tenanted value, lenders should ensure that valuers are instructed to assess value under Act-compliant tenancy terms. The inability to obtain quick vacant possession may affect tenanted and vacant possession values.
Enforcement provisions: any security enforcement provisions or receiver's powers that rely on a borrower landlord's/lender's right to obtain vacant possession by serving a section 21 notice will become redundant and should be removed or replaced with references to the available grounds and notice periods under the Act. A lender exercising its power of sale with vacant possession will face new constraints.
Representations and warranties: lenders should review and update representations given by borrower landlords as to the nature and terms of existing tenancies. Any warranty that vacant possession can be obtained by a specified date via a section 21 notice will need to be removed or replaced.
Material Adverse Change (MAC) clauses: depending on the drafting, the inability to regain possession via section 21 may constitute a MAC in relation to security value; MAC definitions should be reviewed to ensure they are not inadvertently triggered by the Act's reforms.
12-month restriction: the 12-month "no eviction" ground may affect a lender's ability to enforce and sell with vacant possession in the early life of a tenancy. Lenders should consider including covenants restricting borrower landlords from granting new tenancies within a specified period prior to enforcement and should assess whether standard enforcement timelines remain achievable.

Private Rented Sector Database (PRS Database)

The Act establishes a new PRS Database which contains information about current and prospective residential landlords and dwellings. Both the property and the landlord of it must be registered before marketing that property for letting and adverts must reference the corresponding registration numbers. Landlords who are not registered will not be able to serve valid possession notices or rely on certain possession grounds, except on grounds 7A (criminal/anti-social behaviour) or 14 (nuisance or annoyance).

Lenders may, as part of their due diligence investigations into borrower landlords, now start to look at their track record in terms of compliance with the requirements of the PRS Database. Any failure to register correctly could affect the enforceability of lenders' security given a court may not make an order for possession.

Documentary considerations:

Conditions precedent: registration on the database, once operational, should be a condition precedent to drawdown (or a condition subsequent with a short cure period) for buy-to-let transactions.
Representations and warranties: borrower landlords should warrant that all relevant properties are registered on the database and that all required information is accurate and up to date.
Undertakings: borrower landlords should be subject to an ongoing covenant to maintain registration and to promptly update the database with any changes.
Events of default: failure to maintain registration should be made an event of default, given the direct impact on security enforceability.

Private Rented Sector Ombudsman (PRS Ombudsman)

The Act requires all private landlords to be members of a new independent PRS Ombudsman scheme which will establish a complaints procedure against landlords by former, current and prospective tenants. It is important to note that its decisions may be enforced as if they were court orders, potentially resulting in impairment to cash flows from the borrower landlord and reputational risk on the part of the lender.

Documentary considerations:

Representations and warranties: repeating representations may be sought from borrower landlords confirming they are and continue to be members of the PRS Ombudsman scheme.
Undertakings: borrower landlords should be subject to ongoing covenants to maintain their membership of the PRS Ombudsman scheme and to notify the lender of any complaint or determination made against them that could affect the security package or their ability to let the property.
Events of default: failure to register within a set time period, or persistent non-compliance with or removal from the Ombudsman scheme could be included as events of default or triggers for a cash sweep event.

End of contractual rent review/rent increases

The Act fundamentally changes how rent can be increased. Contractual review clauses will no longer be effective; rent can only be increased once per year and any increases require the use of a prescribed notice (the new section 13 notice procedure) with a minimum of two months' notice (replacing the one-month under the previous regime). Landlords cannot contract out of this mechanism.

Tenants will have the right to challenge proposed increases by the landlord at the First-tier Tribunal. Where a challenge is made, the increased rent is not payable unless and until the tribunal has determined the appropriate market rent. This may be determined to be lower than that proposed by the landlord, based on the tribunal's assessment of the applicable open-market rent, and the period required for determination is not yet clear.

Historically, lenders have relied on contractual rent review mechanisms to model income growth and serviceability, particularly in inflationary environments. The Act introduces a potential downward adjustment and removes a mechanism that landlords used to manage tenant risk and cash flows. For both lenders and borrower landlords, these changes necessitate a reassessment of representations, undertakings and financial covenants. Income projections will need to reflect the possibility of frozen or reduced (rather than upward-only) rents during tribunal proceedings and the inability to accelerate cash inflows through advance payments, as discussed further below.

Documentary considerations:

Income and DSCR assumptions: rental income projections used in underwriting and loan-to-value / interest cover ratio testing should be updated to reflect that rent increases are limited in timing and process. Lenders should ensure that financial models assume compliant rent review processes.
Financial covenants: DSCR (debt service cover ratio) covenants and ICR (interest cover ratio) definitions should be reviewed to ensure that they reflect realistically achievable rental income streams given the Act's impact, particularly in an environment with rising interest rates.
Information covenants: borrower landlords should be required to notify the lender promptly of any rent increase notices served or received and the outcome of any First-tier Tribunal proceedings relating to rent.
Valuation provisions: valuations in respect of lender's security assets will need to be conducted on the basis of Act-compliant tenancy terms.

Advance rent and tenancy deposit caps

The Act restricts landlords from requiring more than one month's rent in advance and caps tenancy deposits. It also prohibits "bidding wars" for rental properties. This again strikes at the predictability of rental income.

Documentary considerations

Representations and warranties: borrower landlords should warrant compliance with the restrictions on advance rent and deposits. A breach could expose the borrower landlord to liability, adversely affecting the borrower landlord's financial position and the value of the security.
Undertakings/covenants: covenants should be included requiring the borrower landlord to comply with all applicable restrictions on advance rent and deposits throughout the life of the loan.
Financial covenant structuring: where rental income forms the basis of DSCR testing, lenders should note that the prohibition on advance rent may affect cash flow timing. DSCR definitions and testing dates should be reviewed accordingly.

Other provisions

The Act makes great progress in restricting discrimination against tenants with children and those in receipt of benefits, gives tenants a statutory right to request permission to keep a pet and extends the Decent Homes Standard (regarding minimum property condition standards). A lender will want to ensure a borrower landlord is in compliance generally, and will also note the potential effect of non-compliance on the value of its security.

Documentary considerations:

Representations: borrower landlords should warrant that letting policies and practices comply with the anti-discrimination provisions of the Act and represent that the property meets the Decent Homes Standard.
Undertakings: ongoing covenants should prohibit the borrower from adopting letting policies that would breach the Act and require borrower landlords to maintain the property to the express Decent Homes Standard (updating previous "good repair" language).
Capital expenditure/reserves: where the lender is assessing rental income on a net basis, the potential cost of bringing properties up to the Decent Homes Standard should be factored into underwriting. Lenders therefore may wish to require a maintenance/capex reserve account.
Valuation: valuers should be instructed to consider the impact of any required remedial works to meet the Decent Homes Standard on the open market value of the security.
Reputational/regulatory risk: lenders should consider whether their standard ESG or reputational risk representations capture compliance with the extended social housing and tenant protection legislation.

Additional considerations for portfolio lender/borrowers:

A few additional considerations apply to lenders to borrower-landlords with portfolios of buy-to-let properties as security:

Cross-collateralisation: portfolio loan documentation should be reviewed to ensure that non-compliance at one property does not disproportionately trigger cross-default provisions across a portfolio. To deal with this, tiered or default thresholds could be introduced.
Portfolio ICR testing: given rent increase constraints and the potential for increased void periods (due to difficulties in recovering possession), portfolio ICR covenants should be stress-tested under the new regime.
Asset management reporting: information covenants should require regular reporting on tenancy details, compliance status, Ombudsman scheme membership, and PRS Database registration for each property in the portfolio.

Purpose-built student accommodation (PBSA)

The Act recognises that student housing operates differently from the wider private rented sector. PBSAs have therefore been carved out from certain aspects of the assured tenancy regime, but the position is more nuanced than a blanket exemption. For lenders and developers active in the PBSA market, the Act introduces both reassurance and risk, depending on how assets are structured and operated in practice.

University owned accommodation and student licences will remain outside the scope of the Act. PBSA providers who are members of government-approved codes of practice such as the ANUK/Unipol code will largely sidestep the tenure reforms. They will be able to grant common law tenancies rather than assured periodic tenancies (APTs), allowing them to continue offering fixed-term agreements aligned with the academic year and to require advance rent payments.

However, this exemption only applies to new tenancies granted after the changes come into force on 1 May 2026. Existing ASTs will undergo a transitional period, converting to APTs until they can be ended through either Section 21 notices (issued before implementation) or the new Ground 4A possession proceedings, but time is tight for such a change to be made prior to 1 May.

Consequences of non-compliance

The Act introduces a variety of enforcement mechanisms and civil penalties for breaches and offences. The Local Housing Authorities will bear the onus of this under statutory duties to take action against landlords. The majority of the breaches will result in a civil penalty of up to £7,000 for initial non-compliance but repeated breaches or offences can result in civil penalties of up to £40,000. Further, there is scope for criminal prosecution including summary conviction or a fine, depending on the severity of non-compliance. The negative consequences of this for a borrower-landlord and their lender are self-evident.

Concluding thoughts

The Act represents the most significant reform to the private rental sector in a generation, with consequences that extend well beyond the landlord and tenant relationship and into the heart of real estate finance. Lenders and borrower landlords are advised to act promptly to review and update their loan documentation to reflect the new legislative landscape.