The long awaited Draft Renters (Reform) Bill was finally published on 17 May 2023, heralding the biggest shake up of the rented housing market in decades. Its introduction will have a very significant impact on tenants and landlords, both in the private and social sectors.
In our earlier article "A Fairer Private Rented Sector": What's in the White Paper? we reported on the proposals contained in the White Paper and the Draft Bill contains no huge surprises. What we have now is some further detail on the proposals and what these will mean for landlords and tenants.
Security of tenure
As expected, the Bill will abolish the Assured Shorthold Tenancy (AST) regime introduced by the Housing Act 1988. This means that the section 21 notice, by which a landlord could give their tenant 2 months' notice of their intention to end the tenancy (without specifying any 'ground' for possession), will become a thing of the past.
All tenancies will become periodic assured tenancies, with periods of no more than 1 month. The only exception to this will be for Purpose Built Student Accommodation.
Tenancies with a fixed term of more than 7 years can no longer be assured tenancies. This will put an end to the potential issue of mandatory possession claims for rent arrears in shared ownership leases and long leases where a ground rent is payable which exceeds the low rent threshold.
When will this happen? Of course, the Draft Bill needs to make its way through Parliament before it is enacted, a process which is unlikely to be speedy given the much publicised opposition to the Bill. Once it does become law the commencement date will be known, but there remains a two-stage transition to the new tenancy system. In the first stage all new tenancies will be governed by the new rules from the commencement date. In the second stage, existing tenancies will transition to the new system and ASTs will therefore be phased out.
How will a tenancy be brought to an end?
For tenants, the requirement will simply be to give the landlord at least 2 months' notice, expiring at the end of a tenancy period. A shorter period may be agreed by the parties in writing.
For landlords the position is rather more complicated. The Schedule 2 possession grounds will be getting a thorough makeover with new grounds introduced, existing grounds amended and reordered and notice periods lengthened.
Longer notice periods are undoubtedly going to be hugely unpopular given the very significant delays which landlords already face in recovering possession through the Courts. Some County Courts (particularly in London) are citing turnaround times for listing cases and dealing with correspondence in terms of months, rather than days or weeks.
The grounds and notice periods are set out in the Bill (and conveniently summarised in Annex B to the explanatory notes). The most significant changes are:
- New mandatory ground where the landlord wishes to sell (only available after the first 6 months of the tenancy) – 2 months' notice is needed
- Extension to the ground for occupation by the landlord to include close family members (only after the first 6 months) – 2 months' notice
- New mandatory ground for repeated cases of serious arrears – more than 2 months' arrears at least 3 times within a 3 year period, regardless of the balance at the date of the hearing – 4 weeks' notice
- Notice periods for all arrears grounds increased to 4 weeks
- New grounds for specific circumstances or types of accommodation – rent to buy, supported housing, temporary accommodation for homelessness, tied accommodation relation to employment, expiry of intermediate lease
- Provisions in the Bill will prohibit a landlord from reletting or remarketing a property (for letting) within 3 months of obtaining possession on the grounds for occupation or selling. This prohibition will only be applicable if the tenant surrenders the property as a result of a notice without an order for possession being made. Therefore, if a landlord is forced to pursue possession through the lengthy Court process, there will not be an additional delay following eviction.
Rent increases
For private landlords, the Bill provides for all rent increases to be put into effect by following the statutory process in sections 13 and 14 of the Housing Act 1988. Any contractual provisions relating to the increase of rent will be of no effect, although a downwards variation in rent can be agreed at any time.
The notice period under section 13 will be increased from at least 1 month to at least 2 months. If a tenant challenges the rent proposed in the section 13 notice, the Tribunal has jurisdiction to determine the rent. The parties can reach agreement, but only at a figure lower than that specified in the notice or determined by the Tribunal.
There will however be an exception for 'low cost tenancies' (that is social housing offered by Registered Providers within the Rent Standard). For those tenancies, it remains largely business as usual, which will no doubt be welcome news to Registered Providers of Social Housing. Contractual increases are still permitted and, where there is no contractual rent increase, the section 13 process and notice period remain largely unchanged.
Pets
The Bill sets out an implied term into every assured tenancy that a tenant is allowed to keep a pet at the property, with the landlord's consent, unless the landlord reasonably withholds consent. Social housing tenancies will be exempt from this, although no explanation is offered for this exception.
A tenant's request for consent must be made in writing and specify the type of pet. The landlord must respond to the request within 42 days, but may request additional information. It is reasonable for a landlord to refuse consent if a pet would breach a superior lease. A landlord is allowed to recover the cost of insurance to protect against damage caused by a pet from the tenant, or can require a tenant to take out such insurance themselves.
Written terms of tenancy at the outset
The Bill imposes a new duty on landlords to provide tenants with a written tenancy agreement and terms before the commencement date of the tenancy. These must give notice should the landlord wish to use certain grounds which require prior notice (these relate to the specific types of accommodation mentioned above, such as supported housing).
The Private Rented Sector Database
What was previously being called the 'Property Portal' has been renamed the 'Private Rented Sector Database'. There will be a requirement for this database to contain details of existing or prospective residential landlords, properties, banning orders and other relevant convictions and/or fines. Further Regulations will provide details of who will have to register these details, how they will do so and further criteria including the sanctions for failing to register. The Government intends to charge landlords a fee for registration.
Dispute resolution
The Bill allows the Government to appoint a powerful new Property Ombudsman to resolve disputes between landlords and tenants; membership of which will be mandatory for landlords.
The Ombudsman will have various powers of redress including compelling landlords to issue apologies, provide explanations, take remedial action, reimburse rent to tenants and/or pay compensation.
Regulation/Enforcement
The Bill allows for the appointment of lead enforcement authorities to provide guidance, information, and advice on how to comply with relevant legislation. They will also have enforcement powers which will allow them to take on complex or high-profile cases where there is a lack of capacity or capability at local housing authority level.
What is not in the Bill?
We were expecting to see rules regarding the Decent Homes Standard being applied to private tenancies, making blanket prohibitions on renting to certain categories of people illegal and increasing local authority's investigative powers. Whilst these do not appear, the Government have said they are carefully considering how to implement these policies.
As previewed in the White Paper, there are no provisions for lifetime deposits, but the requirements relating to tenancy deposit protection will continue to apply to assured tenancies. There will be a need to prove that any deposit held was properly protected before a Court will order possession under any of the Schedule 2 grounds, save for those relating to serious crime or anti-social behaviour.
Potential impact of the Bill
Many private sector landlords already feel the sector is over-regulated. They are astounded by the length of time it can take to recover possession from defaulting tenants, or when vacant possession is needed so that a property can be sold. Increasing mortgage costs and the cost of complying with regulatory requirements have been cited as reasons for landlords leaving the private rented sector.
These impending changes could well see many more landlords leave the market, or turn to the less burdensome and more profitable route of Airbnb style holiday lets to monetise their properties.
This could potentially result in an increase in possession actions in the short term, as landlords exercise their right to rely on section 21 whilst this still exists. In the longer term, it will result in even fewer properties being available for rent, exacerbating the housing crisis.
