The much-anticipated Renters' Rights Bill incorporates most of the elements from the previously titled Renters (Reform) Bill but goes further and faster, seeking to greatly enhance tenants' rights. Yet on a deeper dive, some have concluded that the Bill could have an unintentionally detrimental effect on tenants, including students in search of rental accommodation in university towns.
We have summarised the main provisions of the Bill in our previous article, but here, we focus on the key reforms impacting landlords in the student lettings sector, namely: the abolition of so-called "no fault evictions" and the scrapping of fixed term tenancies.
No more fixed term tenancies, except for the PBSA sector?
The student accommodation sector has been keen to safeguard the ability to grant fixed term tenancy agreements which coincide with the cycle of the academic calendar, so that every year, a new group of students can replace the previous intake. Here, abolishing the entire concept of an AST (assured shorthold tenancy) may well cause issues for some landlords. For example, if a student tenant wishes to vacate midway through the academic year, they will be able to do so by giving two months' notice at any time from commencement of their tenancy and potentially leave their landlord with a void period until the start of the next academic year.
To address this concern, the Bill's accompanying explanatory notes state that "Purpose-Built Student Accommodation (PBSA) will be exempt from these changes as long as the provider is registered for government-approved codes, since these tenancies are not assured. Lettings by PBSA landlords will be governed by the Protection from Eviction Act 1977."
This follows the same approach taken by the predecessor Renters (Reform) Bill and we have explored in some detail how this exemption will likely be effected in our previous article.
Is this good news for PBSA providers? Confusingly, some student lettings are already excluded from AST status, i.e. those granted by a "specified educational institution". In this context, section 21 notices never applied and so their abolition makes no difference to PBSA assets that have been leased back to universities and colleges which grant the excluded tenancies. But for direct let assets, most of which are already registered under the government-approved codes, the shift away from granting ASTs, which currently is often mandated by lenders, would constitute a reduction in regulation. In contrast, the biggest impact here will be felt by landlords in the student market who operate HMOs that will not be excluded, and who will therefore be exposed to increased void risk if tenants vacate early.
New ground for possession
One unexpected new feature of the Renters' Rights Bill is an additional mandatory ground for possession (Ground 4A) which will allow landlords in the student lettings market to recover possession of a HMO, or dwelling house in a HMO, between 1 June and 30 September each year, in order to re-let the property to full-time students again. The intention is to facilitate the usual cycle of short-term tenancies and will apply to tenancies granted to full-time students either jointly or individually. Notice must be served on the tenants before the tenancy is entered into, in order for a landlord to rely on this new ground to regain possession.
This is a major change from the previous version of the Bill, and is presumably intended to put the general student lettings market on a more even footing with PBSA. However, this new ground for possession does not prevent students from terminating their tenancy after just two months, which as mentioned above, would leave the landlord with a void property midway through the academic year. If the landlord then relets to non-students, this new ground for possession would not be available. Moreover, as with other mandatory grounds for possession, this new ground would need to be proven by way of a lengthy court process if the tenants refuse to vacate, meaning that landlords would still have less flexibility and face higher risks.
As such, the PBSA sector will still retain a distinct advantage under the new regime, since their tenancies will be excluded altogether and fixed term contracts can still be used.
Will this create a two-tier student market?
The overall impact of the Renters' Rights Bill on the student lettings market will depend on a range of economic and regulatory factors which landlords of HMOs will need to take into consideration. But it is fair to assume that on balance, the new flexibilities afforded to tenants to end their tenancy early, coupled with the increased risk faced by landlords of not being able to obtain vacant possession in time for the start of each academic year, may well lead to an overall reduction in the supply of homes available to students for rent.
Buy-to-let landlords may also consider selling up if they perceive the investment needed to upgrade their properties to the new proposed Decent Homes Standard and EPC rating of C to be financially unviable. Again, this could have a detrimental effect on the already undersupplied student housing market in university towns and could push rents up further.
Meanwhile, PBSA investors can be assured that due to the various exemptions under the Bill, their assets can still be let on fixed term tenancies. PBSA assets will also most likely be already compliant with the new stock condition and energy efficiency rules. And with persistently high demand due to the likely reduction in the number of competing properties in the HMO market, PBSA investors could see void rates fall whilst rental yields grow.
