Thu 07 Dec 2023
Charles Scriven BSc Hons, MRICS, MARLA, Director
Here is an overview of what the Renters Reform Bill means for landlords
The Renters Reform Bill has been a long time coming. The first reading took place in May 2023, with a second reading taking place in October 2023. During the King’s speech, 21 new Bills were read, with the Renters Reform Bill being one of the Bills carried over. The Bill is now at the Committee Stage, which commenced on the 14th November.
It is important to stress that at this time, the Bill is just a draft Bill, and it won’t pass into the statute book without amendment. Large numbers of amendments were tabled and passed by the government at the Committee Stage, and more are likely to follow. There will also be new regulations, for instance for the Decent Homes Standard, and guidance, eg for the implied right for tenants to have pets.
We have set out below the main changes as a result of the Bill: -
1. Abolition of Section 21
As widely expected, the Renters Reform Bill proposes abolishing Section 21. The abolition of Section 21 was the change most “welcomed” by renters, and a proposal we believe most “hated” by landlords.
On the 20th October, in response to the Levelling Up Committee’s report on reforms to the PRS, the government announced that Section 21 wouldn’t be abolished until “sufficient progress has been made to improve the courts. That means we will not proceed with the abolition of section 21, until reforms to the justice system are in place.” The announcement gave no indication of how long this would take.
Once the abolition (eventually) comes into force, landlords will only be able to terminate a tenancy using the new Section 8 Tenants will be able to terminate their tenancy by giving two months’ notice.
However, the new Section 8 grounds will only be as good as court system that administers them, which is why court reform is needed before the paper-based Section 21 process is abolished.
In terms of when Section 21 is likely to be abolished, the earliest is probably sometime after October 2025, and possibly 2026, due to the fact the new system was earmarked to come into effect at least 18 months after Royal Assent. However, as the implementation is now linked to court reform, it’s difficult to know when it will happen. In any event, it will be long after the next General Election, which is due to take place before 28 January 2025.
2. Conversion of Assured Shorthold Tenancies into Assured Tenancies
Clause 2 of the Bill abolishes Assured Shorthold Tenancies, by deleting the provisions of the Housing Act 1988 (Chapter 2 of Part 1) which regulate Assured Shorthold Tenancies. As well as deleting Chapter 2 of Part 1, the Renters Reform Bill makes extensive amendments to the Housing Act 1988 to implement the new regime. (The government has published a useful 'Keeling Schedule' which shows all of the changes to the Housing Act 1988 that the Renters Reform Bill makes).
This means that landlord will not be able to grant new Assured Shorthold Tenancies after the first implementation date (at least 6 months after Royal Assent). All new tenancies for tenants who occupy the property as their only or principal home will be Assured Tenancies after that date. Existing Assured Shorthold Tenancies will automatically convert into Assured Tenancies on the second implementation date (at least 18 months after Royal Assent).
Ending of the “AST trap” for leases with ground rent over £250
Where ground rent for long leases exceeds £1,000 in London and £250 outside of London, the lease is currently be considered as an Assured Shorthold Tenancy if the property is the leaseholder’s only or principal dwelling. This means that the landlord could serve a Section 8 Notice using the Mandatory Ground 8 regarding Rent Arrears if the annual ground rent is more than three months in arrears. This is called the “AST trap”, as a long lease that was never intended to be a short-term tenancy agreement could be considered as an AST.
However, Clause 21 of the Renters Reform Bill brings an end to the AST trap, as it states that tenancies of more than seven years cannot be assured tenancies.
3. Abolition of fixed term tenancies including student lets
The Bill abolishes fixed term tenancies for all private residential tenancies, and there will be a single system of rolling periodic tenancies, which will be Assured Tenancies.
There is currently no exception to exclude private student tenancies, other than those in purpose-built student accommodation. The government dismissed the findings of the Levelling Up Select Committeefrom February 2023 that not excluding student tenancies “could push up rents or reduce the availability of student rental properties, at a time when the market in many university towns and cities is already very tight.” It also ignores their recommendation to retain fixed-term contracts in the student private rented sector.
The Government guidance justifies abolishing all fixed term tenancies by saying it will “provide greater security for tenants while retaining the important flexibility that privately rented accommodation offers. It will enable tenants to leave poor quality properties without remaining liable for the rent, or to move more easily when their circumstances change, for example to take up a new job opportunity.”
The likely impact of retaining fixed terms is that student landlords may put increase rents to reflect the fact that most students only want a property from September to May, and not the usual 11 or months.
4. New Section 8 Grounds for Possession
Landlords will have to use Section 8 to evict renters. Alongside abolishing Section 21, the Section 8 Grounds for Possession have been widened in Schedule 1 of the Bill.
Here’s a summary of the key new and revised Section 8 Grounds in the Renters Reform Bill:
- Revised Mandatory Ground 1: Occupation as the principal home for landlord or family
- Only once the tenancy has lasted more than 6 months, and the landlord must give at least 2 months’ notice.
- The landlord must intend it to be their (or their family member’s) only or principal home. The Bill defines the landlord’s family as including their spouse/partner, and their respective parents, grandparents, siblings, children and grandchildren. It also includes “half-blood” versions.
- It doesn’t include nieces, nephews, uncles and aunts etc.
- The landlord can’t relet or remarket the property within 3 months of the date specified the notice.
- Labour MPs tabled amendments (140 & 141) at the Committee Stage increasing this 3-month period to 12 months, but the amendments aren’t likely to be passed by the Committee.
- New Mandatory Ground 1A: Sale of property
- A landlord can only this ground once the tenancy has lasted more than 6 months, and the landlord must give at least 2 months’ notice.
- Landlord must intend to sell the property.
- The landlord can’t relet or remarket the property within 3 months of the date specified in the notice.
- Labour MPs tabled amendments (140 & 141) at the Committee Stage increasing this 3-month period to 12 months, but the amendments aren’t likely to be passed by the Committee.
- New Mandatory Ground 5: For occupation as supported accommodation
- New Mandatory Ground 8A: Repeated Rent Arrears
- At least 2 months’ rent was unpaid for at least a day on 3 or more separate occasions within a three-year period.
- If the rent isn’t by calendar month, at least 8 weeks’ rent needs to be unpaid. The landlord must give 4 weeks’ notice.
- The calculation of rent arrears should exclude any sums due to delays from the payment of Universal Credit. The government clearly wants to excuse its own rental arrears!
- Revised Discretionary Ground 14: Anti-social Behaviour
- The wording will replace a reference to guilty of “behaviour causing or likely to cause nuisance or annoyance” with “capable of causing“.
- Personally, I’m not sure there’s much of a difference between the two. However, the Guidance says it will make ASB easier to demonstrate for landlords. As it’s a discretionary ground, the judge will make the decision.
- The amendments on 15 November include factors which the court must take into account when exercising its discretion, including the impact on others in an HMO.
- New Mandatory Ground 4A: Student HMO for occupation by students
- On 15 November, the government tabled an amendment introducing a new Mandatory Ground for Possession for student HMOs to allow a landlord to recover possession of an HMO let to full-time students at the end of the academic year (1 June to 31 September), in order to let it to students again.
- The landlord must give at least two months’ notice for this.
There are lots of other new and revised Grounds, however we have only included what we deem to be the main grounds, within this correspondence.
5. New provisions for rent
The Renters Reform Bill proposes introducing a single way of increasing rent with the following new procedure:
- To increase the rent, the agent or the landlord will need to complete a prescribed form under the housing act, which will and serve it on the tenant with 2 months’ notice.
- If the tenant accepts the proposed rent increase, the rent will change on the rent day after expiry of the notice.
- If the tenant doesn’t agree with the increase and think it’s above the market rate, they can dispute the increase through referring a case to the First-tier Tribunal. They will need to do this before the new rent is due and let their landlord know.
- Landlords will only be able to increase rents once a year.
The government will issue guidance “to make sure it is clear for everyone”. The press releases stress that landlords will still be able to increase rents to the market rent. There’s no cap on the amount of the increase. That said, tenants will be able to challenge increases above the market, as they can now.
New mechanism to repay rent paid in advance
The amendments to the Renters Reform Bill introduced on 15 November included wording so that a tenant who pays rent in advance is entitled to be repaid any part of the rent that relates to days falling after the end of the tenancy.
6. New right for tenants to request consent for a pet
Renters will have a new right to request a pet, which landlords can’t unreasonably refuse.
Section 7(1) says that the consent to a request a pet “is not to be unreasonably refused by the landlord”.
This is one of the provisions that’s been causing the most amount of angst in the landlord community. This is mostly because of concern over the vagueness of the concept of reasonableness.
On the other hand, it’s also one of the most popular provisions in the Bill for renters, many of whom would love a pet.
The press releaseon pets issued on 17 May promises “guidance for landlords and tenants before the new rules come into effect”. It also explains that if a renter believes a landlord has unreasonably refused their request, they’ll be able to escalate their complaint to the Private Rented Sector Ombudsnan. Alternatively, they could take the case to court. As the Ombudsman will be free for the renter, it’s more likely this will be the preferred route.
We can expect more detail in the coming months, and the DLUHC response to the Select Committee report gave examples of the factors which they anticipated landlords would take into account when making their decision.
These examples included the size of the pet and property, whether the property or common parts are shared with other tenants (this is likely to mean HMOs or flats), allergies or phobias and, “if relevant, access to outdoor space”. A landlord “could likely refuse” if the animal was too big for a small property or if another tenant in a shared house had an allergy or phobia. In other words, no blanket ban for HMOs.
7. New Property Ombudsman
According to the goverment press release of 17 May, the Renters Reform Bill will make it compulsory all private landlords in England to join a government approved “redress scheme”. This is for all private landlords, regardless of whether they use a letting agent. Landlords will have to abide by the decision of the Ombudsman.
The press release also claims the Ombudsman will “tackle the root cause of problems, address systemic issues, provide feedback and education to members and consumers, and offer support for vulnerable consumers.” The Ombudsman will have real powers. This includes requiring landlords to make an apology, provide information, take remedial action, and/or pay compensation of up to £25,000.
The government publications use the terms “redress scheme” and “Ombudsman” interchangeably, even though they are different legally.
If landlords don’t join the Ombudsman, local councils will be able to take enforcement action against them. This will range from a civil penalty of up to £5,000, through to a £30,000 fine or criminal prosecution. There is also the potential for a Banning Order for repeat offenders. We will endeavour to provide a further update on this in due course, and if required, assist landlords with joining the redress scheme.
The amendments to the Bill tabled on 15 November give the First-Tier Tribunal the right to award a rent repayment order for “continuing or repeat breaches” of the Ombudsman, adding it to Section 40 of the Housing and Planning Act 2016.
Landlords will pay for the costs of the Ombudsman. It will be free for tenants to use, if their landlord hasn’t dealt with a “legitimate complaint”. On the other hand, landlords won’t be able to use it if they have a legitimate complaint about their tenants. It’s a one-way street.
During the Committee Stage of the Bill, the minister Jacob Young announced that the government’s “preferred approach at this time is for the existing Housing Ombudsman’s Service to administer redress for both private and social tenants. As an established public body, already delivering redress for social tenants, the Housing Ombudsman is uniquely positioned to deliver the Private Rented Sector Redress Scheme. Having one provider for all social and private renting tenants would provide streamlined and simple to use redress services for complaints”. He added that they were still in the early stages of designing the service.
This echoes what Richard Blakeway, the current Housing Ombudsman (for social housing), said during the oral hearings of the Committee: “We are the only approved scheme that does landlord and tenant dispute resolution[…] we need to really distinguish between agent and landlord redress, where the responsibilities of agents are very different from the landlord’s. The Landlord and Tenant Act sets out clear obligations that rest with the landlord and cannot be delegated to the agent.[…] The Landlord and Tenant Act is universal; it does not distinguish between social and private. The decent homes standard potentially extends that. The health and safety rating system is, again, universal. What we need is to bring that together into a single scheme.”
Jacob Young’s announcement means that the PRS Ombudsman will not be combined with the redress schemes for letting agents.
8. New Private Rented Sector Database (aka Rented Property Portal)
This is another area where a lot has been promised in the govenement guidance on the PRS Database, but there’s very little in either the first draft of the Bill or in the first set of amendments.
The guidance promised that Renters (Reform) Bill will introduce a new Private Rented Sector Database, The Bill proposes a new digital database where each landlord and each “dwelling” will have an entry, and unique identifiers. The database is referred to as the “Rented Property Portal” in the government press release.
As with the Property Ombudsman, the government doesn’t seem to have decided what to call the “database” as it uses refers to both the PRS Database and the Rented Property Portal.
It will be compulsory to have active entries for both the landlord and the property before marketing a property for let. Landlords will pay for the running of the database.
A number of new offences will be introduced relating to the PRS database, including knowingly or recklessly providing materially false or misleading information. It will therefore be vital that landlords and letting agents keep accurate records and documentation for the database.
The DLUHC response to the Levelling Up Select Committee said that they expected the penalty system to be “tiered”, with different penalties for different offences. Like the plans for the Ombudsman, it was clear from the DLUHC response that the design of the Property Portal is far from complete.
The amendments published on 15 November that landlords will be subject to rent repayment orders for providing the provision false or misleading information to the database and for continuing or repeat breaches under Section 40 Housing and PLanning Act 2016.
We should expect either further amendments to the Bill to include the Rented Property Portal, or draft regulations.
9. Decent Homes Standard for the PRS
The set of amendments tabled on 15 November amend the Housing Act 2004 to include a new system for assessing housing conditions and enforcing housing standards. The Secretary of State has the power to “specify requirements to be
met by qualifying residential premises” in regulations.
The government has been consulting on how to apply the Decent Homes Standard to the PRS, and how to revise the Housing Health and Safety Rating System (HHSRS). Once these consultations are complete, it’s expected that new regulations on a Decent Homes Standard for the PRS will be published.
10. Discriminatory practices: No bans on children or benefit claimants
On 15 November, the government tabled amendments to the Renters Reform Bill which make it illegal for landlords and agents to have blanket bans on renting to people who receive benefits or who have children.
The Bill extends the prohibition to lease agreements, mortgages and insurance contracts, by saying that any term in a contract will have no effect.
Finally, this is just the first draft of the Bill, and we are aware that various amendments have already been made.