Will the Renters Reform Bill have hidden consequences?

On 16 June 2022, the Department for Levelling Up, Housing and Communities issued a white paper, setting out proposals in line with the Government’s 2019 manifesto as to how reform of the rental system could provide a fairer private rental sector for tenants.

Related topics:  Landlords
Balraj Birdi | Eversheds Sutherland
12th December 2022
Balraj Birdi 824

This has become an ever more important issue, as it was revealed in figures published by the Department for Levelling Up, Housing and Communities recently, that there has been an increase in the use of “no-fault” evictions by landlords in certain areas of the country, with the number of households at risk of homelessness increasing in comparison to the same time in previous years.

There is no draft legislation in circulation as yet and so until this passes through Parliament we cannot be certain as to the proposals. However, the Government have recently said that the proposed reforms have not progressed quickly enough, so significant activity relating to the proposals is anticipated in 2023.

If made law, the proposals set out in the Government’s white paper for ‘a fairer private rented sector’ will represent the most substantial changes to regulation in the private rented sector in over 30 years. It is the Government’s aim to redress the balance between landlords and tenants in order to correct perceived unfairness, give tenants greater security in their homes and address the current power imbalance in some aspects of the sector.

Two proposals of key importance:

1. The abolition of contractual rent review clauses – rent review will be governed by statute instead, with reviews carried out once per year and rents only being revised in line with the open market rent for the property. This will help tenants by eliminating the current patchwork of differing contractual review clauses and helping to ensure that they do not pay more than is reasonable.

2. The abolition of ‘no-fault’ evictions – landlords will now need to show evidence of tenant default or prove that they have a good reason for requiring possession under a number of statutory grounds before the courts will order the tenant to vacate. As such contractual break rights will also be prohibited. In effect, tenants who comply with the terms of their tenancy agreement will, in most cases, be entitled to a tenancy for life.

The Government has accepted that landlords should not be left in a situation where tenants who do not pay their rent or fail to comply with the terms of their tenancy agreements cannot have action taken against them. So, whilst the plan is for no-fault evictions to be abolished, there will also be an overhaul of the current grounds for evicting tenants who are in breach of their tenancy agreements, with the Government aiming to improve the possession system for landlords.

They have also acknowledged there is a need for improvements to the court process for the obtaining of possession, as this is widely criticised for not meeting the needs of landlords, not least because of the unacceptable delays experienced.

Although it is clear that the Government is keen to strike the right balance, there is still a concern that removing no-fault evictions may leave inadequate rights for large-scale landlords who build and/or maintain and operate private rental schemes.

The private rented sector has attracted substantial institutional investment over recent years (which of course was not present in the pre-Housing Act 1988 era) and continues to do so due to its attractive index-linked rental returns, coupled with the ability to refurbish and relet properties when required and usually at increased rents.

The proposals in the current white paper do not allow for landlords to terminate due to refurbishment purposes which will cause difficulties for landlords where repairs or refurbishment works are required that cannot be reasonably undertaken with tenants in situ. The proposed termination right where a landlord is looking to sell the let property is clearly to be of little use to build to rent/PRS landlords whose primary focus is typically full occupancy with minimal void periods. As such, it seems this right will likely benefit the smaller buy to let landlords only at a time when investment should be encouraged.

The Government has been quick to reiterate that current rent review proposals will not mark a return to the controls of the 1980s. Landlords currently renting their properties at market rent with reasonable review provisions will be able to continue to do so within the new statutory framework. Ultimately, disputes surrounding new rent levels between landlord and tenant will result in the landlord incurring the cost of applying to the Tribunal for determination of the open market rent. As such, the rent review process will likely become more costly and require more detailed documentation and record-keeping from landlords.

The proposals will undoubtedly require a level of adjustment from landlords in the private rented sector however their impact will be of benefit to the sector. The small number of unscrupulous landlords will also no longer have the power to demand rents in excess of open market levels and use the threat of no-fault evictions as leverage.

Whilst this is largely positive for the industry and should be greeted with optimism for the future of the sector, it is important to also take into consideration the potential for unintended consequences off the back of the proposals if they become law in their current guise.

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