"With the reforms exposing landlords to increased costs and risks – and implementation now a matter of when, not if – they must act quickly to prepare for incoming changes and develop strategies to mitigate their possible impact"
- Thomas Jeniec - Winckworth Sherwood
After several months' delay, the government’s long-awaited Renters’ Rights Bill (RRB) is on the brink of receiving royal assent and becoming law.
The legislation represents the most significant overhaul of the private rental sector (PRS) in a generation. With one in five (19 per cent) of households in the UK now renting, the government has sought to bring the market under tighter regulation and address what it sees as the fundamental imbalance of power between landlords and tenants.
Headline reforms under the act include the abolition of fixed-term tenancies and Section 21 no-fault evictions, as well as limiting rent increases to once a year and at a level deemed to be in line with the “market rate”. Crucially, tenants will have extended rights to challenge rent increases for free.
Yet despite the scale of the reforms, understanding among landlords regarding how they’ll be impacted remains worryingly low. The National Residential Landlords Association (NRLA) reported in the summer that while 93 per cent of people were aware of pending changes, a mere 35 per cent said they felt fully prepared for them coming into force.
With the reforms exposing landlords to increased costs and risks – and implementation now a matter of when, not if – they must act quickly to prepare for incoming changes and develop strategies to mitigate their possible impact.
Rethinking rent increases
The biggest priority from the landlord’s perspective is understanding the increased powers for tenants to challenge and appeal.
In simple terms, it is now much harder for landlords to increase rents. Existing clauses in rental agreements allowing for reviews and inflationary increases will be voided once the RRB takes effect. Instead, if landlords want to raise rents, they will need to issue a Section 13 notice, which will be limited to once every twelve months.
Landlords must also be able to prove that any increased rate is consistent with the cost of similar properties on the market, with tenants being able to challenge rises they deem to be unfair at the FTT, for free.
Once a tenant challenges an increase, the rent must stay at its existing level until the FTT has determined whether it aligns with the market rate. However, anticipated delays at the tribunal mean it can take up to a year for a verdict to be reached, an unacceptable amount of time for many who will need to make sure that rental income is keeping pace with growing mortgage costs.
These delays will likely be compounded by the fact that challenging an increase is effectively a “no lose” scenario from a tenant's perspective. The FTT only has the option to approve a landlord’s proposed increase or suggest a lower level deemed to be more in line with the market rate, meaning many renters may see some value in trying their luck at the tribunal whenever they are faced with a rent rise. This is likely to only increase the number of claims, adding to the backlog of cases and subsequently increasing the cost burden for landlords.
Avoiding this scenario will therefore be imperative for many landlords, who will find the viability of their buy-to-let investments strained by the delays and costs associated with the tribunal process.
To do this, they should invest time now in benchmarking rents to ensure they have an accurate read of what can be deemed to be a “fair” level for their property. Once this has been established, they must consider whether increasing rents slightly lower than the market rate is a sensible strategy to reduce the likelihood of challenge by tenants.
New requirements for possession orders
It’s a similar story when it comes to terminating a tenancy. The removal of Section 21 means that homeowners will no longer have the right to serve a notice to tenants without a valid reason.
Instead, they’ll need to rely on the grounds for possession as listed under Schedule 2 of the Housing Act 1988. This can include significant rent arrears, or breach of a tenancy agreement, as well as a landlord wanting to live in the property themselves or put it on the market.
The latter two grounds come with heightened evidential requirements that landlords must meet. If they or a family member are looking to occupy the property, then they must provide a written “statement of truth” as verification. Similarly, intentions to sell must be supported by evidence proving them to be genuine. This will likely need to include formal correspondence with a solicitor or estate agent demonstrating that the process is underway.
As with benchmarking rents, the time for landlords to get familiar with these new evidential requirements is now. Waiting to understand the process until a Section 8 notice needs to be delivered risks putting landlords on the back foot, impacting their ability to gain possession in a timely fashion.
The new laws will almost certainly see more eviction challenges from tenants, meaning it will take even longer than it does currently to get a possession order from the courts. With this in mind, landlords would be wise to develop contingency plans for mortgage payments and maintenance costs during disputes and consider whether they require landlord insurance to cover any increased expenses they may incur.
Preparation is key
Despite the long passage of the bill, the real-world impact of new renters’ rights legislation still remains uncertain. This will ultimately be determined by the appetite of tenants to exercise new powers of appeal over things like rent increases and evictions, and the knock-on effect this has on the capacity of the courts and FTT to handle claims.
Minimising any potential issues for landlords hinges upon quickly getting to grips with new requirements and ensuring contingency plans are in place to manage disputes should they arise.
