Residential Rented Sector Reset: The Renters (Reform) Bill – Landlord & Tenant – Leases

Summary

The Renters (Reform) Bill was presented to Parliament on 17 May
2023. It proposes an overhaul of the domestic occupancy system,
planned to put occupants in a much better position. This note sets out
a few of the essential arrangements of the Bill, and some commentary on the
proposed modifications.

The Renters (Reform) Bill was presented to Parliament on 17 May
2023. It proposes an overhaul of the domestic occupancy system,
planned to put occupants in a much better position. The Bill will be
discussed in Parliament and is most likely to be changed prior to it ends up being
law.

The essential modifications to the domestic letting system proposed by
the existing variation of the Bill are:

• All ensured fixed-term occupancies to be changed with a brand-new
  single system of open-ended ‘rolling’ occupancies, with lease
  durations not to go beyond one month.




• A restricted variety of occupancies will be omitted from the brand-new
  guidelines, consisting of high leasing (going beyond £100,000 per year)
  and low leasing (less than £1,000 per year in Greater London)
  occupancies, particular trainee accommodation, occupancies going beyond 7
  years, and Local Authority occupancies.




• Section 21 ‘no fault’ expulsions to be ditched -
  property managers will just be able evict where an expulsion ground uses,
  and notification durations to be changed.




• Eviction premises to be changed and broadened. Fines of as much as
  £5,000 to be troubled property managers for breaching the brand-new guidelines
  about letting their residential or commercial properties (fines of as much as £30,000 for
  more major or repeat breaches).




• A brand-new procedure for carrying out yearly lease boosts, with the
  First Tier Tribunal to figure out the marketplace lease if an occupant
  appeals a lease boost.




• No unreasonable rejection to permit family pets.




• Further modifications to be presented under different guidelines,
  consisting of an occupant grievances plan and a property manager property portal
  (both anticipated to be mandatory and moneyed by property managers).

Timing-sensible, the brand-new system will be carried out in 2 phases,
with a minimum of 6 months’ notification from the federal government of the
‘initially execution date’ (after the Bill ends up being
law).

Some more comprehensive details on the above modifications is set out
listed below.

‘ROLLING’ TENANCIES

• Assured repaired term occupancies will be changed with a brand-new single
  system of ‘rolling’ regular occupancies, with a lease duration
  not going beyond one month.




• Landlords will not have the ability to need payment of 6 or twelve
  months’ lease in advance.




• Assured Shorthold Tenancies (ASTs) are being eliminated.
  Landlords will no longer have the ability to approve ‘fixed-term’
  occupancies.




• Tenants will have the ability to end their occupancy on 2 months’
  notification and there will be no minimum occupancy term.

This is planned to provide renters higher security. Effectively,
renters will deserve to continue leasing their property
unless and till the property manager can show that a person of a minimal
variety of expulsion premises uses. Tenants will have higher
versatility and will have the ability to proceed brief notification. Landlords
will have less long term certainty about the status of their
occupant.

AREA 21 ‘NO FAULT’ EVICTIONS TO BE SCRAPPED

• Landlords will no longer have the ability to utilize the ‘no fault’
  notification treatment to kick out renters under area 21 of the Housing
  Act 1988.




• This treatment presently enables property managers to kick out renters
  without defining any factor, and is frequently utilized to kick out
  problematic renters, even where an expulsion ground uses (such as
  lease defaults or anti-social behaviour), due to the fact that it is quicker and
  more affordable to secure ownership.




• The Bill supplies that property managers will just have the ability to kick out a
  occupant where a particular expulsion ground uses. This is most likely to
  make the expulsion procedure slower, and more pricey.

Although this has actually been normally referred to as the ditching of
‘no fault’ expulsions, it is more properly the ditching
of ‘no factor’ expulsions. A variety of expulsion premises will
still be available which do not include any occupant ‘fault’,
such as where the property manager is seeking to offer, inhabit themselves or
redevelop.

LEASE BOOST NOTIFICATION DURATION TO DOUBLE

• Landlords will require to provide renters a minimum of 2 months’
  notification (up from one month) of any lease boost, and the lease
  cannot be increased more than when a year.




• Currently, if a proposed lease boost cannot be concurred, the
  property manager can end the occupancy utilizing the area 21 notification
  treatment and re-let. This will no longer be possible, so the
  statutory lease boost procedure will end up being more vital.




• Landlords will require to utilize a proposed form of lease boost
  notification; they will not have the ability to just concur a brand-new lease with their
  occupant.




• If the occupant does not accept the proposed brand-new lease, they can
  challenge the boost in the First Tier Tribunal.

ANIMALS PERMITTED

• Tenants will normally have the ability to keep a family pet at the
  property.




• Landlords ought to react to any demand to keep a family pet within
  6 weeks and cannot unreasonably decline approval.




• Landlords can firmly insist that the occupant gets, or covers the
  cost of, family pet insurance coverage to cover the danger of damage.

EXPULSION PREMISES TO BE AMENDED

Some existing expulsion premises will be changed, and brand-new premises
will be included. Key modifications are:

Own profession

This ground will be encompassed cover a larger variety of individuals
linked to the property manager who mean to reside in the property
themselves, consisting of:

• the property manager;




• their partner/ civil partner (or somebody they deal with as if
  they were wed or in a civil collaboration); and

the parent/grandparent/sibling/child/grandchild of the property manager
or their spouse/partner. Landlords will not have the ability to utilize this
ground for the very first 6 months of the occupancy.

Sale of property

This is a brand-new ground that will use where a property manager means to
sell. Landlords will not have the ability to utilize this ground for the very first
6 months of the occupancy.

Sale by mortgagee

This ground will be extended so that mortgagees with a power of
sale can kick out an occupant to offer the property with uninhabited ownership
even if the home loan was participated in after the occupancy began.
Currently, mortgagees can just depend on this ground where the
occupancy was participated in after the home loan.

Redevelopment

This ground already uses where a property manager means to destroy
or rebuild the entire or a significant part of the property. It
will be changed so that property managers will not have the ability to utilize it throughout
the very first 6 months of the occupancy.

Rent defaults

This ground will still use where an occupant remains in 2
months’ defaults at the time of the expulsion notification and the
court ownership hearing. The Bill increases the notification duration for
expulsions under this ground to 4 weeks (up from 2) which
efficiently enables renters more time to clear their defaults to
prevent expulsion.

Repeated lease defaults This is a brand-new ground that will use where
the occupant has actually remained in a minimum of 2 months’ lease defaults, 3
or more times within a three-year duration. It will help close the
existing occupant loophole which allows an occupant to prevent expulsion
under the lease defaults premises by clearing the defaults by the time
of the court ownership hearing.

Anti-social behaviour

This ground is to be changed so that it will use where a
occupant, or somebody living at the property, is guilty of conduct
triggering or ‘efficient in triggering’ (instead of ‘most likely to
trigger’) a problem or inconvenience.

The modification is planned to decrease the bar for showing
anti-social behaviour. Although presently property managers can utilize the
area 21 ‘no factor’ treatment to kick out, so in reality
property managers will be even worse off under the brand-new guidelines.

The ground is discretionary, so judges need to think about whether
expulsion is a sensible and in proportion reaction.

STUDENT ACCOMMODATION EXEMPTION

• Certain ‘Purpose-Built Student Accommodation’ will be
  exempt from the brand-new ‘rolling’ occupancies routine.




• Based on the Bill as presently prepared, this exemption just
  uses to a minimal variety of trainee accommodation lettings, such
  as halls of residence run by universities or other instructional
  facilities, and a minimal variety of other associations set out
  in different guidelines. Those service providers will continue to be able
  to approve set 12-month occupancies to trainees to line up with the
  scholastic year.




• Private property managers of trainee homes will normally not be
  exempt. If they continue to let to trainees, this need to be on
  open-ended occupancies, which trainees can end on 2 months’
  notification, without any capability to guarantee getting the property back
  empty prior to the next scholastic year.

DECLARATION OF TERMS

• Landlords will need to provide their renters a ‘declaration of
  terms’ concerning the occupancy prior to it begins. Landlords will
  likewise be needed to state where they are booking the right to rely
  on certain eviction grounds.




• The relevant information regarding the tenancy to be included
  in the statement will be set out in separate regulations, and
  further details are awaited.

PROHIBITIONS

A landlord must not:

• Attempt to let a property for a fixed term




• Attempt to terminate a tenancy by a ‘notice to quit’
  (without specifying any eviction ground)




• Give the tenant a notice to terminate a tenancy based on an
  eviction ground which does not apply




• Give the tenant a notice based on an eviction ground where
  advance notice must be given before the tenancy starts that the
  landlord may rely on that ground, and no such advance notice was
  given




• Give the tenant a notice within the first six months relying on
  a ground which cannot be used within that initial period (e.g. own
  occupation, sale or redevelopment)




• Re-let, market or authorise a letting agent to re-let the
  property, within three months of a termination notice where the
  landlord has obtained possession upon the grounds of own occupation
  or sale

LANDLORD FINANCIAL PENALTIES

Local housing authorities may impose fines of up to £5,000
on landlords who:

• fail to give the tenant the needed Statement of Terms and
  information; or




• breach certain prohibitions listed above.

Fines of up to £30,000 can be imposed where:

• a tenant leaves based on an eviction notice which specified a
  ground which the landlord knew (or should have known) they could
  not rely on;




• a fine is imposed, and the relevant conduct continues for over
  28 days;




• the landlord commits repeat breaches within a five-year period;
  and/or




• there is an unlawful eviction.

The local housing authority will be able to enforce the fines as
if they were a court order.

TENANCY DEPOSIT RULES

• Under the current rules, a landlord cannot serve or rely on a
  section 21 ‘no reason’ eviction notice where it has not
  complied with the tenancy deposit rules.




• The Bill proposes that, where an eviction ground applies, the
  court will only be able to able to make a possession order if a
  tenancy deposit has been protected under an authorised scheme and
  the requirements of that scheme have been complied with. These
  restrictions will not apply to certain grounds, e.g. where tenant
  has committed a serious offence or antisocial behaviour.




• A landlord will also still be able to evict if they have
  returned the deposit to the tenant in full, or with any deductions
  agreed between the landlord and tenant.

FURTHER CHANGES TO COME

Tenant Complaints Scheme

The Bill proposes that the Secretary of state ‘may’ make
separate regulations requiring a residential landlord to be a
member of ‘a landlord redress scheme’. This will be a forum
for tenant complaints to be resolved.

Under the proposed scheme, a complaint made by a
‘prospective, current or former residential tenant’ against
a landlord, will be investigated and determined by someone
independent.

The landlord can be required to:

• provide an apology or explanation;




• pay compensation; and/or




• take other action to resolve the tenant’s complaint

  A decision under the scheme is intended to be enforceable as if it
  were a court order. The proposed scheme is likely to be compulsory
  and all residential landlords will need to pay to a membership fee
  to cover the costs of administering the scheme. Fines of up to
  £5,000 could be imposed on landlords who fail to join the
  scheme when they are required to do so. Fines of up to
  £30,000 could be imposed on landlords who continue to breach
  the membership scheme requirements for 28 days after a fine is
  imposed, or for repeated breaches.

Landlord Database

The Bill proposes that separate regulations will be made to
introduce a compulsory landlord

database. This will contain information about whether a landlord
has:

• been subject to a banning order;




• had a financial penalty imposed; and/or




• been convicted of an offence.

  This is also likely to include a requirement for a landlord to pay
  a fee to cover the costs of establishing and operating the
  database. Landlords will not be able to market a residential
  property until they have registered on the database. Fines of up to
  £5,000 can be imposed on landlords who fail to register on
  the landlord database when they are required to do so. Fines of up
  to £30,000 can be imposed on landlords who provide false
  information to the database, continue any breach 28 days after a
  fine has been imposed, or are guilty of repeated breaches.

What Measures Have Not Been Included In The Bill?

The government’s plans for reforming the private rented
sector were set out in their June 2022 white paper “A fairer
private rented sector”, which included a number of legislative
commitments that are not provided for in the Bill, including:

• A statutory “decent home standard” to apply to the
  Private Rented Sector




• Making it illegal for landlords and agents to have a blanket
  ban on renting to tenants in

  receipt of benefits or with children




• Strengthening councils’ enforcement powers and introducing
  a requirement on them to report on enforcement activity

  Michael Gove announced on 17 May 2023 that the above measures will
  be legislated for “in this Parliament”. He also announced
  the proposal to align the abolition of section 21 and new
  possession grounds, with court improvements including
  ‘end-to-end digitisation of the process’ and
  ‘prioritisation of certain cases, including anti-social
  behaviour’. There are no further details on how the court
  system would be upgraded to achieve this and the time-scales for
  implementation.

COMMENTARY

• It is a laudable aim to improve the position for renters,
  particularly those who have suffered at the hands of
  ‘rogue’ landlords.




• A key aspect to the success of these reforms will be the
  ability for ‘good’ landlords to evict troublesome tenants
  quickly and cost-effectively, particularly tenants guilty of
  anti-social behaviour or those in significant rent arrears. The
  Bill does not address how this can be achieved. The courts are
  already over-burdened and simply cannot cope with a huge influx of
  residential tenancy disputes. If the process if too slow, expensive
  and uncertain, private lettings will become considerably riskier.
  This could lead to market rents increasing to offset that
  risk.




• Abolishing fixed-term tenancies will make letting to students
  less attractive to private landlords. The explanatory notes to the
  Bill state that “Purpose-Built Student Accommodation (PBSA) will
  be exempt from these changes as long as the provider is registered
  for government-approved codes.” PBSA is not defined in the
  Bill, and this exemption needs clarification. There are calls for
  the proposed exemption to be extended to all private landlords of
  student accommodation in order to avoid exacerbating the current
  supply issues. The prospect of having to grant open-ended tenancies
  to students, who could end the agreement on two months’ notice
  may be too much of a risk to take, and could lead to an exodus of
  private student landlords.




• Further details on the proposed compulsory ‘landlord
  redress scheme’/’tenant complaint scheme’ are needed in
  order to understand how this will impact residential landlords, and
  the sector generally. It is currently unclear what the level of
  membership fee might be, who would administer the compulsory
  scheme, and how any costs incurred on the dispute resolution
  process might be recovered if a tenant raises an unsubstantiated
  complaint. If the membership scheme fees are high, with little
  ability to recover costs from tenants who raise unfounded
  complaints, this scheme could end up being a charter for
  tenants’ complaints, at landlords’ expense. A compulsory
  landlord-funded membership scheme means that ‘good’
  landlords could effectively end up subsidising the costs of
  resolving complaints against ‘rogue’ landlords.




• The draft Bill does not go as far as imposing rent caps. Market
  forces will still determine the level to which the rent can be
  increased each year. The requirement to use a formal rent increase
  notice procedure will place an additional administrative burden on
  landlords. There is little detail in the draft Bill about how the
  Tribunal might cope with an influx of rent increase disputes. With
  interest rates and mortgage rates still rising, if landlords cannot
  increase their rent quickly and cost-effectively to cover their own
  cost increases, landlords could end up out of pocket and face
  significant cashflow issues.




• There is no doubt that the Bill is ‘tenant-friendly’
  and places more burdens, costs and risks on residential landlords,
  including potential fines of up to £30,000 for breaches of
  the new rules. Some residential property landlords are already
  grappling with the impact of rising inflation and mortgage rates,
  tax disincentives against second homes and MEES guidelines which
  might require them to incur costs to improve the energy efficiency of
  their properties. It remains to be seen whether the combination of
  these factors, together with the additional risks and burdens to be
  introduced by the Renters Reform Bill will discourage residential
  property managers from the sector altogether. If so, this could lead to
  supply issues and/or increased market rents to off-set the new
  risks involved. This could end up hurting the very renters the Bill
  aims to protect.

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