Renters Reform is here - what should residential landlords know?

At long last, the government has now set out the details of the Renters (Reform) Bill ('the Bill') to introduce sweeping, 'once-in-a-generation' reforms to the residential sector in both England and, for some provisions, to Wales also. This is only the beginning, as the package of proposals now starts its progress through Parliament and could be subject to numerous changes before it becomes law. In this article, first in a series about the Bill, we look at what the government has proposed, and what that could mean for landlords in the residential, 'Living' sector.

Key points

Broadly, the Bill has done exactly as promised in the Fairer Private Rented Sector White Paper and recent ministerial announcements. These changes will affect new residential tenancies, except for purpose-built student accommodation ('PBSA'). The main points are:

1. Rent increases only through statutory notice

Previously, a landlord could opt out of the statutory regulation of rent increases. This will no longer be the case if the Bill makes it onto the statute books – the only way to increase rents is to serve a statutory notice (section 13, Housing Act 1988) to set a market rent. Tenants can challenge above-market increases at the First-Tier Tribunal; this would usually involve written argument from both sides, and possibly a hearing, which means an increased burden on landlords. The job for the tribunal will be to assess the proposed rent against what the landlord could expect to receive if letting to a new tenant on the open market. Landlords expecting a fixed annual rent increase from their asset should take note of this change. There are exceptions when the tenancy is a 'relevant low-cost tenancy' provided by a Registered Provider.

2. No more fixed-term tenancies

In future, fixed-terms are abolished and tenancies can only be periodic. The period can be no longer than 28 days. This will allow for easier movement within the residential property market, as tenants are not locked into long terms.

3. No more assured shorthold tenancies ('ASTs')

ASTs are a staple in the residential property market. The Bill will abolish them. This means that, if the Bill becomes law, new residential tenancies are likely to be assured tenancies.

4. No more 'no fault' evictions

If assured shorthold tenancies are abolished, the 'no fault' section 21 notice procedure of taking back a tenancy will also disappear. Currently, a landlord can serve notice under section 21 of the Housing Act 1988, and obtain a court order for possession, without having to show any fault by the tenant, or any need by the landlord to have the property back. Because the Bill is abolishing assured shorthold tenancies, the mechanism to end quickly and at no fault (service of a section 21 notice), also falls away. Existing fault-based grounds can be used to end a tenancy. These will require service of a notice specifying a particular ground for possession and then, most likely, a court hearing.

5. New grounds for evictions

1. Landlord selling property or moving in: Landlords who wish to sell property can now seek possession. Where the landlord is a registered provider of social housing operating a 'Rent to Buy' arrangement, a new ground has been introduced to allow the landlord to take back possession after the tenant has been offered the chance to purchase the property at the end of the scheme. Where a landlord wishes to move into the property, the definition of 'landlord' includes close family members.
2. Serious rent arrears: Where there are repeated serious rent arrears, a longer notice period must be given (four weeks), but the court must grant possession, even if the arrears have been cleared at the hearing.
3. Tenant behaviour 'capable of causing nuisance and annoyance': This wording arguably introduces a lower threshold for the landlord to meet, although possession is not mandatory and the court will still have to find it reasonable. The notice period required to be given for this is shortened. A possession claim will be capable of being made immediately, and failure to properly protect a deposit will no longer prevent a possession order being made.
4. For supported accommodation providers there are several new grounds:
   1. Registered Provider or Supported Accommodation Provider has a superior lease and this is coming to an end. Supported accommodation providers and private registered providers of social housing can use this ground. Their superior lease may require them to hand back properties with vacant possession, so this new ground will allow them to achieve this.
   2. The property is needed for use as supported accommodation: The court must grant possession in these circumstances. This will be particularly helpful for providers who need to take back properties to meet a demand from prospective tenants with care needs.
   3. Possession is needed to enable the provider to continue to operate safely, effectively or otherwise to protect the viability of their service. This is to allow providers to move on tenants where their needs have changed so the tenant is better supported elsewhere.

   Landlords should be aware that local authorities are given powers to fine landlords to deter non-compliance, if the local authority is satisfied 'beyond reasonable doubt' that an offence has taken place. Local authorities already have to tackle unlawful activity in their private sector market, and the Ombudsman Scheme below, where tenants can seek financial redress against landlords.

6. Leases over seven years cannot be assured tenancies

Shared ownership leases can have fixed terms, however as they will not be considered assured tenancies, they cannot be subject to the assured tenancy possession grounds.

7. The Ombudsman will see you now

It's clear that the government wants to direct disputes away from the county courts, who are already overburdened with significant backlogs. The Bill will create a new ombudsman who can deliver binding decisions in landlord-tenant disputes, and these decisions can be enforced just like court orders. Private landlords are required to join this ombudsman scheme.

Other provisions of the Bill include the creation of a private rented sector database and a duty on local housing authorities to enforce the new landlord obligations. In respect of supported housing, the Bill, if fully enacted, can require the Secretary of State to prepare a report setting out the government's policy on safety and quality standards. This report must set out how these standards will be developed, overseen and enforced, who is responsible, how information about local housing authorities' relevant functions should be shared by or with them, and how the Secretary of State proposes to implement this policy.

Finally, the government has also made clear its intention to introduce legislation as part of the Bill to apply the Decent Homes Standard to the private rented sector for the first time; more detail is expected on this.

What's Next?

The Bill is only at the preliminary stage of its journey through Parliament, and will be scrutinised by committee and the Lords. There is likely to be lively and protracted debate before this Bill becomes law, and much could change. Those with an interest in the shared ownership model must carefully consider the ramifications of the leases falling out of the assured tenancy regime.

Absent the government running out of time to pass this legislation, however, it seems clear that the days of 'no fault' eviction are numbered, and landlords will need to think carefully about how they manage their properties in future.

For more information or queries regarding the Renters Reform Bill, please get in touch with Dominic Morris or Şenay Nihat.