After much speculation and commentary, the Renters Rights Bill ("the Bill"), has now been progressed by the Labour government, with its first reading taking place on 11 September 2024. The Bill contains many provisions contained in the previous government's Renters Reform Bill .
The focus of this article is on the key changes that are going to affect landlords and what this means in practice.
How will landlords regain possession?
Media focus has been on the long-awaited abolition of section 21 no fault evictions which allows a landlord to terminate a tenancy and obtain possession of their property on 2 months' notice, without having to provide any reason or demonstrate fault by the tenant, provided the initial fixed term has ended.
Abolition of Section 21 will mean that possession can only be sought by landlords under a section 8 notice. This route requires that certain grounds are met before possession can be granted and if the tenant fails to vacate then court proceedings (including at least one possession hearing) will be necessary.
The Bill introduces some new grounds and amends existing grounds, in an attempt to reassure landlords of their ability to regain possession where needed. Most notable:
- Sale of the property. However, this ground cannot be used within the first 12 months, effectively giving the tenant a 1-year protected period at the beginning of the tenancy. A landlord also needs to be sure of their intention with this ground, as they cannot re-market or re-let the property for rent for a further 12 months.
- Amendment of an existing ground to enable a landlord's family members to live in the property. As above, the same 1-year protected period will apply, and 4 months' notice will need to be given to the tenants.
- HMO Student accommodation. In order to regain possession under this route, the landlord will need to demonstrate that it gave the tenant a written statement before the tenancy was entered into that they intend to rely on this ground. It is therefore anticipated that including such a statement will be included in all student tenancies agreements to ensure that landlords are not caught out.
- Rental Arrears . This is a commonly used ground; however, the current drafting of the Bill increases the minimum level of arrears required from 2 months to 3 months and the notice period to 4 weeks. This means that tenants may accrue a minimum of 4 months arrears before court proceedings can start.
The changes need to be considered in the context of the existing court system, which there are no firm proposals to change. We are currently experiencing severe delays with all aspects of possession claims, from issuing a claim, to sealing a possession order and listing a bailiff eviction appointment. With this in mind, it is likely that landlords seeking possession for rent arrears could face delays of a year or more to secure possession.
It is interesting to note that the previous government had confirmed changes would not be implemented until the court system had been reformed and could cope. However, there is no similar provision in this Bill, and we understand the Government intends to bring the Bill into force as soon as next Spring/Summer.
Form of tenancies
The abolition of Assured Shorthold Tenancies is at the forefront of the Bill. This is of course a massive change for landlords as the majority of current residential tenancies are in the form of a fixed term AST.
Under the Bill, all ASTs will become periodic, with rental periods at a maximum of one month/28 days.
By contrast, previous government's suggested bill included transitional provisions . Under the current drafting of the Bill, these changes will come in on a set date. This date will be specified by secondary legislation and all ASTs will transition automatically to periodic tenancies from that date.
Rent increases
The process for rental increases is becoming more formalised under the Bill. Landlords will only be able to increase rent annually by way of a section 13 notice. The rental figure can only be increased to market rent.
Tenants are able to appeal any rent increase to the First-tier Tribunal. If the landlord's rent increase is successful , then the rent increase will no longer be backdated to the date of the notice, instead coming into effect one month after the order, with the Tribunal having power to postpone the date further. Therefore, a tenant effectively has nothing to lose as even if they are unsuccessful at the tribunal, they will essentially have still succeeded in delaying the rent increase. This is tantamount to market rent suppression. As the Tribunal is a no costs forum, there is no risk of a tenant being ordered to pay the Landlord's costs if it unreasonably challenges a rent increase.
Local Authority fines and penalties
There is mention throughout the Bill of the local authorities' abilities to issue civil penalties and fines if a landlord fails to comply with the provisions. A landlord may face a fine of up to £7,000 and in some cases up to £40,000 through repeated breaches. Fines may be imposed for a number of reasons such as if a landlord is involved in rental bidding, if the landlord discriminates against certain tenants, or if they advertise a property without having entered their details on the new landlord database.
It is currently unclear how the local authority will police these reforms and issue these fines, but what is clear is that the Bill will give local authorities far more power when it comes to private landlords.
Conclusion
The Bill has been introduced under the promise of increasing security and stability for tenants, whilst ensuring that they benefit from fair conditions and rental costs.
The government suggests that these reforms will not affect "good" landlords and are instead used to target "bad" landlords. However, it is undeniable that these changes are going to affect all landlords due to the lack of certainty of their rental term and the process/delays for regaining possession. The media already reports that landlords are taking steps to sell their portfolios in anticipation of the reforms. If this response is more widespread then the Bill may have the unintended consequence of decreasing rental supply with consequential increase in rents .
The Bill is still in its early stages and further amendments are therefore likely to be made as the Bill progresses through Parliament. However, what is clear is that reassurance is needed as to how the current court system will deal with these changes.
The second reading of the Bill is due to take place on the 9 October 2024 and some are speculating that the reforms could take effect from Spring 2025.
If you would like any more advice on this area, then please get in touch with our Real Estate Disputes Team.
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