The right way to reform the rental sector?

The previous Government “… had to accept that the court system is not ready to deal with the abolition of section 21 in full and they … had to delay its introduction” (Lord Frost in the House of Lords on 15 May 2024). Both the previous Conservative ‘Renters (Reform) Bill’ and now Labour’s “Renters’ Rights Bill” appear, at least superficially, to be similar. But what has changed, and will it work?

A section 21-sized black hole

The flagship policy of both bills was to abolish so-called “no-fault” eviction. This process comes from section 21 of the Housing Act 1988, which provides the statutory framework for assured shorthold tenancies. Where a tenancy is or has become periodic (following the expiry of the fixed term), the landlord can serve a section 21 notice, requiring the tenant to hand back possession in two months without giving a reason. Should the tenant refuse to leave, the landlord can use an accelerated court possession procedure to get them out. Although landlords may be unwilling to let their property unless they know they can recover possession if their plans, or situation, change, a two-month timeframe may prove challenging for tenants to find alternative accommodation – especially where they have been in properties for many years.

Under both the previous and current government’s proposals, section 21 is abolished. Instead, landlords will need to rely on one of the section 8 grounds, which set out a number of mandatory and discretionary grounds for possession. Now, there must be a ‘fault’ for eviction, and the landlord must be able to prove it if the tenant disputes it. 

The section 8 grounds are reformed and extended by the Bill and include mandatory grounds that the landlord can regain possession where they need the house for them or their family to live in, or because they want to sell it. Under Labour’s Bill, however, one new addition is that landlords cannot use those grounds during the first year of a new tenancy. The notice period for using those (and some other) grounds has also increased from two to four months. Against the background of changing mortgage rates and potential tax changes (not to mention personal circumstances) that could feel like a long time for landlords. Where tenants challenge the notice or the grounds on which it is given, the wait will be longer.  

When is a market rent not a market rent?

One of Labour’s headline additions to the Bill is to seek to abolish “bidding wars” for rent: landlords and agents will be required to publish an asking rent for the property, and it will be illegal to accept (or even encourage) offers above this rate. One concern is that this could encourage unscrupulous landlords to advertise at an inflated initial rent. 

Continuing the theme of fair rents, the Bill retains the statutory rent review mechanism put forward by the Conservative Bill. Contractual rent reviews will be banned and instead, not more frequently than once a year, the landlord can propose an increased rent. If the tenant considers the proposed rent to be above market rent, they can apply to a tribunal to determine what the fair market rent should be. The tenant will then pay the lower of that and the landlord’s initial suggestion. But the new rent will only take effect from the date of the tribunal’s decision and will not be backdated to the date the increase was proposed. And the tribunal can also defer rent increases by up to another two months in cases of undue hardship. Together, these measures would seem to incentivise tenants to apply to the tribunal, because there is nothing to be lost by doing so and everything to be gained.

Raising the standard

Labour has beefed up the section of the Bill on decent homes standards and are extending Awaab’s law to the private rented sector as a whole. This will require landlords to fix hazards such as damp and mould within a given timeframe. Aside from this Bill, Labour has also stated its intention to raise the minimum EPC standards for private rented property to C by 2030 – but stated during the Bill’s second reading, that they will not seek to enforce this via the Bill.  The proposals will, however, concern owners and managers of rural property portfolios, whose properties may require fairly major works to bring up them up to standard. 

Timing is everything

Labour aims to abolish no fault evictions by next summer. And whereas the Conservative Government had planned to introduce the changes in two stages (so that all new tenancies were converted to the new system first and then existing tenancies would be converted at a later date), Labour seeks to prevent what it calls “a confusing 2-tier system” and will introduce the changes in one fell swoop.

Five months ago, the Conservatives abandoned their Bill because of pressures on the court system: concerns which were raised again at the Bill’s recent second reading. Angela Rayner responded, saying that the county court system will be digitised (no timeframe was given) and that the Bill’s new ombudsman would alleviate pressure on courts. Indeed, Labour states in its notes accompanying the Bill that it expects its “rental reforms to reduce demand on the courts”. Only time will tell who is right. 

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, September 2024