The Renter (Reform) Bill: What you need to know

The highly anticipated Renter (Reform) Bill finally received its first reading in Parliament in May this year and while we are now awaiting its second reading, it appears this will be unlikely to take place soon given the imminent summer recess.

The initial proposals have caused concern among landlords and agents, however there are positives to be taken from the Bill. With good, knowledgeable guidance, from a reputable agent, we feel this proposed legislation change is a speed bump in the road as opposed to a complete road block. We explain at the end of this guide how we feel it will not negatively impact our clients as much as first thought.

While Parliamentary Observers estimate an 18 month wait until the Bill is fully passed into Legislation, the partly politically motivated nature of its birth will mean that the government will likely look to push the Bill through prior to the General Election expected in the Autumn of 2024.

Why has reform of the rental sector been proposed?

With 19% of households being privately rented the UK government want to further protect tenants and “bring in a better deal for tenants”.

This includes bringing more residential stability for renters, improving housing standards, prevention of revenge evictions and increasing landlord responsibility via a national Landlord Register.

According to the government, nearly a quarter of private rented homes do not meet the basic decency standards and tenants are often in fear of reprisals (eviction) for making requests for maintenance problems to be rectified. The government want to change this and feel that the Renter Bill will provide the opportunity to address a multitude of issues that tenants face.

What changes have been proposed

Abolishment of Section 21 and switch to periodic tenancies:

Currently most tenancies are Assured Shorthold Tenancies (ASTs) with the landlord and tenant having agreed a fixed term for the tenant to live there and pay rent for. At the end of the fixed term the tenancy either ends (with notice being served), a contract renewal is agreed or the contract automatically switches on to a rolling periodic tenancy.

Under a periodic tenancy, tenants can serve one months’ notice to end the arrangement and conversely a landlord can end it with two months’ notice by using Section 21. The landlord is not obliged to provide any reason for ending the agreement using Section 21 hence it being termed a ‘no fault eviction’.

The Renters Bill will essentially cause all residential tenancies (exceptions: temporary, formal student and supported housing) to be created on a monthly periodic basis. This will be greatly in the tenants’ favour with a tenant only having to serve one months’ notice to vacate the property whereas the landlord will need to have specific reasons to regain possession of their property using the (amended) Section 8 grounds to do so.

Reasons for change - Government research has found that a large number of tenants feel insecure in making a longer term home in rental properties due to the threat of no fault evictions. Evictions in retaliation to tenant maintenance requests and disagreement with rental increases are a worry. On the other hand, ASTs are seen as inflexible for tenants that wish to move on easily if they feel that a property is unsafe or they experience financial instability.

Rent Increase limitations

Under the proposals rent increases will be limited to just one increase per year and landlords will need to provide two months’ notice (doubled from one month) to the tenant prior to doing so. Rent review clauses within contracts will be banned and tenants will also have further opportunity to challenge rent increases and tribunal services.

Reasons for change - Rent review clauses are seen as restrictive and also contradict the proposed limitation on how often the rent can be increased. The once-a-year frequency is seen as the best route to accommodate landlords needing to keep the rent in line with market increases but not often to harshly affect the tenant.

Privately Rented property / Landlord Register and Portal

The government will create a new property portal and a mandatory (legal) obligation for all landlords to sign up and register their details and their rental properties.

It will offer resources to Landlords to assist in understanding their legal obligations and demonstrate compliance. It will also give detailed information to tenants so that they can make more informed decisions when entering into a tenancy.

Landlord information that is likely to be included publicly:

• Landlords full name
• Properties owned and rented
• Any unspent offences or penalties connected to them
• Details on the standard of their properties

Each property listed in the database will have a unique identification number which will need to be quoted in any marketing material or listing.

There will likely be a fee for a landlord to register on the portal and possibly each time their property details are amended. This is supposedly for the upkeep and general running of the database.

Reasons for change - Proponents of reform would like one central register to assist with ensuring compliance and to list ‘rogue landlords’ who fail to comply. The database will also assist with Local Authority enforcement and some commentators also see it as a way for the HMRC to determine who is paying the correct income tax from their properties.

New property Ombudsman

Introduction of a new Private Rented Sector Property Ombudsman which according to the government will “provide fair, impartial, and binding resolution to many issues and prove quicker, cheaper, and less adversarial than the court system”.

At present there are two redress schemes (The Property Ombudsman and Property Redress Scheme) and lettings agents must sign up to at least one of them to operate. Landlords are not forced to register with such a scheme.

The new Ombudsman scheme is solely for landlords and will provide them with an education resource for compliance and a conduit for tenants to complain about landlord issues to.

During a dispute a tenant will need to put their complaint to the landlord and if an agreement cannot be found then the Ombudsman will be the next stage of any complaint. The new Ombudsman will have five actions that they can impose on the landlord:

• Landlord to Tenant apology
• Requirement for information to be provided
• Force action to remedy the issue
• Compensate up to £25,000
• Force rent repayment to the tenant

The Ombudsman will allegedly offer mediation services between parties and so this may in effect benefit the landlord however it will be compulsory for them to sign up and also carry a fee for the service.

Reasons for change - The common theme of most disputes in the rental sector has been delay and bureaucracy in dispute resolution, particularly when a matter must go to court. This part of the Bill is intended to speed up the process and head off disputes having to go to court which will in turn be cheaper.

Decent Homes Standard

At present the Decent Homes Standard only applies to the affordable social housing sector and the Renters Bill will be expanding this to also apply to the private rental sector.

Landlords will have a legal obligation to improve any elements of their property that fall below standard. This will be enforced by the Local authority as well as the new Property Ombudsman.

Reasons for change - As previously mentioned, government analysis has shown that around 25% of privately rented properties do not meet basic decent standards. This reportedly costs the NHS £340 million per annum and so legislators wish to improve public health and reduce medical spending.

Section 8 Amendments

Currently there are 17 grounds for possession with 1-8 being mandatory and 9-17 being discretionary. The Renters Bill proposes additional grounds as well as amendments to existing ones to accommodate the removal of Section 21.

The additional grounds are as follows: 

• If a landlord or their close family (spouse, civil-partner or child) needs to move in to the property (cannot be used in first 6 months and 2 months notice required) 
• Landlords need to sell the property (cannot be used in first 6 months and 2 months notice required)
• Regain possession of the property due to rental arrears (4 weeks notice)
• Regain possession due to tenant anti-social behaviour (2 weeks notice)

Section 8 already addresses rental arrears for 2 months worth of rent, however the new Bill adds in the wording that it can apply if tenants are habitually in arrears on three occasions.

Reasons for change - With strong concerns felt by Landlords and Agents on the abolition of Section 21 and no fault evictions, the government have drafted changes to the grounds in which a Section 8 notice can be served. This is to address some of those (well-founded) concerns and allows landlords to regain possession if the tenants breach their agreement.

Ending discrimination against those with children and receiving benefits

Some landlords and agents do not allow interest from tenants with children and some who are in receipt of benefits. This is permitted at present and is sometimes displayed on property adverts or the position put across on enquiry into a property.

Reasons for change - While landlords who chose to not allow tenants on benefits or with children are able to do so, the government and wider society now see this position as unfair discrimination. In particular it may inadvertently target the more vulnerable members of society and so the Renters Bills proposes to add these groups of tenants into the categories for non-discrimination.

Consideration of Pets

Pets can be a divisive subject for landlords due to the perception that they are liable to cause damage, noise and render a property less attractive for future prospective tenants. At present not allowing pets is permitted. This will change in the proposed bill with a tenants’ request to have a pet not to be refused unreasonably. It is yet to be determined what constitutes factors for a reasonable refusal.

If a tenant is not happy with a landlord refusal, then they will be able to take the matter up with the ombudsman who will rule whether that refusal was unjust.

Reasons for change - Under current legislation, landlords are unable to take a higher security deposit to account for this perceived higher risk and this has led to some landlords becoming averse to tenants with pets.

One of the common reasons for dogs to be handed over to shelters is a change in living circumstance for the owner and so the proposals are aimed to assist in this.

Final thoughts

With the feeling that rental legislation already favours renters, the news that it will be amended drastically to favour them even further, is obviously unwelcome for Landlords. Reports in the media are now focusing on an apparent exodus of landlords from the market due to this being the final straw. Numbers of landlords choosing to sell up have increased in our markets but have tended to be due to the natural life cycle end of the 1990s and 2000s smaller (1-3 property) buy to let landlord. Such landlords having sufficiently topped up their pension or gained enough capital to fund the first property purchase of their children. Likewise, the ‘accidental landlord’ we witnessed enter the market in the last 2-4 years due to cladding issues or letting to buy elsewhere has found the right moment to sell and claim back their second home stand duty or release their capital.

It cannot be denied that there are negatives with this proposed reform.

Restrictions on landlords regaining possession of their property bring risk and less fluidity with their asset, which in turn makes such an investment seem less attractive. This year less than 7% of our clients (of properties we have let this year) chose to use Section 21 to evict tenants to relet for a higher rental value. The remaining 93% of those let have come back to the market with us due to the tenants themselves choosing to move on. Be it to relocate to a new area, move in with a partner, gain more space for a growing family, in our market areas tenants on the whole tend to naturally move on by their own volition or need.

The proposed changes to Section 8 grounds will likely cater for the situations that landlords require expedited possession of their property (selling , moving back in or removal of nuisance tenants).

Government change to rent increase frequency appears concerning at first glance although initial analysis of value change across our portfolio indicates that the vast majority of our clients alter rental values on average every 12-18 months. During the renewal phase rent increases have been 2% below the area average rental inflationary increases which illustrates how landlords are sympathetic to their existing tenants and value their loyalty. If tribunals for rental increases under the Renter Bill are near fair then we feel this will not be a huge cause for concern.

Central registration of landlords, their properties and a new Ombudsman to govern is a thorn in the side and will be another box to tick/compliance measure when looking to let. A similar test has been passed with Landlord licencing, however with guidance from a reliable agent, it should not be entirely restrictive.

The inclusion of pets in our rental properties has increased significantly after the pandemic and the most surprising observation has been the lack of complaint from landlords at the end of tenancies. We extensively reference not only tenants but often are provided pet references nowadays from previous landlords. If of course a lease prohibits pets, then permission need not be granted however it has been our experience that pets have not significantly impacted how a tenancy plays out.

How we can assist

There is no action needed from any landlords at this point but it is sensible to keep an eye on how the situation changes.

Not only are we constantly monitoring the progress of this legislation being brought in via the government announcements, we also have regular updates our legal advice line. This gives us the ability to provide our clients with the best advice possible when it comes to how it effects their rental properties.

Our lettings and property management team are on hand to take care of all compliance matters if necessary and guide you through the period of change. Call or email us today.