Renters Reform Bill 2023 – what does it mean for landlords?
Few countries arrange land tenure in the same way as England does. As well as absolute ownership (‘freehold ownership’) there is leasehold ownership. This is essentially a contract giving the owner of the lease almost exclusive ownership and occupation of a property for a fixed period, but typically subject to many restrictions imposed by the landlord, the ultimate owner of the Property. Variously described as ‘feudal’, ‘medieval’ and ‘antiquated’, pressure for reform of the leasehold system has been building over a number of years. Sensible landlords and tenants cooperate to solve problems, but the underlying landlord and tenant relationship easily turns adversarial.
To date most reform has been piecemeal. The latest proposed legislation is the ‘Renters Reform Bill’, currently passing through the British Parliament, and due to become law by 30 April 2024. It deals with reform of short term leases in the private rental sector, which make up approximately 20% of UK households.
Most tenancy agreements in the private rental sector today are ‘assured shorthold tenancies’, under which a landlord may end a tenancy at the end of its contractual term or afterwards by giving written notice to the tenant. If the tenant does not leave voluntarily then, provided the landlord complied with all regulatory requirements when the tenancy was originally granted, evicting the tenant is essentially an administrative process. The landlord does not have to prove the tenant is in breach of the tenancy agreement. This is so called ‘no-fault eviction’.
However, in the current market rents are high and, especially in London, supply of housing is limited. A minority of landlords has abused the no fault eviction process to evict tenants who make justified complaints.
The RRB aims to protect tenants by abolishing no-fault eviction. Instead a landlord will only be able to recover possession if it can show at least one 1 of 33 grounds of possession exist. As one would expect, these include:
- where the tenant hasn’t paid the rent, or where there have been persistent serious arrears of rent;
- where the tenant is in breach of the terms of tenancy;
- anti-social behaviour, including where occupants of the property have caused nuisance or annoyance to the landlord or in the locality of the property.
Of these, only arrears of rent is a ground where the Court must give possession, and even then an actual trip to court may be required. For the others ground, when seeking an eviction order, the landlord must persuade the judge that the tenant’s behaviour has been unacceptable. This will always take more time and cost more money than the ‘non-fault’ eviction process since there is a court hearing. Meanwhile rent is probably not being paid.
The RRB includes some measures to mitigate this swing in favour of tenants. Most simply, the Court must order possession where the landlord wishes to sell the property, or where the landlord or a member of the landlord’s family intends to live in the property themselves, or where the landlord intends to redevelop.
In addition, a landlord is always able to charge an open market rent. There will be no return to the days of ‘regulated rents’ as under the old Rent Acts. Instead a landlord may fix a new rent no more than once every 12 months. To dispute the new rent, the tenant must apply to the First-tier Tribunal before the starting date of the proposed new rent. To accept the proposed rent increase, the tenant need only pay the new amount when due.
As mentioned, the relationship between landlords and tenants can quickly sour. The RRB will introduce a ‘Private Rented Sector Ombudsman’, to ‘provide fair, impartial, and binding resolution’ to tenant complaints. The cost will be recovered from landlords, who must register with the Ombudsman and pay a compulsory ‘proportionate and good value fee’ that will be a ‘relatively small amount per property’. The Ombudsman will deal with complaints about landlord behaviour, the standards of the property or failure to complete repairs. A landlord may be compelled to issue an apology, provide information, take remedial action, and/or pay compensation of up to £25,000.
A landlord that fails to comply with any decision of the Ombudsman may be expelled from the Ombudsman scheme, and so become unable lawfully to rent property. Landlords that fail to join the scheme will be liable to enforcement action ranging from a civil penalty (up to £5,000), prosecution (fine of up to £30,000) and, potentially, a banning order.
The final major reform is the introduction of a ‘Privately Rented Property Portal’ providing information to landlords about their obligations and communicating changes in requirements. For tenants, the aim is to increase transparency and the information available before they decide to rent a property and throughout the currency of a tenancy. This will allow tenants to be aware of their rights, and to assist them in escalating issues to their local council or the Ombudsman. Again, this is to be paid for by landlords by way of another ‘proportionate and good value’ fee.
At this stage we suggest landlords that wish to remain active in the private rental sector should consider three headline actions:
- identify portfolio properties that are below standard or generate large numbers of reasonable complaints. Such properties should be brought up to standard or sold;
- consider whether they wish to retain tenants who have not acted reasonably in the past;
- exercise even more care in screening tenants on the grant of new tenancies.
The new system will be implemented in two stages, but dates are currently unknown. It had been expected that new tenancies would become governed by the new system at least six months’ after the RRB becomes law, currently expected to be towards the end of April 2024. Existing tenancies were to transition to the new system later, at least twelve months after the new system takes effect for new tenancies. However, in a surprise development earlier this month, the Government announced that implementation would be indefinitely delayed, until it judges ‘sufficient progress has been made to improve the courts’.
We do not expect the RRB to be significantly changed during its passage through Parliament, but given the delays referred to above it is not impossible that it does not become law at all. If it does pass in the current session, initial implementation will now certainly be delayed until after the General Election. How many private sector landlords will exit the market, with consequent effects on availability of stock and levels of rent in a country chronically short of housing, remains to be seen.