A fairer private rented sector— implications for landlords and tenants

Landlords

Landlords will most likely have already heard of the abolition of section 21 ‘no fault’ evictions, and the suggestion is to move to a ’single system of periodic tenancies’. Landlords will only be able to evict a tenant in ’reasonable circumstances‘, albeit the scope of such circumstances is yet to be made clear.

Mandatory grounds for possession are expected to remain, and landlords will be reassured that a proposed new mandatory ground will allow them to evict tenants who fall into serious arrears repeatedly. This may help tackle the problem of some tenants being in persistent arrears who under the current system can avoid eviction by making payments just before court hearings.

Landlords will also be concerned that because tenants will no longer be committed to the tenancy for a minimum period, they will no longer be able to accurately predict what income the property will generate. For those who bought properties solely as an investment they may feel that it is better to leave the market. Landlords will be relieved to know that requiring possession so that the property can be sold will be a lawful ground to evict. However, there is little detail in the paper as to how this will be operated.

Tenants

Should no fault evictions be outlawed it is certainly going to reassure tenants that they cannot be evicted at their landlord’s whim or in retaliation for raising legitimate concerns. Although retaliatory evictions are currently outlawed, tenants often lack the knowledge or means to seek redress at the point they are served with a section 21 notice. The elimination of fixed term tenancies however is no less significant. Standard tenancies often contain break clauses that do not provide the tenant with much flexibility.

Many tenants will not be in a good bargaining position to negotiate more favourable terms. These two changes alone may have the biggest impact in terms of redressing the perceived imbalance of power between landlords and tenants. Tenants who need to move out will have the option to do so and those who want to stay will be in a much better position to make their property a secure home.

Landlords

The reforms also seek to create a benchmark for the standard of rental properties, with the introduction of a binding Decent Homes Standard (DHS). The obligation to update old housing units and fit them with new kitchens, bathrooms and other essential utilities has been a requirement for social housing landlords for a number of years.

Landlords will need to ensure that their properties are meeting this standard, or be forced to undertake repairs or works to their properties to bring them up to scratch. Some homes will require significant works to reach the compliant standard. That could pose an issue for private landlords with only one property or a small portfolio. This is coming on top of energy efficiency standards that will become more onerous in the next few years.

Tenants

On paper the Decent Homes Standard sounds like good news for tenants, and should prove to be in the longer term. In the short term, landlords with small portfolios or only one property may not be able to decant existing tenants into alternative accommodation. Following the works some landlords may feel that an increase in rent is necessary or justified to bring it in line with the market.

For those dependent on benefits this will be a particular issue as Local Housing Allowance rates are capped. If the LHA rate does not rise in line with increased rents, many tenants may find themselves struggling or in arrears. Some landlords may choose to simply evict tenants in advance of major works whilst no fault evictions remain.   

Other key changes for landlords

Rent review clauses are also to be made unenforceable, so landlords will instead need to rely upon the existing statutory method of increasing rent, which allows annual increases.  Landlords and their agents will need to amend their stock tenancy agreements to reflect these and other changes once the reforms come into place.

Landlords will no longer be able to refuse a tenant’s request to have a pet, unless they have a reasonable reason for not allowing pets. It is currently unclear what might amount to a reasonable reason for refusal, but it is likely that the range of possibly reasonable reasons will be narrow, especially as landlords will now be entitled to make it a condition of consent that tenants take out their own pet insurance to cover damage that might be caused by the pet.

Many landlords will be concerned at the prospect of being forced to allow pets to be kept in properties and then the added administrative burden of claiming against insurance in the event damage is caused.  

Other key changes for tenants

There will be a total ban on ‘no DSS’ discrimination and landlords’ discretion to decline tenants with children. There will be an increase in the investigative powers of local authorities and a strengthening of the fining regime for serious offences by landlords. The notice period when possession is sought for rent arrears will be increased to four weeks. The requirement for two months’ of rental arrears before such a notice can be served relying on the mandatory rent arrears ground will remain for the time being.

Also on the horizon is a new Private Renters’ Ombudsman to settle landlord and tenant disputes informally and, hopefully, more swiftly than proceedings at court. The ombudsman will be empowered to compel landlords to issue an apology, provide information, take remedial action, and/or pay compensation of up to £25,000.

The introduction of an ombudsman may reduce the pressure on the over-burdened courts but the transition itself is likely to cause further delays and confusion unless appropriate resources are in place to support the changes. The Government is currently in a state of great turmoil and these proposals may be amended or discarded by the new secretary of state. However, if adequate resources are committed to the ombudsman it could help parties resolve disputes quickly and at a lower cost.

With significant developments in the private rented sector and more regulations for landlords to comply with, there may be an increase in no-fault evictions over the coming months as some private landlords scramble to come out of the market and sell their properties. This will place further pressure on local authorities and social housing waiting lists and may lead to further increases in rents.

There are also some notable omissions from the announcement. Namely the timetable for when the bill will be laid before Parliament and details on the extra funding Local Authorities will need to give their enhanced investigatory and enforcement powers teeth.

Another subject on which the white paper is silent is Legal Aid. Additional rights for tenants will be of limited benefit without the means for tenants to be properly advised of their rights and to enforce them. It remains to be seen whether the proposed Ombudsman for the private rented sector is capable of dealing swiftly and judiciously with the types of matters and the profile of tenants that are currently ineligible for Legal Aid.

Our specialist litigation teams deal with the avoidance and resolution of disputes involving residential and mixed-use property.