The Renters (Reform) Bill 2023 – a blessing or a curse for the private rental market?

On 17 May 2023, Michael Gove – the Secretary of State for Levelling Up, Housing and Communities – introduced his long-awaited Renters (Reform) Bill to Parliament.

Its stated aim is to “bring in a better deal for renters” in order to rebalance what is oft-reported to be a rental market that is more advantageous to landlords than tenants.

It is important to note that the Bill is in its infancy and may be subject to significant amendment before it is passed. With that said, the key provisions of the Bill (in its current form) are set out below. Insofar as the eventual Act will have wider application, we deal in this article only with its application to properties in England.

The Bill abolishes assured shorthold tenancies (ASTs). Going forward, there will be a unified system under which most residential tenants (other than those to whom the assured tenancy system does not apply, such as long leaseholders) will be assured tenants.

From the perspective of a tenant, an assured tenancy is a more secure form of tenancy. It can be terminated only by:

• The tenant, by choosing to leave; or
• The landlord, on the basis of a specific statutory ground.

The abolition of ASTs also entails the abolition of section 21 of the Housing Act 1988 (the 1988 Act), which allowed landlords to recover possession on a so-called 'no-fault' basis.

All assured tenancies will be periodic, rather than for a fixed term. The period of the tenancy must either be one month or no longer than 28 days in duration.

A tenant wishing to leave a property will in most cases have to provide two months’ notice, although a shorter notice period can be agreed between the landlord and the tenant in writing. The notice must take effect at the end of a period of the tenancy. A landlord cannot require a tenant’s notice to quit to take a particular form, and any clause in a tenancy agreement purporting to specify such a form will be of no effect.

Whilst retaining flexibility for tenants is vital, the lack of anything more than two months’ certainty that a tenant will rent a property is likely to pose serious difficulties for landlords, who will be unable to plan with any certainty how long their property will be rented for.

Even large institutional landlords and Build to Rent providers may have concerns about their ability to accurately predict income from their assets.

It remains to be seen whether the proposed changes will have a negative effect on investment in currently thriving markets such as Build to Rent, or whether investors will see a potential exodus of buy to let landlords as an opportunity to professionalise the private rented sector at a faster rate than would otherwise have been possible.

Currently, where assured tenancies are concerned, a landlord wishing to recover possession must prove one or more of a limited number of statutory grounds which are contained in Schedule 2 of the 1988 Act.

A few examples of the current statutory grounds are where a tenant has breached a term of the tenancy agreement, where a mortgagee is exercising a power of sale, or where the tenant has engaged in conduct that causes or is likely to cause a nuisance or annoyance to others.

Some grounds are 'mandatory', meaning that if proven the court must make a possession order.

Other grounds are 'discretionary', meaning that even if the ground is proven, a court will only make a possession order if it is reasonable to do so in the circumstances.

Some of the statutory grounds are amended by the Bill and some new grounds are added. Theoretically, the Bill makes it easier for landlords to recover possession in certain situations, but it is likely that the use of the revised grounds will be the subject of much litigation in the early years following the passing of the Bill into law.

The new “repeated serious rent arrears” mandatory ground will apply if, over a period of three years, at least two months’ rent remains unpaid for at least a day on three separate occasions (provided that rent is payable monthly).

The existing Ground 1 – which applies where the landlord or their spouse wishes to occupy the property – has been widened to include family members such as parents, siblings, children and grandchildren. The requirement for a warning notice that this ground may be relied upon by the landlord will be removed.

There will be a new mandatory ground allowing the landlord to recover possession where it wishes to sell the property, provided that the tenancy has existed for six months at the effective date of the notice (or where a compulsory purchase order has been made).

The Bill also widens the existing discretionary “anti-social behaviour” ground to include not only behaviours likely to cause nuisance or annoyance, but also those which are capable of doing so.

While this change of language may prove useful for landlords, recovering possession under this ground will likely remain an expensive and time-consuming process and so perhaps will not be used often.

The minimum notice periods (before the landlord can commence possession proceedings) range from two weeks to two months, depending on the ground relied upon, but notably the mandatory arrears grounds will require four weeks’ notice to be given.

Currently, only two weeks’ notice is required. The purpose of this change is to provide tenants with more time to arrange payment of arrears before litigation is commenced. The effect of this is that most landlords will need to wait until their tenants are three months in arrears before they can even commence possession proceedings relying on the mandatory arrears ground.

In the case of anti-social behaviour on the part of the tenant, proceedings can be brought immediately, although there must be a minimum of 14 days between the giving of notice and the making of a possession order.

All residential landlords will have to register with a new Property Portal (which is likely to involve the payment of a registration fee). Letting a property without registering may result in fines or prosecution.

Once the Bill has been passed, the detail as to how this system will work will be fleshed out by regulations, but the effect of the Portal is likely to be that there will be a national register of tenancies.

Rent increases will be subject to more controls than is currently the case, although the default position is still that a landlord can charge a market rent (which if the Bill causes an exodus of landlords from the market, as it is speculated it will, may well increase). Provisions in tenancy agreements purporting to effect rent increases at set intervals will be unenforceable.

Any rent increase will have to be effected using the section 13 notice procedure, with two months’ notice (as opposed to one month’s notice, as is currently the case) needing to be given.

Where a rent increase is disputed, there is now greater scope for the matter to require proceedings before the tribunal, where the scope for costs recovery will be very limited.

The tribunal will no longer be able to fix the rent at a level that is higher than the landlord proposed.

One can see the logic for this: a tenant will not be dissuaded from asking the tribunal to review rent increases because the rent won’t get any higher but might go down.

However, the practical effect of this may be that landlords will seek higher rents than they can actually justify, building in an expectation that the tribunal will reduce the proposed rent, resulting in many more tribunal claims than is currently the case or a tenant who misses the deadline for applying to the tribunal having to pay a rent that is above market rent.

It is hard to see how the already overworked tribunal system will be able to cope with this unless there is additional funding.

The Bill introduces a new duty on landlords to provide a statement of terms to the tenant on or before the first day of the tenancy.

In the case of existing tenancies, the transitional provisions do not require an updated statement of terms to be issued where the tenancy is wholly or partly in writing.

However, the Secretary of State may require landlords to provide tenants with information in writing about the changes made by the Act (once enacted).

Of particular interest to many tenants will be the new right for tenants to request permission to keep a pet in the property.

Landlords will be limited as to the circumstances in which consent may be refused and in most cases will find that they have to consent where appropriate insurance cover can be arranged.

Where a section 21 notice was issued before the extended application date (a date to be appointed by the Secretary of State) the tenancy remains an AST and the notice remains valid until such time as the proceedings conclude (or become time-barred).

Rent increases in relation to existing tenancies which have been agreed and have become binding on the tenant before the extended application date are unaffected by the provisions of the Bill.

Where a court order for possession was made in relation to a fixed-term tenancy which had expired, that court order remains applicable to the tenancy despite its conversion into a periodic tenancy on the extended application date by virtue of the provisions of the Bill.

The Bill makes no special allowances for student lets in the private rented sector. If it remains as drafted, the Bill will have the effect of providing all students renting from private landlords the same rights as other tenants. It is debateable whether this is desirable in a market that is traditionally dictated by the length of the academic year.

The Bill as drafted would permit a first year student to rent a property from a specialist student housing provider and remain living in that property for many years beyond the end of their education, subject to none of the grounds for possession becoming applicable and being pursued by the landlord.

If the Bill remains as drafted, it is difficult to see how specialist private rented sector student accommodation providers will be able to continue to exist without drastic changes to their business models.

Fundamentally, the Bill proposes to significantly increase the level of regulation in the private rented sector and to remove much of the freedom that landlords and tenants currently enjoy to negotiate the terms of a tenancy.

While the stated (and laudable) aim is that the Government wants to better protect tenants, there are fears that at least in the short term it will result in a further contraction of the private rented sector, making properties to rent scarcer and increasing the market rent for those that remain.

Similar intervention into the private rented sector has already taken place in Scotland, with early indications being that the market is suffering and that before any long term benefits become apparent, there will be pain for landlords and tenants as the new rules bed in.