This week the BBC reported that the Government is introducing legislation, named the Renters Reform Bill, which will fundamentally rebalance the law on residential landlord and tenant in several ways.
While this may at first glance be welcome news to tenants, there are concerns that the unintended consequences of these reforms may damage tenants and those renting houses in the long run.
What is the Renters Reform Bill?
The main provisions envisaged in the Renters Reform Bill are:
- an end to Section 21, the ‘no-fault’ grounds to evict a tenant whose tenancy has expired on two months’ notice;
- a legal provision requiring landlords not to unreasonably withhold consent to keep pets;
- the expansion of Rent Repayment Orders to cover housing disrepair or failure to adopt the Decent Homes Standard that is the requirement in the social rented sector; and
- it will no longer be legal to ban tenants on benefits from applying for tenancy.
The stated purpose of these reforms is to ‘level up’ the private rented sector by holding private landlords to a higher standard.
An end to Section 21
This is clearly the most significant of the proposed reforms.
A Section 21 notice currently allows for a landlord of property on an Assured Shorthold Tenancy to recover possession for any reason or no reason after the expiry of the fixed term of the tenancy upon giving two months’ notice.
While this may seem to give very low security of tenure to tenants over their homes, in practice, landlords are reluctant to evict tenants who are paying their rent and observing the terms of their tenancy. It is commercially a poor decision to evict a fully paid-up tenant, as the landlord will immediately have a void period (and thus a financial loss) to attend to.
However, where there are breaches of the tenancy agreement, or where needs require that the landlord is able to sell with vacant possession, landlords can rely upon Section 21 to mitigate their risk.
The benefits of Section 21
In some ways, therefore, the existence of the Section 21 notice makes the current private rental system workable.
It gives tenants some security of tenure for the fixed term of their tenancy, and allows sufficient notice to be given to cover circumstances in which their occupation of the property is not workable for no fault of their own. It also gives landlords the regulatory security needed to take the risk of renting to persons they may only have limited information about.
The implications of removing Section 21
Thus, without Section 21, all Assured Shorthold tenancies will by default be Assured tenancies. These have indefinite security of tenure so long as they are not breached or the grounds in the Housing Act 1988 are not made out.
A landlord will only be able to evict where there is a breach of tenancy, and even then, the only mandatory grounds (i.e. where the Court must make an order for possession if the ground is proven, as opposed to the discretionary grounds where the Court must also consider that eviction is reasonable and proportionate) that routinely are engaged are where there are over two months’ rent arrears.
A landlord faced with a tenant who, for example, is causing deliberate damage to the property or carrying out anti-social behaviour within the property will, without Section 21 notices being an option, have to rely upon discretionary grounds for possession. This could mean that the breach continues to subsist, causing financial losses to the landlord for significant periods of time.
And where discretionary grounds are relied upon, Courts often insist on a full trial in order to interrogate the fairness and scale of evicting the tenant in all the circumstances, thus racking up unnecessary legal costs for all parties.
Situation for social vs private landlords
These factors are less of a problem to social landlords as social landlords also have statutory powers to deal with anti-social behaviour in the form of injunctions, closure orders, demotion orders, and other remedies. Private landlords do not have access to these powers.
Many Housing Associations use Assured Shorthold Tenancies – and thus the prospect of a Section 21 notice – as a form of ‘probationary period’ for new tenants. They then upgrade the tenant to a full Assured Tenancy if after the first 12 months they have shown a track record of full and timely payment of rent, with no complaints or evidence of anti-social behaviour.
This means that the removal of section 21 notices may also affect the abilities of social landlords to fulfil responsibilities to their neighbourhood to curb any antisocial behaviour from tenants.
Landlords will therefore have to take steps to mitigate this additional risk. This may take the form of requiring payment of rent for 6 or 12 months up front, requiring additional or enhanced vetting of tenants at the outset of the tenancy, charging higher rent to offset the risk of losses of and occasioned by non-rent breaches of tenancy, or similar.
This may paradoxically make rented accommodation more difficult to access for poorer or vulnerable tenants.
Consent not to be unreasonably withheld for pets
During the COVID-19 lockdown, pet ownership increased as more people tried to fend off social isolation. However, it is often a term of tenancy agreements that pets are not allowed in the renatl property.
A landlord being required not to unreasonably withhold consent to a request to keep a pet may be comparatively uncontroversial, though.
There is a significant body of case law on ‘unreasonably withholding consent’, as both commercial and residential tenants are subject to similar provisions against assignment of their Lease, alterations to their premises, and subletting.
As such, where landlords can show that there is a valid reason why it would be unreasonable to allow pets to be kept in their property or that it would put the landlord at risk of being in breach of legal obligations of their own (for instance, insurance or terms of a superior Lease) they may still be able to do this.
The Decent Homes Standard
The social rented sector is currently subject over and above the standard obligations under section 11 of the Landlord & Tenant Act 1985 to additional requirements known as the Housing Health and Safety Ratings System.
This, along with the Decent Homes Standard, provided a framework for the systematic upgrade of social housing to a certain minimum standard. However, it was not particularly easy for tenants in social housing to enforce these standards.
Under the proposals, the system will now apply to private landlords too. Landlords who fail to observe these standards in their rented homes can be subject to Rent Repayment Orders (RROs), much in the same way that a Rent Repayment Order can be used to enforce HMO licencing.
Currently, RROs are made following claims in the Property Chamber of a First Tier Tribunal where a landlord is in breach of certain regulatory obligations relating to licencing of HMOs or gas safety. This will likely provide another regulatory barrier to landlords letting out property.
Effects on Homes of Multiple Occupancy
HMO licencing is already a barrier to entry purely by dint of the costs local authorities charge to landlords for granting or deciding such licences, and also their inefficiencies can delay the making available of housing stock onto the market.
If each property must also be certified by a local authority as being ‘Decent Homes compliant’, this may add yet more delay before rent can be realised from a property, and potentially lead to issues when a new owner purchases a freehold property with a tenant in place. There will no doubt be delays (and costs) as they may be required to have the property certified as compliant in the new name.
Once again, this is arguably an unnecessary measure since tenants of housing in poor condition or in disrepair already have redress under either section 11 of the Landlord & Tenant Act 1985, section 4 of the Defective Premises Act 1972, and/or under Environmental Health legislation. Local authorities can also of their own volition take action against landlords whose rented properties are in poor condition.
The end of ‘No DSS’ for landlords
Many private landlords generally adopt a policy that tenants reliant on Housing Benefit or Universal Credit should not be rented to.
The moral correctness of this position is out of the scope of this post, but the rationale the landlords adopt is that claimants of state benefits that they rely on to pay the rent are a higher risk of falling into rent arrears. This is because Housing Benefit / Universal Credit pays four weeks in arrears and can be cut off or suspended for noncompliance with jobseekers’ agreements or failure to provide necessary information, and they are also at a higher risk of making other breaches of the tenancy agreement. Therefore it makes sense not to rent to those tenants.
As to a prohibition on a policy against renting to tenants on benefits, while there may be a moral case to be made here, in practice it will be difficult to enforce.
It will be hard for a tenant to provide evidence that their prospective landlord has turned them down because of their status as a benefit claimant. The landlord may instead word their refusal using terms such as “failed referencing” or “vetting revealed a poor payment history” or other, legitimate commercial reasons not to rent to such a person.
Therefore the efficacy of this provision in ensuring access to housing for persons reliant on state benefits will be likely limited.
There are also the unintended consequences of this – if a landlord has his discretion as to who he rents to limited in this manner, providing another regulatory barrier or requirement to justify actions in the eventuality of a claim under these provisions, it is another disincentive to rent out property at all.
Renters Reform Bill: Our Conclusions
As we have seen, while the intentions of the Renters Reform Bill seem to be intended to make things fairer for tenants, elements of the proposed Bill do not appear to be well thought out and are likely to generate unintended consequences that paradoxically will make life harder for tenants and vulnerable tenants in particular.
A landlord who has to have the local authority certify his property (for a cost and for a delay), who cannot evict tenants other than for rent arrears without lengthy and costly litigation, and who must justify their choice of tenant, may well simply increase their rent to cover the risk, at the risk of making the property less affordable for tenants on low incomes.
Other landlords faced with this may just stop renting out property altogether.
Worst of all, a particularly unscrupulous landlord may consider, faced with stiffer sanctions for regulatory breaches, that they would “rather be hanged for a sheep as for a lamb” and unlawfully evict their tenants, especially if they cannot rely on a Section 21 notice to evict them through the Courts.
Needless to say, at present, landlords would be best advised to keep updated with this Bill as it develops and consider carefully at this stage how they will respond to it.