Hello Readers,
This one is the source of a lot of controversy amongst us and it’s finally here in full for all to read!
Shelter and other organisations are being blamed for the demonisation of landlords in recent years which seems to have created a favourable political atmosphere for the government to brandish pro-renter legislation against private landlords operating within the buy to let sector.
So is the Renters Reform Bill the government’s attempt at trying to improve standards within the private rental sector, or drive out private landlords who are trying to survive / make a living?
But what does the bill actually include, what changes can we expect and what is the process from here?
I’ve been spending time digesting and reading the bill in detail. If you fancy reading the bill in full, you can download the 89 page PDF document here, but I will summarise the key points below in what is the biggest shake up of the private rental sector since Margaret Thatcher.
- No fault evictions under section 21 to be abolished with landlords not being able to evict tenants in the first six months.
- Assured shorthold tenancies to be removed and replaced with assured tenancies as the norm; there will be a maximum tenancy period of one month.
- Landlords will be given avenues to recover vacant possession of their properties in limited circumstances. This is when selling, moving in a close family member or where tenants do not wilfully pay rent.
- Increased powers to evict anti-social tenants by broadening the disruptive and harmful activities that can lead to an eviction and making it quicker in instances of anti-social behaviour.
- Double notice periods for statutory rent increases from one to two months, with a rent increase allowed only once per year.
- Tenants given more rights to keep pets with a legal right to request a pet that the landlord must consider and cannot reasonably refuse (unless having a pet would be a breach of a leasehold covenant). Any tenants granted permission to have a pet will be required to take out pet insurance (to cover the landlord for any damage caused by the pet), however there is no comment about HMOs.
- Introduction of a landlord ombudsman.
- Property portal for landlords and properties.
- Applying the ‘decent home standard’ to the private rental sector.
- Bans on renting to children or those on benefits to be outlawed.
- Emphasis on digitisation of court proceedings.
You will see how this raft of new measures is significant and wide reaching. It basically re-writes the handbook for landlords and when the bill has passed, I will be writing a detailed eBook on the changes.
There are three key areas that I want to address in a little more detail as they are significant changes that landlords will need to know in detail.
Periodic Tenancies and Student Lets
This is a significant area that has caused much friction with landlords as there is no exception for student lets within the bill.
The BBC comments that purpose built student accommodation will exempt, but when it comes to the private rental sector – student HMOs for example – the bill jeopardises the safety of the model, discouraging landlords and causing them to consider other sectors such as services accommodation or professional lets.
Interestingly I have seen this news article which hints at an exemption for ALL students, although this is unclear whether it relates to all student tenancies or just purpose built student accommodation.
“But the Levelling Up Secretary, Mr Gove, is now considering an amendment to the bill, the Telegraph understands. The amendment would allow landlords to guarantee vacant possession for the next cohort of students and stick to their yearly let business model.”
This would be added to the bill as a specific clause for privately let student property.
Chris Norris, of The National Residential Landlords Association, a trade body, said:
“Our recommendation is that the Government add a possession ground that, subject to the tenancy qualifying as a student tenancy, could be used by landlords to bring a periodic tenancy to an end in line with a point in the academic year.
They’d need to define student tenancy clearly and require adequate notice, but it would be relatively simple and not undermine the wider objectives of the bill.”
The student let sector is already under strain. Much like the rest of the private rental sector, it is facing shortages in supply.”
The issue comes with the one-month minimum tenancy and two month notice from the tenant, as the student let model is based on accommodation being available at the start of the year and let throughout. You can imagine that if, in a six-bedroom HMO, half the students leave part way into the academic year it could be nearly impossible to re-let those rooms!
The NRLA have condemned this and said the new proposed system would cause ‘chaos’. Let’s see what happens as the bill passes through!
A New Ombudsman
The next significant change is the introduction of a new, mandatory ombudsman for landlords. Also known as a redress scheme, the ombudsman may require members found to be in the wrong to:
- Provide an apology or explanation
- Pay compensation
- Conduct a specific performance
In addition, the decision under a redress scheme may be made enforceable as if it were a court order my question is whether landlords will lose the right to a fair trial. Interestingly, the bill specifically mentions this:
Point 28 under ‘Landlord Redress Schemes’…
Decision under a landlord redress scheme may be made enforceable as if it were a court order.
There are a lot of unanswered questions here, such as whether individual landlords will still need to sign up if they use a managing agent.
Introduction Of A Property Portal
This is an interesting one and something that has been bounced around for a while, with this bill pretty much being a rehash of existing ideas.
This digital property portal will list landlords’ obligations and “help tenants make better decisions when signing a new tenancy agreement”. The system is likely to be one where landlords will need to self-declare that their property is decent, with a penalty of up to £30k where false information is provided.
This database is likely to include landlord details, with no-one being able to market or rent a property unless registered and any banning orders will be added to the register.
Another big development and it won’t surprise me if there will be an annual fee to be on the register!
What Will The Impact Be?
This bill will likely come into law over the next 18-24 months and the NRLA, amongst other organisations, has outright condemned it in the view that it could cause an increase of landlords leaving the market.
It seems to me that this is a continuation of a series of negative legislation which has reduced the profitability and increased the workload for private landlords. It makes me question why the government seems to want to change the private rented sector so that it favours larger corporate landlords against the accidental landlord with one or two buy to let properties.
I personally think the outcome of this will be a spectacular own goal for the government and will work against their stated aim of supporting renters. Instead of having better standards and security of tenure tenants will have to deal with a limited supply of rental properties and all the associated negative impacts of that. Rents will increase, tenants will have limited choice of property,
Landlords who choose to stay around however, will reap the benefits of increased demand and reduced supply. The only remaining concern is in relation to rent caps and whether these may be introduced.
So… what’s your strategy? Be bold and invest, hold stock, or cash it all in and call it a day, or something else? I would be interested to hear your thoughts and strategies.
Investors I speak with are divided, with some being willing to adapt and others looking for easier returns elsewhere.
All I can say is that the landscape in five years time will look much different!
Hasan
Medway Property News 