The Effects of the Renters Reform Bill on Landlords

Renters Reform BillA summary of the key provisions in the Renters Reform Bill is as follows:

  • Section 21 notices will be abolished as will the concept of Assured Shorthold Tenancies
  • All tenancies will become periodic
  • Tenants can serve two months notice to leave at any time
  • Rent payments in advance are abolished. Rent can only be paid one month in advance in the future
  • Fixed rent increases under tenancies are abolished.
  • Rent can only be increased once a year through the Section 13 notice / Tribunal procedure
  • The rent agreed cannot be higher than the advertised property price
  • The existing Section 8 procedure for pursuing rent arrears is loosened
  • Landlords’ rights to secure possession of their properties on non-fault grounds is much reduced – essentially sale, re-occupying as a home (either by themselves or certain family members) or redevelopment
  • Tenants have the right to request a pet and those requests cannot be unreasonably refused
  • Landlords will be prohibited from discriminating against tenants who receive benefits or have children residing with them
  • Awaab’s law (ie the obligation to both investigate and repair damp and mould within a short time) will become a legal requirement under the Bill
  • The Decent Homes Standard will also become a legal requirement
  • Landlords will be required to sign up to a Landlord Redress Scheme as well as a Private Rented Sector database

How will the changes affect tenants and landlords?

Tenants

Put simply they have the benefit of open ended tenancies, limited rent increases and can leave on two months notice

Landlords

  1. Subject to the few exceptions on sale, landlord occupation and redevelopment tenants have the right to remain in a property (subject to paying rent and complying with other terms) for as long as they wish. The importance of good pre tenancy checks on prospective tenants is now a must for landlords
  2. Rent arrears – these are likely to increase under the new regime. The existing procedure to commence the rent arrears possession process is 2 months arrears and the notice period is 2 weeks. Under the Bill, the new rule will be at least 3 months arrears and 4 weeks notice. A landlord will therefore need to have accrued at least 4 months arrears before he can actually issue possession proceedings based on rent arrears
  3. “Troublesome tenants” – how do you deal with someone who is difficult to deal with or causing a nuisance in a block? Under the current regime the solution was to serve a Section 21 Notice but that option now disappears. For minor breaches of a tenancy a judge has a discretion whether to make a possession order. Landlords will therefore be faced with a lengthy court process for a judge to possibly grant a suspended order and for the tenant to still be in the property at the end of the process.  For now, the practical advice to landlords is to use the existing Section 21 procedure to remove these troublesome tenants while they still can. In the future, discussions with the relevant tenant and a financial inducement to leave may be the best practical option to deal with these situations.
  4. Rent increases – fixed rent increases in tenancies will be banned so the only way to increase the rent is by serving a Section 13 Notice and seeking a rent increase in the First-tier Tribunal. This procedure has always existed but it has never really been used by landlords. It was simpler to serve a Section 21 Notice and issue a new Assured Shorthold Tenancy with a new rent. The new process will only allow one increase per year and the increase will take effect from the date of the decision not the date of the notice. In effect this is rent control via the back door – and will considerably limit a landlord’s powers to increase rent whilst a tenant is in occupation.
  5. Increased costs – landlords will have to sign up to the Landlord’s Redress Scheme, be part of a Private Rental Sector database and comply with both the Decent Homes standard and Awaab’s law. Once you add in the upcoming changes in the EPC regime and factor in increased obligations on letting agents to formally identify all their landlords and tenants, landlords are faced with a range of new direct and indirect costs from which they cannot escape.
  6. Grounds for possession – if a landlord wants his property back he will (in broad terms) have to serve a notice saying that he wants to sell it, live in it or redevelop it; and then provide evidence of that intention. Some landlords may be tempted to use the sale ground as a way to remove a difficult tenant and then re-let the property at a future date. However there will be a rule which prevents a landlord from marketing that property for 12 months from the date when the notice expired. Breach of this provision may lead to a rent repayment order or prosecution for the landlord concerned.
  7. Penalties and fines for non-compliance – these are not minor. They will be up to £7,000 for a first time offence rising to £40,000 for serious and repeated offences
  8. Increased powers of local authorities – since the Housing and Planning Act 2016, civil penalties have become a staple income stream for local authorities. We expect this trend to continue under the new regime. Clearly much depends on particular local authorities and the enforcement officers involved but these are strict liability offences so the enforcement officers effectively act as prosecutor and judge. The risk is that landlords will be penalised for minor breaches of the various rules with little that they can do in response.

The Renters Reform Bill is a major change in the law of residential tenancies and the pendulum has swung firmly in favour of tenants.

It is expected that the Royal Assent will be given in the coming weeks. However the formal commencement date will not be until late 2025 or early 2026. Please be aware there are no transitional provisions – on the commencement date all existing tenancies will convert to the new regime.