On 16th June the UK government published the “Fairer Private Rented Sector White Paper” which it claims “will ensure millions of families benefit from living in decent, well looked-after homes as part of the biggest shake-up of the private rented sector in 30 years”.
The White Paper seeks to redress the balance between 2.3 million landlords and 4.4 million tenants in the private rented sector.
What are the key features of the White Paper?
- Measures form part of the Renters Reform Bill to be introduced later in 2022
- It will ban Section 21 ‘no-fault’ evictions and extend the Decent Homes Standard from the social rented sector to the private rented sector.
- It will end arbitrary rent review clauses, give tenants stronger powers to challenge poor practice, and unjustified rent increases and enable them to be repaid rent for non-decent homes.
- It will be illegal for landlords or agents to have general bans on renting to families with children or those in receipt of benefits.
- It will make it easier for tenants to share their homes with much-loved pets by giving all tenants the right to request a pet in their home, which the landlord must consider and cannot unreasonably refuse.
What other measures are proposed?
- A Private Renters’ Ombudsman will be created to enable disputes between private renters and landlords to be settled quickly, at low cost, and without going to court.
- A digital property portal will be introduced that will provide a single location to help landlords to understand – and comply with – their responsibilities as well as giving councils and tenants the information they need to tackle rogue operators.
- All tenants are to be moved onto a single system of periodic tenancies, meaning they can leave poor quality housing without remaining liable for the rent, or move more easily when their circumstances change. A tenancy will only end if a tenant ends it by providing two months’ notice when leaving, whereas a landlord must now provide a valid reason to regain possession, as defined in law.
- It will double notice periods for rent increases and give tenants stronger powers to challenge them if they are unjustified.
- Local Councils will be given stronger powers to tackle the worst offenders, backed by enforcement measures, and increasing fines for serious offences.
Why banning Section 21 is significant for investors
If you purchase a property investment to let it out, it is necessary to familiarise yourself with the eviction process and options, should you need to remove a tenant at some point in the future. However, the White Paper proposes significant changes to the existing rules.
So-called ‘no fault’ Section 21 evictions – that allow landlords to terminate tenancies without giving any reason - will be banned. A tenancy will only end if the tenant ends it or if the landlord has a valid ground for possession, empowering tenants to challenge poor practice and reducing costs associated with unexpected moves.
Many investing landlords argue that abolishing Section 21 will make repossession of property extremely difficult in the case of the landlord needing to move back in or sell the property. Landlords often opt to use no-fault evictions rather than Section 8 repossession orders, in situations where there are severe rent arrears or antisocial behaviour complaints because they believe the current process is too long and complicated to regain a property.
What if the property is subject to an Assured Shorthold Tenancy (AST)?
If the property you wish to buy has a tenant living there who was granted an assured shorthold tenancy under the Housing Act 1988, and no new contract was agreed upon when the fixed term expired, they will be living in the property under a statutory periodic assured shorthold tenancy (AST).
The Government is planning for all tenants to be moved onto a single system of periodic tenancies.
In many cases, statutory periodic ASTs can be brought to an end by the legal landlord serving a Section 21 notice. However, this route will no longer be available to landlords once the new law is enacted. In effect, a tenancy will only end if a renter decides to end it, whereas a landlord, on the other hand, will have to have a valid reason.
Note: As well as affecting liquidity, proposed restrictions on obtaining possession may also have an impact on investor funding requirements where a lender requires a more liquid asset. Investors should check any existing loan covenants to ensure that they will not be placed in breach if this legislation comes into force.
How 3CS can help
If you need legal help and advice on any private or commercial property matter, we are here to help. Please get in touch with your usual 3CS contact for more information.