On 16 June 2022, the Department of Levelling Up, Housing and Communities (DLUHC) published its white paper, "A Fairer Private Rented Sector", giving us insight as to what we can expect to see in the Renters Reform Bill. Much of this was as expected, but with a few notable last minute additions.
The White Paper covers the abolition of section 21 notices, changes to rent review procedures, the introduction of a Decent Homes Standard, rights to keep pets, as well as proposals to improve dispute resolution. Our analysis of these proposals is below.
Abolition of section 21
It is no surprise that the White Paper confirms the Government's intention to abolish section 21; the "no-fault" / 2 month notice only basis for possession. This was first announced several years ago, but has been delayed, partially due to the pandemic. The Government has always acknowledged that the abolition of section 21 will necessitate a reform of the Schedule 2 possession grounds, in order to ensure that landlords can recover possession if they wish to sell a property, or need the property as a home for themselves or a family member. Therefore, this was never going to be a simple drafting exercise.
The White Paper states that all tenants will move onto "a single system of periodic tenancies", which tenants will be able to terminate on 2 months' notice. Only purpose-built student accommodation will be exempt, provided that the landlord is registered with one of three Government-approved Codes of Practice/Standards.
The new system will be implemented in two stages (specific timing will of course depend on when Royal Assent is granted). At least 6 months' notice will be given before the first implementation date, after which all new tenancies will be periodic. Existing tenancies will then transition to periodic on the second implementation date, which will be at least 12 months after the first. From this point, all tenancies will be protected from a section 21 notice being served.
There is some further detail on the reformed Schedule 2 grounds, with the White Paper confirming, "Landlords will only be able to evict a tenant in reasonable circumstances, which will be defined in law". There are to be new possession grounds for landlords who wish to sell their property, and for landlords who need a property for themselves or their close family members to move into. These will only be available after the first 6 months of the tenancy.
On the arrears front, there is to be a new mandatory ground for repeated cases of serious arrears, in order to tackle the problem of tenants who regularly build up arrears and then reduce these before a Court hearing, in order to avoid a mandatory possession order being made. Under this ground, eviction will be mandatory where a tenant has been in at least 2 months’ rent arrears three times within the previous 3 years, regardless of the arrears balance at hearing. Tenants will be protected from eviction if the reason for their arrears is that they are waiting for benefits to be paid.
There are to be changes also to notice periods, with the notice period for arrears cases being increased from 2 to 4 weeks. The rationale behind this is explained as giving tenants a chance to pay off arrears without losing their home. However, landlords who are already frustrated with the very substantial period of time which it takes to have a possession claim issued and heard will no doubt be frustrated by this additional delay. This disappointment will be compounded by the publication of DLUHC's response to the consultation on the introduction of a specialist housing court, also published last week and referenced in the White Paper. DLUHC conclude that the cost of introducing a new housing court would outweigh the benefits, and the issues identified (such as delays) are best tackled by reform of the existing system. This is to include the introduction of a simplified digital process and improvements in the bailiff service.
There are other changes to notice periods, such as the period for the mandatory ground for serious anti-social/criminal behaviour, which will be reduced from the current 4 week period.
The headline is that 2 months’ notice will be required where the ground for possession arises from circumstances beyond a tenant’s control, such as the landlord selling, with less notice required for rent arrears and serious tenant fault.
Rent and rent reviews
There is significant, unexpected change here, which did not form part of the working party discussions.
Contractual rent increases will no longer be permitted, so there can be no index linked or fixed uplifts. All rent increases will have to take effect by service of statutory notice in accordance with section 13 of the Housing Act 1988.
The notice period for rent increases will double, from at least 1 month to at least 2 months.
Where a tenant does not agree the new proposed rent, they will have the statutory right to have this determined by the First Tier Tribunal. The Tribunal's role, which is currently to determine market rent, will be restricted so that it can only confirm or reduce the proposed rent. In other words, the Tribunal can no longer determine a market rent higher than the proposed rent.
In cases where several months' rent is paid in advance, landlords will be required to repay upfront rent, if the tenancy ends before the end of the period which the tenant has paid for. There is also a proposal to limit the amount of rent that landlords can ask for in advance through the Renters Reform Bill. This could result in landlords being reluctant to rent to those tenants without good references or credit history, such as those moving to the UK from abroad.
Other tenant rights
Written terms of tenancy at the outset: Oral tenancies are currently allowed, but the new proposal will require landlords to provide the tenant with a written tenancy agreement setting out the obligations and rights of both parties. The aim is that this will assist in resolving disputes.
Property Portal: The new Property Portal will include basic details about landlords, the properties they let, whether a property meets basic criteria such as whether it has a valid gas safety certificate and whether it meets the Decent Homes Standard. This will allow tenants to check the credentials of their landlord as it will become mandatory for local authorities to include details of all eligible offences. This data will be made publicly available.
The Portal is also intended to provide a single ‘front door’ for landlords to understand their responsibilities, making it easier for landlords who are private individuals to access the necessary information about compliance.
Decent Homes Standard: For the first time it is proposed that the Decent Homes Standard, which was introduced in the social housing Sector, would apply to the private rented Sector in an aim to improve the quality of housing in the private sphere. 'Decent' will mean the property will need to be free from the most serious health and safety hazards and landlords will need to ensure properties do not fall into a state of disrepair.
The implementation of this will begin with a review of the Housing Health and Safety Rating System (HHSRS), which is due to conclude in Autumn 2022 and then it is believed that pilot schemes adopting the Decent Homes Standard will be run.
Pets: Tenants will have the right to request a pet in their property and landlords will not be able to unreasonably withhold consent. The balancing side of this equation is that the Tenant Fees Act 2019 would be amended to allow pet insurance as a permitted payment. This means landlords will be able to require pet insurance, so that any damage to their property is covered.
Unlawful blanket prohibitions : It will become illegal for landlords to have blanket bans on renting to families with children or those in receipt of benefits with the aim of assisting the vulnerable.
Dispute resolution: The proposals promise a powerful new Property Ombudsman to resolve disputes between landlords and tenants in a time and cost-effective way, without the need to involve the Courts. Membership of the Ombudsman Scheme will be made mandatory.
The Ombudsman will have various powers of redress including compelling landlords to issue apologies, provide information, take remedial action, reimburse rent to tenants and/or pay compensation of up to £25,000. Decisions of the Ombudsman will be binding and failures to comply with the decisions may result in landlords being subject to Banning Orders.
No lifetime deposits: The initial plan to passport deposits from property to property to address the problem of crossover deposit periods has been dropped. Instead, the plan set out is that the Tenancy Deposit Protection Working Group will monitor and review private led solutions.
Regulation/Enforcement: At present, local authorities are only mandated to record Banning Orders on the Database of Rogue Landlords and Property Agents. The proposal is that this will be replaced and all eligible offences will have to be recorded on the Property Portal, which will be publicly available.
The threshold for civil penalties to be included on the Property Portal will be lowered from the current position which is only when two or more penalties are served within 12 months.
The government has also stated it will take steps to assist local authorities pursue the worst offending landlords, by increasing their investigative powers to target illegal business activity by enabling them to require financial information, to explore strengthening the regime for serious offences and high criminality to include minimum fines, and to introduce a national framework for setting fines.
This is described as the biggest shake up of the private rented sector in 30 years, intended to reset the tenant-landlord relationship. The key change, as expected, will be the need to prove a ground for possession at Court in order to evict tenants. The frustration for landlords will be the lack of any concrete proposals to tackle the unacceptable delays which currently occur within the over-stretched and inefficient court system is disappointing. Anti-social tenants affect the lives of other tenants around them and can result in landlords losing good tenants and therefore rental income. Where landlords are forced to pursue the last resort of issuing possession proceedings, a reduced notice period will do little to help. The real delays in recovering possession begin after the notice period and the White Paper presents very little in the way of improvements to the Court system.
Beyond the eviction process, for many professional landlords (particularly those in the build-to-rent sector) there will be little change to current practices as longer term tenancies, redress schemes and pet-friendly policies are relatively standard. However, for tenants in poor quality private rented accommodation, many of the reforms will be welcomed.