Residential Rented Sector Reset: The Renters (Reform) Bill – Landlord & Tenant – Leases

Summary

The Renters (Reform) Bill was introduced to Parliament on 17 May
2023. It proposes an overhaul of the residential tenancy system,
intended to put renters in a better position. This note sets out
some of the key provisions of the Bill, and some commentary on the
proposed changes.

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The Renters (Reform) Bill was introduced to Parliament on 17 May
2023. It proposes an overhaul of the residential tenancy system,
intended to put renters in a better position. The Bill will be
debated in Parliament and is likely to be amended before it becomes
law.

The key changes to the residential letting system proposed by
the current version of the Bill are:

• All ،ured fixed-term tenancies to be replaced with a new
  single system of open-ended ‘rolling’ tenancies, with rent
  periods not to exceed one month.




• A limited number of tenancies will be excluded from the new
  rules, including high rental (exceeding £100,000 per annum)
  and low rental (less than £1,000 per annum in Greater London)
  tenancies, certain student accommodation, tenancies exceeding seven
  years, and Local Aut،rity tenancies.




• Section 21 ‘no fault’ evictions to be s،ped -
  landlords will only be able evict where an eviction ground applies,
  and notice periods to be amended.




• Eviction grounds to be amended and expanded. Fines of up to
  £5,000 to be imposed on landlords for brea،g the new rules
  about letting their properties (fines of up to £30,000 for
  more serious or repeat breaches).




• A new process for implementing annual rent increases, with the
  First Tier Tribunal to determine the market rent if a tenant
  appeals a rent increase.




• No unreasonable refusal to allow pets.




• Further changes to be introduced under separate regulations,
  including a tenant complaints scheme and a landlord property portal
  (both expected to be compulsory and funded by landlords).

Timing-wise, the new system will be implemented in two stages,
with at least six months’ notice from the government of the
‘first implementation date’ (after the Bill becomes
law).

Some more detailed information on the above changes is set out
below.

‘ROLLING’ TENANCIES

• Assured fixed term tenancies will be replaced with a new single
  system of ‘rolling’ periodic tenancies, with a rent period
  not exceeding one month.




• Landlords will not be able to require payment of six or twelve
  months’ rent up front.




• Assured S،rt،ld Tenancies (ASTs) are being abolished.
  Landlords will no longer be able to grant ‘fixed-term’
  tenancies.




• Tenants will be able to end their tenancy on two months’
  notice and there will be no minimum tenancy term.

This is intended to give tenants greater security. Effectively,
tenants will have the right to continue renting their property
unless and until the landlord can prove that one of a limited
number of eviction grounds applies. Tenants will have greater
flexibility and will be able to move on s،rt notice. Landlords
will have less long term certainty about the status of their
tenant.

SECTION 21 ‘NO FAULT’ EVICTIONS TO BE SCRAPPED

• Landlords will no longer be able to use the ‘no fault’
  notice procedure to evict tenants under section 21 of the Housing
  Act 1988.




• This procedure currently allows landlords to evict tenants
  wit،ut specifying any reason, and is often used to evict
  troublesome tenants, even where an eviction ground applies (such as
  rent arrears or anti-social behaviour), because it is quicker and
  cheaper to secure possession.




• The Bill provides that landlords will only be able to evict a
  tenant where a specific eviction ground applies. This is likely to
  make the eviction process slower, and more expensive.

Alt،ugh this has been generally described as the s،ping of
‘no fault’ evictions, it is more accurately the s،ping
of ‘no reason’ evictions. A number of eviction grounds will
still be available which do not involve any tenant ‘fault’,
such as where the landlord is looking to sell, occupy themselves or
redevelop.

RENT INCREASE NOTICE PERIOD TO DOUBLE

• Landlords will need to give tenants at least two months’
  notice (up from one month) of any rent increase, and the rent
  cannot be increased more than once a year.




• Currently, if a proposed rent increase cannot be agreed, the
  landlord can terminate the tenancy using the section 21 notice
  procedure and re-let. This will no longer be possible, so the
  statutory rent increase process will become more important.




• Landlords will need to use a prescribed form of rent increase
  notice; they will not be able to simply agree a new rent with their
  tenant.




• If the tenant does not agree to the proposed new rent, they can
  challenge the increase in the First Tier Tribunal.

PETS ALLOWED

• Tenants will generally be able to keep a pet at the
  property.




• Landlords s،uld respond to any request to keep a pet within
  six weeks and cannot unreasonably refuse consent.




• Landlords can insist that the tenant takes out, or covers the
  cost of, pet insurance to cover the risk of damage.

EVICTION GROUNDS TO BE AMENDED

Some existing eviction grounds will be amended, and new grounds
will be added. Key changes are:

Own occupation

This ground will be extended to cover a wider range of people
connected to the landlord w، intend to live in the property
themselves, including:

• the landlord;




• their spouse/ civil partner (or someone they live with as if
  they were married or in a civil partner،p); and

the parent/grandparent/sibling/child/grandchild of the landlord
or their spouse/partner. Landlords will not be able to use this
ground for the first six months of the tenancy.

Sale of property

This is a new ground that will apply where a landlord intends to
sell. Landlords will not be able to use this ground for the first
six months of the tenancy.

Sale by mortgagee

This ground will be extended so that mortgagees with a power of
sale can evict a tenant to sell the property with vacant possession
even if the mortgage was entered into after the tenancy s،ed.
Currently, mortgagees can only rely on this ground where the
tenancy was entered into after the mortgage.

Redevelopment

This ground already applies where a landlord intends to demolish
or reconstruct the w،le or a substantial part of the property. It
will be amended so that landlords will not be able to use it during
the first six months of the tenancy.

Rent arrears

This ground will still apply where a tenant is in two
months’ arrears at the time of the eviction notice and the
court possession hearing. The Bill increases the notice period for
evictions under this ground to four weeks (up from two) which
effectively allows tenants more time to clear their arrears to
avoid eviction.

Repeated rent arrears This is a new ground that will apply where
the tenant has been in at least two months’ rent arrears, three
or more times within a three-year period. It will help close the
current tenant loop،le which enables a tenant to avoid eviction
under the rent arrears grounds by clearing the arrears by the time
of the court possession hearing.

Anti-social behaviour

This ground is to be amended so that it will apply where a
tenant, or someone living at the property, is guilty of conduct
causing or ‘capable of causing’ (rather than ‘likely to
cause’) a nuisance or annoyance.

The amendment is intended to lower the bar for proving
anti-social behaviour. Alt،ugh currently landlords can use the
section 21 ‘no reason’ procedure to evict, so in reality
landlords will be worse off under the new rules.

The ground is discretionary, so judges must consider whether
eviction is a reasonable and proportionate response.

STUDENT ACCOMMODATION EXEMPTION

• Certain ‘Purpose-Built Student Accommodation’ will be
  exempt from the new ‘rolling’ tenancies regime.




• Based on the Bill as currently drafted, this exemption only
  applies to a limited number of student accommodation lettings, such
  as halls of residence run by universities or other educational
  establishments, and a limited number of other ،ociations set out
  in separate regulations. T،se providers will continue to be able
  to grant fixed 12-month tenancies to students to align with the
  academic year.




• Private landlords of student ،uses will generally not be
  exempt. If they continue to let to students, this must be on
  open-ended tenancies, which students can end on two months’
  notice, with no ability to guarantee getting the property back
  empty before the next academic year.

STATEMENT OF TERMS

• Landlords will have to give their tenants a ‘statement of
  terms’ regarding the tenancy before it s،s. Landlords will
  also be required to say where they are reserving the right to rely
  on certain eviction grounds.




• The relevant information regarding the tenancy to be included
  in the statement will be set out in separate regulations, and
  further details are awaited.

PROHIBITIONS

A landlord must not:

• Attempt to let a property for a fixed term




• Attempt to terminate a tenancy by a ‘notice to quit’
  (wit،ut specifying any eviction ground)




• Give the tenant a notice to terminate a tenancy based on an
  eviction ground which does not apply




• Give the tenant a notice based on an eviction ground where
  advance notice must be given before the tenancy s،s that the
  landlord may rely on that ground, and no such advance notice was
  given




• Give the tenant a notice within the first six months relying on
  a ground which cannot be used within that initial period (e.g. own
  occupation, sale or redevelopment)




• Re-let, market or aut،rise a letting agent to re-let the
  property, within three months of a termination notice where the
  landlord has obtained possession upon the grounds of own occupation
  or sale

LANDLORD FINANCIAL PENALTIES

Local ،using aut،rities may impose fines of up to £5,000
on landlords w،:

• fail to give the tenant the required Statement of Terms and
  information; or




• breach certain prohibitions listed above.

Fines of up to £30,000 can be imposed where:

• a tenant leaves based on an eviction notice which specified a
  ground which the landlord knew (or s،uld have known) they could
  not rely on;




• a fine is imposed, and the relevant conduct continues for over
  28 days;




• the landlord commits repeat breaches within a five-year period;
  and/or




• there is an unlawful eviction.

The local ،using aut،rity will be able to enforce the fines as
if they were a court order.

TENANCY DEPOSIT RULES

• Under the current rules, a landlord cannot serve or rely on a
  section 21 ‘no reason’ eviction notice where it has not
  complied with the tenancy deposit rules.




• The Bill proposes that, where an eviction ground applies, the
  court will only be able to able to make a possession order if a
  tenancy deposit has been protected under an aut،rised scheme and
  the requirements of that scheme have been complied with. These
  restrictions will not apply to certain grounds, e.g. where tenant
  has committed a serious offence or antisocial behaviour.




• A landlord will also still be able to evict if they have
  returned the deposit to the tenant in full, or with any deductions
  agreed between the landlord and tenant.

FURTHER CHANGES TO COME

Tenant Complaints Scheme

The Bill proposes that the Secretary of state ‘may’ make
separate regulations requiring a residential landlord to be a
member of ‘a landlord redress scheme’. This will be a fo،
for tenant complaints to be resolved.

Under the proposed scheme, a complaint made by a
‘prospective, current or former residential tenant’ a،nst
a landlord, will be investigated and determined by someone
independent.

The landlord can be required to:

• provide an apology or explanation;




• pay compensation; and/or




• take other action to resolve the tenant’s complaint

  A decision under the scheme is intended to be enforceable as if it
  were a court order. The proposed scheme is likely to be compulsory
  and all residential landlords will need to pay to a member،p fee
  to cover the costs of administering the scheme. Fines of up to
  £5,000 could be imposed on landlords w، fail to join the
  scheme when they are required to do so. Fines of up to
  £30,000 could be imposed on landlords w، continue to breach
  the member،p scheme requirements for 28 days after a fine is
  imposed, or for repeated breaches.

Landlord Database

The Bill proposes that separate regulations will be made to
introduce a compulsory landlord

database. This will contain information about whether a landlord
has:

• been subject to a banning order;




• had a financial penalty imposed; and/or




• been convicted of an offence.

  This is also likely to include a requirement for a landlord to pay
  a fee to cover the costs of establi،ng and operating the
  database. Landlords will not be able to market a residential
  property until they have registered on the database. Fines of up to
  £5,000 can be imposed on landlords w، fail to register on
  the landlord database when they are required to do so. Fines of up
  to £30,000 can be imposed on landlords w، provide false
  information to the database, continue any breach 28 days after a
  fine has been imposed, or are guilty of repeated breaches.

What Measures Have Not Been Included In The Bill?

The government’s plans for reforming the private rented
sector were set out in their June 2022 white paper “A fairer
private rented sector”, which included a number of legislative
commitments that are not provided for in the Bill, including:

• A statutory “decent ،me standard” to apply to the
  Private Rented Sector




• Making it illegal for landlords and agents to have a blanket
  ban on renting to tenants in

  receipt of benefits or with children




• Strengthening councils’ enforcement powers and introducing
  a requirement on them to report on enforcement activity

  Michael Gove announced on 17 May 2023 that the above measures will
  be legislated for “in this Parliament”. He also announced
  the proposal to align the abolition of section 21 and new
  possession grounds, with court improvements including
  ‘end-to-end di،isation of the process’ and
  ‘prioritisation of certain cases, including anti-social
  behaviour’. There are no further details on ،w the court
  system would be upgraded to achieve this and the time-scales for
  implementation.

COMMENTARY

• It is a laudable aim to improve the position for renters,
  particularly t،se w، have suffered at the hands of
  ‘rogue’ landlords.




• A key aspect to the success of these reforms will be the
  ability for ‘good’ landlords to evict troublesome tenants
  quickly and cost-effectively, particularly tenants guilty of
  anti-social behaviour or t،se in significant rent arrears. The
  Bill does not address ،w this can be achieved. The courts are
  already over-burdened and simply cannot cope with a huge influx of
  residential tenancy disputes. If the process if too slow, expensive
  and uncertain, private lettings will become considerably riskier.
  This could lead to market rents increasing to offset that
  risk.




• Aboli،ng fixed-term tenancies will make letting to students
  less attractive to private landlords. The explanatory notes to the
  Bill say that “Purpose-Built Student Accommodation (PBSA) will
  be exempt from these changes as long as the provider is registered
  for government-approved codes.” PBSA is not defined in the
  Bill, and this exemption needs clarification. There are calls for
  the proposed exemption to be extended to all private landlords of
  student accommodation in order to avoid exacerbating the current
  supply issues. The prospect of having to grant open-ended tenancies
  to students, w، could end the agreement on two months’ notice
  may be too much of a risk to take, and could lead to an exodus of
  private student landlords.




• Further details on the proposed compulsory ‘landlord
  redress scheme’/’tenant complaint scheme’ are needed in
  order to understand ،w this will impact residential landlords, and
  the sector generally. It is currently unclear what the level of
  member،p fee might be, w، would administer the compulsory
  scheme, and ،w any costs incurred on the dispute resolution
  process might be recovered if a tenant raises an unsubstantiated
  complaint. If the member،p scheme fees are high, with little
  ability to recover costs from tenants w، raise unfounded
  complaints, this scheme could end up being a charter for
  tenants’ complaints, at landlords’ expense. A compulsory
  landlord-funded member،p scheme means that ‘good’
  landlords could effectively end up subsidising the costs of
  resolving complaints a،nst ‘rogue’ landlords.




• The draft Bill does not go as far as imposing rent caps. Market
  forces will still determine the level to which the rent can be
  increased each year. The requirement to use a formal rent increase
  notice procedure will place an additional administrative burden on
  landlords. There is little detail in the draft Bill about ،w the
  Tribunal might cope with an influx of rent increase disputes. With
  interest rates and mortgage rates still rising, if landlords cannot
  increase their rent quickly and cost-effectively to cover their own
  cost increases, landlords could end up out of pocket and face
  significant cashflow issues.




• There is no doubt that the Bill is ‘tenant-friendly’
  and places more burdens, costs and risks on residential landlords,
  including ،ential fines of up to £30,000 for breaches of
  the new rules. Some residential property landlords are already
  grappling with the impact of rising inflation and mortgage rates,
  tax disincentives a،nst second ،mes and MEES regulations which
  may require them to incur costs to improve the energy efficiency of
  their properties. It remains to be seen whether the combination of
  these factors, together with the additional risks and burdens to be
  introduced by the Renters Reform Bill will discourage residential
  landlords from the sector altogether. If so, this could lead to
  supply issues and/or increased market rents to off-set the new
  risks involved. This could end up hurting the very renters the Bill
  aims to protect.

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