The Government's next steps in the reform of the private rental sector, and the end of the assured shorthold tenancy

Overview

The Government's 2017 white paper "Fixing our broken housing market" contained a number of proposals for improving the private rental sector ("PRS") for renters.  In the 6 weeks since the Queen's Speech in May this year, there have been indications that some of these ideas will be taken forwards, including: changes in the way that "contractual controls" are registered at HM Land Registry, the introduction of minimum standards for housing in the PRS, and the abolition of both the section 21 method of obtaining vacant possession and the assured shorthold tenancy.

Registration of contractual controls

In the 2017 White Paper, the Government floated the idea of improving the transparency of contractual arrangements used to control land.  This suggestion came from the idea that there is a problem whereby because option agreements, pre-emption agreements and restrictive covenants are not recorded in a way that is transparent to the public, local communities are unable to know who stands to fully benefit from a planning permission.  The Government also felt that these rights could inhibit competition in the development sector because smaller developers might find it harder to acquire land, compared to larger developers which might buy land or take an option over land but then leave it to sit in a ‘land bank’ instead of swiftly developing it out.  This led to a public consultation in 2020, Transparency and competition: a call for evidence on data on land control.

Real estate developers and investors who have followed this debate will be interested to read Part 9 of the Levelling Up and Regeneration Bill 2022.  This paves the way for a further set of regulations to be published which will require entities or individuals to disclose to HM Land Registry:

  • their ownership of land, or rights over land, or their ability to control or influence an owner of land or rights over land in the exercise of that ownership or right; and

  • details about transactions which create, alter, extinguish, evidence, or transfer an interest in land, or confer, amend, assign, terminate or otherwise modify rights concerning land. The information required will include details about: 
    • the parties to a transaction and the persons on whose behalf the parties to a transaction were acting, such as beneficial owners under a trust;
    • the terms of a transaction and copies of transactional documents;
    • anyone providing professional services in relation to a transaction; and
    • the source of any money paid or other consideration given in connection with a transaction; and

We will need to wait and see exactly how the regulations are framed, but it is expected that the land registration rules will be amended so HM L and Registry will gather the information it needs in order to establish a new contractual controls dataset, and that the use of notices and restrictions on title would only be available to applicants which had complied with the new disclosure requirements.

The new housing white paper "A fairer private rented sector"

The new white paper sets out a number of changes that the Government plans to implement in order to reform the PRS, including:

  • Quality housing - requiring PRS properties to meet the Decent Homes Standard. This is a measure of housing currently used in the public housing sector to ascertain that a dwelling is in a reasonable state of repair, has reasonably modern facilities and services, and provides a reasonable degree of thermal comfort to residents.  The Standard is being reviewed and updated at present.

  • Control of rent increases - only allowing rent increases once per year and improving tenants’ ability to challenge excessive rent increases through the First Tier Tribunal.

  • Online information and enforcement- introducing a new online property portal to bring together information for landlords about their statutory responsibilities, data for tenants about their landlord’s compliance, and a source for information to assist local councils in identifying non-compliant landlords. This could also link up with each local authority's database of Rogue Landlords, subject to the views of the Information Commissioner’s Office.

  • Accessibility of the PRS - preventing landlords or agents imposing a blanket ban on renting to families with children or those in receipt of benefits and possibly to other marginalised groups, such as prison leavers. Tenants will also have the right to request permission to keep a pet in their property, which the landlord must consider and cannot unreasonably refuse, and to that end the Government will amend the Tenant Fees Act 2019 so that landlords can require their tenants to buy pet insurance.

  • Deposit alternatives – the Government is looking into whether it is possible to develop an alternative to a tenancy deposit, with the goal of helping tenants who struggle to raise a second deposit when they are moving house, and to make it easier for tenants to save towards property ownership. This is likely to be an insurance or loan product.

  • Abolishing section 21 of the Housing Act 1988 and the assured shorthold tenancy– this is the most significant aspect of the Bill for both landlords and tenants. As set out in the Government's response to its consultation ’A New Deal for Renting’ on removing Section 21 of the Housing Act 1988 and improving Section 8 eviction grounds, the main goal of these changes is to provide tenants with increased security of tenure. This is a huge shift in the current structure of the PRS and will involve a range of consequential changes such as:

    • Abolishing the current short-term tenancy models (assured tenancies and assured shorthold tenancies) and replacing them with a new mandatory form of periodic tenancy. Under these new tenancies, a tenant who wants to leave a property must give two months’ notice whereas a landlord who wants to obtain vacant possession can only do so if it can establish in court a ground under section 8 of the Housing Act 1988.  Purpose-built student accommodation will be exempted from this new regime, and instead tenants will continue to be protected by the Protection from Eviction Act 1977, so long as the provider is registered for a government-approved code.  The Government plans to implement the new system in 2 stages; they will give 6 months' notice of the first implementation date, after which all new tenancies will be subject to the new regime, then 12 months later there will be a second implementation date when all pre-existing tenancies will become subject to the new rules.

    • Reforming the existing grounds of possession under section 8 of the Housing Act 1988 (as set out in full in the annex at the end of this briefing) to introduce:
      • a new ground for landlords who wish to sell their property and another to allow landlords and their close family members to move into a rental property.  Neither of these grounds will be available to a landlord in the first six months of a tenancy.  The landlord will be prohibited from marketing and reletting a property for 3 months following the use of the moving and selling grounds.
      • a new mandatory ground for repossession where the tenant has been in at least two months’ rent arrears three times within the previous three years, regardless of the arrears balance at hearing. This will not apply where the reason for the arrears is due to problems in the timing of welfare payments, but landlords will be able to request that third party deductions are made from a tenant's universal credit payments.
      • shorter notice periods for the existing mandatory eviction ground in cases of criminal behaviour or serious antisocial behaviour.
      • additional specific, tightly-defined grounds for possession in certain sectors such as social housing, supported housing, homeless shelters, student accommodation, agricultural dwellings and religious properties.

    • Reforming the way in which regulatory matters such as compliance with the tenancy deposit regime and gas safety are enforced, as these are currently linked to the availability of the section 21 procedure. The Government has indicated in its consultation outcome document "A new deal for renting: Government response" also dated 16 June 2022, that only deposit protection will have to be demonstrated when making a claim for possession.  The other regulatory requirements are likely to be enforced by local authorities via the new property portal.

  • Dispute resolution - The Government has stepped away from its suggestion of the implementation of a specialist housing court (see its response to ‘Considering the case for a Housing Court’) and instead plans to rely on the introduction of a new ombudsman to take on tenant complaints, and court reforms such as improving the efficiency of county court enforcement officers, digitising a range of court and tribunal processes, and investigating the feasibility of streamlining property cases in the First Tier Tribunal to prioritise the more urgent cases such as those involving antisocial behaviour. The Government is also running a rental mediation pilot, to see if mediation could help avoid court cases arising. 

Conclusion

Many of the changes that the Government suggests will have a major impact on all those operating in the PRS:

For tenants in this sector, the new proposals are welcome.  They will increase tenant security and reduce the likelihood of them being treated unfairly by a landlord.  However, according to many tenant organisations, the main outstanding concern for tenants is that starting rents in the PRS are rising sharply at the moment, and these proposals do nothing to constrain this upwards movement.

For PRS developers, when the proposals to require public scrutiny of their options and pre-emption agreements were initially proposed, some commentators voiced the view that the disclosure of these deals would benefit competitors more than anyone in the local community.  Broadly, however, this measure is likely to be accepted as part of the overall impetus to increase transparency in the sector. 

For investors and landlords in the PRS, the new periodic tenancy regime is likely to cause alarm as it will mean that a landlord will always have to go to court in order to obtain vacant possession of a residential unit, where relations between landlord and tenant have broken down.  It is already comparatively easy for tenants to delay eviction through the section 8 process. Despite the introduction of new grounds for possession, the section 8 process is likely to remain potentially slow, costly and uncertain.  Landlords may well therefore take pre-emptive measures to terminate tenancies which they anticipate may be problematic when the new regime bites.  They may also want to reconsider their lettings strategies and price points going forwards, with a view to selecting tenants who pose the least risk of breaching their leases.

Annex – reformed grounds for possession under the new section 21 regime

 

 

 

Source: Consultation outcome - A new deal for renting: government response, Updated 16 June 2022

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