Government announced in April 2019 that it would be abolishing section 21 of the Housing Act 1988 which gives Landlords the right to reclaim possession through no fault of the Tenants - so called ‘no fault’ repossessions (“Section 21”). Given the glacial rate of legislative change we might have assumed that the end for Section 21 would be at some time in the distant future, post Brexit or, possibly, post General Election. However, perhaps prompted by media pressure and a desire for a ‘good news’ story in these politically turbulent times the end appears nigh, with a consultation being issued by Government, which closes on 12 October 2019.
At almost the same time, the London Mayor’s office has issued a proposal for reforming residential housing in the capital. In this two part Blog, we first consider the headlines from the Government Consultation. In Part 2, we contrast these proposals with those set out by the Mayor’s office.
The Key Facts
Somewhat surprisingly, the Government has suggested that it’s not just section 21 that will be repealed, but rather that Assured Shorthold Tenancies (ASTs) as a whole will be axed . This is sensible, given that the removal of Section 21 on its own would lead to all kinds of complications. However, it’s quite something to see in black and white the AST, a mainstay of British housing for so many years , consigned to the dustbin.
In the future, the Consultation proposes that all tenancies will be assured periodic tenancies, unless both the landlord and tenant have agreed a fixed term in writing. This type of tenancy can only brought to an end in two ways:
(a) under the grounds in Schedule 2 of the Housing Act 1988 (this lists the mandatory and discretionary grounds for seeking repossession); or
(b) if there is an agreed break provision in the tenancy.
When a fixed term tenancy comes to an end, the tenancy will become an assured periodic tenancy.
Private Rental v. Affordable Housing
Crucially, the Government’s proposals are to affect all landlords, including social housing providers. The idea being that tenants in the private and public sectors should be treated equally – following the theme of the Social Housing Green Paper. However, it is important to recognise that Registered Providers have typically used ASTs as probationary tenancies - a stepping stone to granting assured tenancies. Additionally, ASTs are used by Local Authorities in specific circumstances. Therefore, it will be interesting to see if the Government does allow Registered Providers and Local Authorities to continue to use these types of tenancies as a probationary tenancies.
The protections introduced by the Deregulation Act 2015 will be kept and transferred over to the new regime.
The Government says that it wants to repeal section 21 but also “strengthen the grounds for possession to give a fair and effective tenancy regime”. The stated aim is that “wherever a section 21 notice would have been appropriate to use, an appropriate section 8 ground can be used instead”.
How does the Government propose to do this?
(a) The Government proposes to expand section 8 to add in grounds that will give a landlord the right to end a tenancy when:
(i) it wishes to sell; or
(ii) if the property is needed for themselves or for family.
In both these new/expanded grounds for possession, the right to possession cannot be exercised for the first two years of a tenancy. Also, usually prior notice about the possibility of the tenancy ending for these grounds will need to be given ahead of the commencement of the tenancy to ensure that a landlord can take advantage of the mandatory element.
(b) The ground for repossession on arrears will be modified to allow for a 2 week notice period if the tenant is in 2 months of arrears of rent, with possession being mandatory if there are 1 months’ arrears or more still outstanding at trial.
(c) The Government proposes to expand the use of grounds for possession for anti-social behaviour and where a tenant is preventing a landlord from maintaining legal safety standards.
The Government appears categorical in its opposition to controlling rent “at the outset” of the tenancy.
The Consultation proposes that parties are to use the mechanism set out in section 13 of the Housing Act 1988 to set the rent once a fixed term has come to an end. However, the Government will legislate to prevent landlords from inserting provisions into tenancies to increase the rent once the fixed term has come to an end. This is to prevent landlords from exerting pressure on tenants to leave with substantial, contractual, rent increases.
In the Build to Rent (“BTR”) sector, rent increases are currently dealt with in different ways. Whilst some operators opt for the usual approach of not specifying a rent increase in the tenancy, other operators, include a fixed rent increase by reference to CPI or RPI. Therefore, we will need to see the detail in these proposals to establish whether this would impact on tenancies in the BTR sector. In the social housing sector, rents are typically regulated and/or capped under Section 106 Agreements. Therefore, it’s uncertain how these issues will affect social housing providers.
A major attraction for landlords of the Section 21 termination procedure was the ability to get an order for possession without a hearing.
The Government has asked, with the courageous brevity of a tick box list, whether a number of the Section 8 grounds (both existing and proposed) could also be disposed of without a hearing, including the grounds of the landlord wishing to sell a property, where prior notice of the possibility of the landlord or a member of the family using the property as their own home, or where works need to be carried out on the property.
This question could be the subject of an article by itself, but it is challenging to see how issues which are, ultimately, a question of evidence which traditionally the court is required to test, can be susceptible to resolution on paper without a hearing.
In a move which might cause some alarm in the student accommodation sector, the Government proposes that the new regime should apply to as many types of accommodation as possible including student accommodation.
Whilst it does not propose to change the protected status of institutional accommodation providers, private student accommodation will, it is proposed, be governed by the new regime. The rationale appears to be that students might want a room for their entire degree, whilst also giving landlords a ground of possession when a course has ended and the property can be used by new students.
For the BTR sector, there is recognition that the sector may need its own set of bespoke provisions to reflect its specific requirements. For example,
(a) It is suggested that BTR operators might be given a specific ground to repossess where a tenant becomes ineligible to rent a discount market rent unit (i.e. key workers or specific income thresholds); and
(b) Special measures to address:
(i) Entering into fixed term contracts due to planned refurbishment;
(ii) Recovering properties to undertake planned refurbishments; and
(iii) Managing anti-social tenants where their behaviour impacts on neighbouring residents.
In many respects, the changes to tenure could be argued to be fairly mild. The new forms of tenancy will not differ dramatically from the current regime, particularly as the market tells us that tenants still, on the whole, prefer relatively short terms of less than 3 years. However, none of this, (including the perfectly reasonable goal of creating more certainty for people who count the rented sector as their home) will work if the courts and court processes are not brought up to scratch.
Whilst the paper talks of wider ranges of accelerated hearings, online processes and reduced time limits, the reality is that possession issues already take up an inordinate amount of the county court hearing lists. These proposals will, inevitably it seems, lead to more possession cases being issued not less.
This is even more relevant when the issue of rent increases is considered. The lack of mandated rent control may be welcomed by many, but, as the Government’s paper admits, referrals to the Tribunal for rent increases under section 13 of the Housing Act are very few and far between. If it is expected that there will be more such applications under this new regime, then that will likely stretch court resources even further.
Unless landlords can be confident that the court infrastructure can handle the increased workload, the flight of private landlords from the sector, much trumpeted by the private landlord bodies, may be more likely to occur. This might, in turn, mean less housing for those that need it, which is, presumably, not what the Government wants.
In Part 2 of our blog series on the proposed changes to the private rented sector, we compare the proposals set out by the Mayor’s office to the rental market in London, against the Government’s consultation on changes to the Assured Shorthold Tenancy regime.
At a glance, the proposals seem similar to the Government’s consultation proposals. However, when the detail is examined, the Mayor’s proposals go much further. Here are some of the key differences:
Fixed term tenancies will be abolished. All tenancies will be open ended and no break clauses of any kind will be permitted.
Minimum notice periods by landlords will be extended to four months from the current two month period (and less in some cases under the government proposals)
(a) Whilst possession grounds will be amended to allow for tenancies to be ended where the landlord or their family needs the property for their home, or if it is to be sold or if works are needed, the landlord will be required to pay compensation to the tenant for using a “no fault” ground.
(b) Possession claims for arrears can only be commenced if the equivalent of 3 months’ rent is owed, but tenants will need to bring arrears down to under 1 month’s rent in order to avoid a mandatory possession order.
The Mayor suggests that wider court reforms are required, which includes access to legal aid and the establishment of a “Housing Court”. He has written on this elsewhere, and is in favour of a great deal more local courts, dealing with local housing cases. Where the money for this could come from, is not clear.
Rent will be controlled. This is the major difference. Whilst Government’s proposals reject the idea of controlling rent at the outset of the tenancy, the Mayor’s proposals say this is absolutely required.
What is proposed is the mandatory registration of landlords with a private rent commission being established to assess and managed a staged reduction of rents over a number of years.
This would, ultimately, lead to mandated baseline rents.
Interestingly, the Mayor’s proposals expressly recognise the contribution being made by the BTR sector and the value that it brings in helping with the housing pressures that exist in London.
The Mayor suggests that new BTR homes might be exempt from rent control for a period, or given tax incentives.
As the Mayor himself admits, he has no power to bring these changes about, however they are in line with many of the recommendations of the recent “Land for the Many” report presented to the Labour party in early 2019.
The proposals in the Mayor’s blueprint probably tread a half-way house between the more radical proposals in the Labour paper, and the Government’s consultation.
What happens next is probably likely to be governed by how long our new Prime Minister remains in office, and what changes, if any, Brexit brings to this area of law.
What is clear is that change, and substantial change is coming, and those in the private rented sector need to be prepared, and to make their voices heard by responding to the Government Consultation.