Renters (Reform) Bill

Key points

When the Renters (Reform) Bill was introduced to Parliament on 17 May 2023, the focus of the subsequent media reports seemed to be on the proposal to abolish Section 21 “no fault” evictions, however there are also other elements of the bill which warrant further consideration from the perspective of an institutional investor or mortgage lender:

1. Tenant’s right to terminate

Under the new Bill, assured shorthold tenancies will be abolished and all tenants who previously would have had an assured shorthold tenancy will be moved onto a single system of periodic tenancies. Under that system, a tenancy can no longer be expressed to be for a fixed term, such as a year. Instead, the tenancy will be on a periodic (i.e. rolling) basis and tenants will have the right to end the tenancy at any point by providing two months’ notice to the landlord. This will create a lack of certainty for landlords in respect of the term of their leases and the risk of an increased number of void periods may escalate. If landlords have a greater turnover of tenants, they could also end up accumulating greater agency fees and other associated re-letting costs with the increased number of lettings. This reform could also prove problematic to landlords of non-purpose built student properties who rely on fixed-term tenancies tied to the academic year (purpose built student accommodation will be exempt).

2. Rent review

The Bill prohibits the inclusion of clauses in tenancy agreements which increase the rent. Instead there will be a new statutory regime under which, not more than once a year and on two months’ notice, the landlord may propose a new rent. The tenant may either accept this or challenge it at tribunal. A tenant can also challenge the rental amount at tribunal at any point during the first six months of their tenancy. The tribunal will determine the market rent of the property and apply it. These reforms to rent increases could make it more difficult to achieve certain rental yields.

3. Landlord’s right to terminate/evict

As has been widely publicised, the Bill abolishes Section 21 “no fault” evictions, so a tenancy will only end if the tenant ends it or if the landlord has a valid ground for possession. Clause 3 and Schedule 1 of the Bill set out the proposed changes to the grounds for possession. Some of the amendments particularly relevant for a mortgage lender are:

• The introduction of a new ground for possession for the sale of a dwelling-house – the Bill introduces Ground 1A which is a mandatory ground for possession if the landlord intends to sell the dwelling-house. Aside from when a compulsory purchase order has been granted, this ground cannot be used unless the tenancy has existed for at least six months at the date specified in the section 8 notice. The Bill also introduces Ground 1B which is a similar mandatory ground for possession if a private registered provider of social housing intends to sell the property under a Rent to Buy arrangement. For both Grounds, the notice period is two months. The introduction of these Grounds is beneficial to mortgage lenders who may be able to act as the landlord intending to sell the property by appointing a receiver exercising a power of attorney.
• The removal of requirements relating to Ground 2 – in order to rely on Ground 2 under the current legislation, the mortgage must have started prior to the tenancy and the landlord must have given written notice to the tenant before the tenancy began that they may seek to rely on this ground in the future. However, the Bill removes both of these requirements which is beneficial to mortgage lenders. The notice period for Ground 2 remains two months.

The process for serving section 8 notices has not changed; a landlord still cannot evict a tenant without obtaining a court order.

4. Other points

The Bill creates a new ombudsman and property portal database. All landlords will be legally required to register themselves and their properties on the property portal. Failing to do so, could result in a fine of up to GBP5,000, rising to GBP30,000 and criminal prosecution for repeat offenders. If a landlord does not deal with a complaint about a tenancy, such as issues with repairs, tenants can escalate their concerns to the ombudsman free of charge. The ombudsman will have the ability to order landlords to pay up to GBP25,000 compensation.