Yesterday (14 January) the Renters’ Rights Bill (RRB) had its third reading in the House of Commons, largely bringing its movement through the Commons to an end. The Bill page is updated with the Bill as it now looks. Unsurprisingly it passed with ease and all the government amendments (and only those ones) were accepted. It has already started its passage in the House of Lords and I anticipate Royal Assent happening in short order, probably in the Spring. It seems appropriate therefore at this stage to run through the main changes in the Bill and what these are likely to mean. This is not (by any means) every change in the Bill and I all of them are getting a pretty brief treatment but I will try to cover most of the important ones. Naturally my views on importance or the amount of depth I consider them worthy of here may not accord with those of other people! The Bill may change again in the House of Lords although I doubt it will alter much now if the government can possibly avoid it.

S21 and Fixed Terms

One of the key changes is the loss of s21 notices which allows for possession without giving a reason. This is often called “no fault” eviction but as around 75% of s21 notices are issued for very good reasons I think this a bit of a misnomer. I think of this more as eviction without the landlord having given a specific reason. Sometimes this is to the benefit of the tenant because if the truth was told they would find it hard to get another property, other times it is to the benefit of the landlord who may not have the strongest case for possession if reasons had to be given or might find themselves facing a defence to possession if the property is not up to standard. In any event, going forward all possession claims will need to fit into one of the grounds for possession. While these have been expanded they are also somewhat altered (see below) and will not cover every scenario.

In fact, the bigger change from my view is the elimination of fixed terms. This will have impacts in a lot of areas. For tenants they will gain a lot of flexibility and will not be bound into long tenancies in unsuitable properties. Landlords will of course lose certainty and will be at risk of void periods. This will put pressure on them to keep their properties “marketing ready” by, for example, updating EPCs and attending to works. But it is not all positive. Landlords of student properties will lose the push factor of a fixed term which gives them the confidence to let to further students well in advance of their desired occupation date. Tenants looking for long-term certainty to allow children to attend desirable schools for example will find themselves losing this. More concerningly, tenants who think they already have this might well find that it evaporates as the Bill comes into force and landlords are no longer bound by fixed terms they previously agreed. I can see why the government has not permitted any of the various amendments aimed at securing some form of fixed term as there is a risk they just become the default. But I do not think they have really considered the effects of all this properly and tenants are likely to lose as much as they gain.

I think there are ways around the fixed term issue for both landlords and tenants in specific cases. Some landlords will move to licences or other forms of letting which will allow retention of fixed terms. These are not simple to achieve but they can be done. I am also of the view that tenants can contract with landlords in such a way that the landlord agrees not to use specific grounds for possession (those relating to sale and the landlord or their family moving back in) either for a period of time or at all and that this would be an enforceable promise. That would allow for security for tenants but it would be a decidedly one-way street and I do not know whether landlords will be prepared to agree this. I suspect they will look for a premium rent where they do and so it will be a benefit for wealthier tenants only.

Grounds for Possession

All possession will have to be by section 8 notice. This comes with increased risks as the government will be able to change the format of the notice by simply changing it on the government website without having to pass any form of statutory instrument and therefore can essentially change the notice without warning. In addition negligently or wilfully serving a defective notice or relying on grounds that have no foundation will be an offence and will permit civil penalties to be levied by local authorities. This will create new risks for landlords and agents and is likely to lead to more of these notices being served by legal professionals which is likely to lead to increases in cost.

The requirement to give notice before the start of the tenancy is removed for some grounds although it is retained for the new student possession ground 4A. There are also a lot of new possession grounds to cover various scenarios which were previously served by s21. However a lot of those grounds are specifically reserved to social landlords or those providing supported accommodation.

New grounds are brought in for landlords looking to sell their properties and for landlords letting to students. But these have caveats. Ground 1A for sale by the landlord cannot be used during the first 12 months after occupation. By which I mean the notice cannot expire in the first 12 months, it can be served from month eight. In addition, once the notice is served there is then a 16 month block out period (the four months of the notice period itself plus another 12 months) during which the property cannot be marketed for or let including any form of short-let, holiday let, or licence. Therefore if a sale is not achieved the property will have to sit vacant. Ground 4A allows landlords letting to students to get their property back on the basis they wish to let it to other students. However, this only applies to HMOs, so excluding one and two-bed student properties, only applies to properties that are fully occupied by students, and only applies where the tenancy was signed less than six months prior to the tenants being allowed to occupy the premises. This will have huge effects on the student sector and I imagine a lot of landlords will look closely at whether they wish to continue letting in this sector at all and certainly how they go about doing so.

There are also amendments to existing grounds. Most notably ground 1 is widened allowing for landlords to recover possession for occupation by children, not just by themselves. But with similar limits to ground 1A in terms of the notice note expiring in the first 12 months and letting out. Ground 8 which is the mandatory possession ground for rent arrears also sees substantial modification with the notice period being increased from two week to four and the level of arrears being increased from two to three months. If a tenant is in arrears due to delays with Universal Credit that is also arrears that cannot be counted for the purpose of determining the arrears figure.

There will be a real need for landlords and agents to fully understand the grounds for possession if they are to be able to use them effectively. There will also be much more need to collect evidence in relation to grounds if landlords want to be confident of gaining possession.

Mortgage lenders will also need to consider how this will work for them. Currently where a lender takes over a property which is tenants they tend to get an LPA receiver to serve a s21 notice acting on behalf of the landlord. This is not possible under the revised process and mortgagees may well need to serve notices under ground 2 themselves and in their own name.

Tenancy Terms

There is a new requirement to give tenants a written statement of their tenancy in terms that can be specified in regulations. There is no information what this will look like but I anticipate some of the information from the existing How to Rent guide being incorporated more directly in tenancy agreements and possibly other limits or requirements on clause types. There will be restrictions on recovery of possession and potentially civil penalties and rent repayment orders for getting this wrong so it is likely to be an important issue for landlords and agents and will lead to a lot of temporary upheaval.

PRS Database and Redress Schemes

Landlords will need to join both the PRS database and a redress scheme and pay a fee for both of them. It will not be permissible to market a property until this sign-up has happened to the speed of the process will be a concern. This will increase costs and I have doubts about the suggested figures for these costs given in the impact assessment. There is a power to give some of the PRS database money to local authorities and I imagine some are already pushing hard for that money to be awarded to help with funding issues. In fact, if this was to be done it might also reduce the incentive for local authorities to press on with selective licensing schemes so that might be something that landlords might look for as well. Not signing up will lead to problems recovering possession and also the potential for civil penalties and rent repayment orders. It remains to be seen what these systems look like and whether agents can sign up for landlords. However, the history of government IT projects suggests it will not be all that easy and may create a considerable burden. Experience in Wales also suggests that many landlords are not always clear about the ownership structures for their properties and may not appreciate that multiple sign-ups to cover different legal owners may be needed.

Standards

The Decent Homes Standard is to be fitted into the HHSRS while Awaab’s law, already in the social sector, is to be expanded to the PRS. Until the various reviews and consultations are published it is impossible to say much about how these will work. The government has been clear that it will consider this further. In truth I do wonder if these provisions will be implemented at all as I do not think they provide much additional benefit for the work required to deal with them. Although the general political pressure on improving standards may trump that point and lead to it happening anyway.

Overbidding

There are new restrictions on how properties are to be marketed. In particular, landlords must not advertise properties for rent without specifying a rental price to be paid. They may then accept bids up to that number but cannot encourage or accept any bids over that figure. So, in practice landlords will be now be looking to pitch a price higher than they can reasonably expect to get and look for bids up to that price. However, this is not without risk as tenants will be able to go the Tribunal in the first six months of a tenancy to assert that the rent is over the market level. This has in fact always been possible but the RRB makes that ability more obvious and I expect that the government will look to ensure tenants are aware of this right.

In practice, though, I expect that these changes are likely to lead to a further upward pressure on rents in areas where rents are not nudging up against affordability thresholds. This creates an inflationary pressure which may lead to interest rates not dropping as fast as the government might be hoping for. It will also not really assist tenants much if they end up paying even more for their rental rather than less!

Rent Increases

I consider that this is one of the largest changes in the RRB and the one which is likely to have the greatest practical effect. The RRB bans any form of agreement to increase rents which do not run through the statutory s13 increase process. This exists now but is not used a great deal as most landlords sign a new fixed term agreement with a higher rent. In future all rent increases will have to go through the statutory process.

Tenants will have to be sent a notice which has a standard form setting out the proposed new rent. They must get at least two months’ notice of the proposed increase, which is up from the current position of one month. A landlord, once they have served the s13 notice can agree a lower rent than the one on the notice with the tenant, but that agreement must ultimately be obtained in writing.

During the two-month notice period the tenant can contest the rent increase to the Tribunal and it is free for them to do so. If the tenant does not contest the increase within the notice period then the rent goes up automatically and the tenant loses their ability to complain about it.  If the tenant does go to the Tribunal then the rent increase is deferred and will not take place until it has been determined by the Tribunal. The Tribunal is also limited to a maximum increase of the amount on the notice. There is also a restriction on increases to one per year with the year being computed from the last date the rent was increased.

These are significant changes. Currently, the Tribunal can increase the rent to any amount they see fit, even above the figure on the notice and that increase is back-dated to the date on the notice. Therefore there is only an incentive for a tenant to contest an increase if they believe the Tribunal is likely to reduce the rent by a significant amount. Under the new system every tenant is incentivised to contest every rent increase because the worst-case scenario is that the rent will be increased to the figure on the notice but that this increase will be deferred until the Tribunal has made their decision. Currently the Tribunal takes about six weeks to deal with these matters on official figures but I have seen cases that are taking months and I would anticipate that they will take a lot longer as the number of appeals increases.

Taken together, these changes will dramatically slow down rent increases as the notice will take longer and significant numbers of tenants are likely to contest them, for the benefit of a delay as much as actually reducing the sum payable. While this is clearly not rent control it will undoubtedly have a suppressing effect on rents. Given the delays this will cause to landlords and the limit to annual increases I suspect that many landlords will look to increase rents before the legislation comes into force and will also be looking to obtain annual increases. Therefore, this provision again may actually backfire and have the effect of increasing rents, at least in the short-term.

Rent in Advance

One of the new additional provisions added to the Bill is to ban rent in advance. This is pretty sweeping in terms of how it operates as it both amends the Housing Act 1988 and also amends the Tenant Fees Act. So rent in advance being any rent over one month will be banned for Housing Act 1988 tenancies but will also be banned for licences and also for student tenancies that are falling outside the scope of the Housing Act 1988. So, it is pretty hard to get rent in advance although there are probably ways that can work!

Where this is more of a problem is that the way in which the TFA changes are written prohibit any acceptance of money prior to the agreement being entered into. This causes a challenge for a common agency practice which is to insist on receiving the deposit and first month’s rent in cleared funds before the tenancy agreement is executed, thus protecting landlords from handing over keys only to have the rent payment bounce. There may again be ways to ameliorate this issue but there will now be a potential risk for all landlords that they will have to hand over the keys to a tenant only to find that the initial rental payment will not clear and the tenant will fall into arrears immediately. This will be a considerable annoyance and seems totally unnecessary. But from remarks made by the minister it seems that this was the entire purpose. This seems to be utter blindness to the manner in which the lettings market works! The nightmare scenario here is that a tenant might sign an agreement with a move in date for a week later, pay the rent and deposit, have that money fail to clear, and then still demand and be entitled to move in because the contract specifies that they are entitled to possession. Agents might ask for the deposit before signing the agreement and then seek the rent afterwards but if the tenant pays the whole amount the landlord or agent is then in breach of the TFA for having accepted the money before the agreement was signed and is potentially liable to a local authority penalty.

The government has asserted that these changes are intended to help tenants but they rather seem to have got the wrong end of the stick. They are of the belief that this “set[s] tenants against each other in de facto bidding wars” or acts “to exclude altogether certain types of renters who are otherwise perfectly able to afford the monthly rent on a property”. I am sure this happens but as far as I am aware the main effect of rent in advance is to enable access to properties to those who could not otherwise afford them. So this may also backfire and stop access for those who might have been able to meet an affordability criteria if they were able to pay some of the rent in advance.

Guarantors

Another new set of provisions inserted at third reading relates to guarantors and specifically their liability where a tenant dies. These are somewhat complex. If there is only one tenant and they die then the guarantor ceases to be liable for the rent but remains liable for any other losses caused by breaches of the tenancy agreement. If there are two or more tenants and only one dies then the guarantor remains liable in full. If there are two or more tenants and all of them die or the tenant who dies is a family member of the guarantor then again the guarantor escapes liability for the rent but not anything else.

This seems entirely perverse to me. I see the point of not holding guarantors liable when tenants die. But the tenant’s estate is still liable and nothing seems to be happening to excuse that liability. I also do not see the rationale for the exemption for family members. In fact it seems extremely odd. I can see that someone will be upset when a family member dies (which was the rationale being advanced by the Housing Minister) but the same rationale is not being applied to any other debt which might be guaranteed and it creates very odd scenarios. If my spouse is estranged and we are divorcing then I am excused from the guarantee if they die but if it is my girl/boy friend then I am (magically) less upset about it and so have to pay up. Further, in lots of cases the real loss is caused by damage to the property due to the tenant having mental health problems or dying and not being discovered for some time. In those cases there may not be a rent liability but there may well be a loss of opportunity as I will be unable to rent the property for a period of time while it is cleaned and repaired. In those cases the liability for a some which is not rent but is equivalent to rent would arise and the guarantor would not be exempted from this, despite presumably being no less upset than they would have been about the rent.

Pets

The legislation requires landlords to accept pets from tenants where they are reasonably requested. There is nothing to stop landlords from advertising properties as unsuitable for pets or refusing tenants with pets but once a tenant is in they are entitled to seek a pet and the landlord must allow this unless it is reasonable for them to refuse. It will always be reasonable where there is a superior lease which does not permit pets and the landlord has asked and been refused. There is nothing that obliges any superior landlord to allow pets. Obviously one work around here is for landlords to let the property to a separate holding company with a clause prohibiting pets in that agreement. The holding company will let on to the tenant and can then ask the landlord for permission for a pet only to be refused. This would be a reasonable refusal and allow the holding company to refuse to let to their tenant. Alternatively, any other refusal will be subject to the Courts, and presumably also the landlord redress scheme, accepting that the refusal was reasonable. It remains to be seen exactly what will constitute other reasons for refusing pets. However, to avoid any doubt, simply not wanting pets is unlikely to be good enough. Landlords will also be able to charge tenants the cost of any specific insurance policy they are required to enter into to cover pet damage. The legislation does not allow landlords to require tenants to buy that insurance, that was in the predecessor Renters (Reform) Bill. Here landlords will buy the insurance themselves and bill it back. Who will offer that insurance and what it will cost remains to be seen but I have heard talk of around £150 per annum.

Discrimination

The RRB also prohibits discrimination against tenants on the basis they have children or have children visiting or on the basis that they are in receipt of benefits. These were well flagged and not hugely controversial. Nothing in the RRB requires landlords to allow children where it will overcrowd the property or place them in breach of a licence requirement. In relation to benefits landlords are still allowed to consider affordability but whether they are allowed to consider affordability without counting the benefit payment is less clear.

Duties and Investigations

Local authorities are placed under a new duty to enforce housing law in their area of responsibility. For local authorities this is a considerable change and one they are going to find very hard to meet with the current pressure on budgets. I can see some local authorities finding themselves being placed under considerable pressure by tenants, and landlords too, if they are thought not to be doing enough.

To match their new duties local authorities are obtaining new investigatory powers. Some of these are pretty substantial. Most notably there is a new power for local authorities to enter onto any “rental business”, which is an undefined term, without even believing that an offence has been committed in order to take away documents which might aid an investigation. This means documents in the widest sense and so includes any computer system or other medium on which such documents might be found. In practice, this might shut down a smaller letting agent, without any real basis for believing they had done anything wrong.

Rent Repayment Orders

There are also changes to the rent repayment order regime. There are new options for seeking orders for some of the new offences that the Bill creates. There is also a series of amendments that stop landlord escaping liability by using rent to rent schemes and pointing at their sub-tenants. This will also make landlords much more nervous (or it should!) about who is sub-letting their property as they may well be held liable for failures by them.

Conclusions

The RRB is a huge set of changes. The effects of this are far reaching and I doubt I have really picked up all of them. Many of these changes will not really be seen until the entire Bill has been passed and brought into effect. Even then it is likely to take years before we see all the effects. But there is plenty here for the PRS to be worried about.