Act now: Landlords must speak up on rent reforms in the private rented sector

The Renters' Rights Bill is the largest reform to renters' rights since 1988 with troubling changes for rent increases

Regular readers of our blog will know that reform of the private rented sector has been high on the political agenda since the Johnson Conservative government issued a White Paper in June 2022 which pledged to "level up the quality of housing in all parts of the country so that everyone can live somewhere which is decent, safe and secure." Just under a year later, the Renters (Reform) Bill was published on 17 May 2023, however it was not passed into an Act of Parliament before the general election on 4 July 2024.

Our current Labour government launched its Renters' Rights Bill on 11 September 2024. The Bill shares its roots with the Renters Reform Bill and adopts many of the proposals to strengthen tenants' rights. However, the Bill also goes further than its predecessor in certain respects. It raises particular concerns for landlords and lenders of mixed-use/ private rented portfolios and student accommodation. With a pledge to "act where the previous governments have failed"[1] progress of the Bill through Parliament is expected to be prompt with reported aspirations for it to become law by Summer 2025.

Highlights of the Bill

• Overhaul of the tenancy structure to abolish assured shorthold tenancies and create a streamlined structure with no fixed terms
• Abolition of section 21 "no-fault" terminations and reform of landlords' grounds for possession using section 8 of the Housing Act 1988
• Ban on rental bidding wars
• A new PRS database with mandatory registration for landlords
• A new Ombudsman for tenant disputes
• Setting a Decent Homes Standard for all tenancies and applying Awaab's law to require landlords to deal with hazards such as mould and damp
• Empowering tenants and local authorities to take action against non-compliant landlords with new offences and penalties

These reforms have wide ranging consequences for the PRS sector. We shall be tracking the Bill closely on its journey through Parliament and our clients have exclusive access to our comprehensive briefing note where we analyse the reforms (please click here to request a copy if you have not already received it).

Rent increases

An under-reported concern relates to rent increases. Whilst the Bill does not go as far as imposing rent controls, it bans all rent review clauses in new and existing tenancies (except for low-cost tenancies of social housing by Registered Providers). The ban includes fixed increases by set percentages at pre-determined intervals or those linked to an index such as CPI. It also bans clauses allowing upward-only increases. This is pertinent when considered alongside the change to tenancy structure. As all new and existing tenancies will automatically become rolling periodic tenancies, they will continue until the tenant issues a notice to quit to terminate the tenancy on two months' notice, or the landlord is able to satisfy one of the statutory grounds for possession to start the termination process under section 8. Therefore, a tenant may remain in the property for many years.

Under the proposed regime, the only way a landlord will be able to increase the rent is to rely on sections 13 and 14 of the 1988 Act. These allow a landlord to serve two months' notice on the tenant that it proposes an increase. Landlords will only be allowed to serve a section 13 notice once per year. So far, so good….

However, following service of the notice, either: 

• The tenant may agree the increase, in which case it takes effect on expiry of the notice (ie two months' later),
• The parties may agree an increase below the landlord's proposal in its notice, or
• The tenant may challenge the proposed rental increase by applying to the First-tier Tribunal (Property Chamber) to decide the appropriate increase.

Any increase ordered by the Tribunal must be based on market rents with comparable evidence provided. The Tribunal cannot award a higher rent than that proposed by the landlord in its notice, even when the market evidence shows a significant increase. In terms of when the increase takes effect, the proposed default position is for the Tribunal to award the increase from the date of its determination but it has discretion to defer the increase for up to two months in the case of undue hardship to the tenant.

This proposal will have a huge impact on how investors and lenders assess the rental forecasts of a residential or mixed-use portfolio and will limit the ability for landlords to respond quickly to market movements in rents.

Every landlord of an assured tenancy in the country would be entitled to serve a section 13 notice every 12 months for a rent increase, which must be determined by the Tribunal if the parties cannot agree. A delay in cases being heard is highly likely due to this increase in volume of references to the Tribunal. There is little downside for the tenant to challenge the increase, as the Tribunal does not award legal costs to the successful party except in exceptional circumstances. Instead, the tenant will always benefit from a delay to the implementation of the increase and potentially secure a lower rent. Whilst landlords will be left having to incur administration costs, legal fees and delay to obtain an increase which may be outdated and significantly below market rents by the time it takes effect in a rising market.

In February 2023, the Levelling Up, Housing and Communities Committee urged the then government to retain index-linked rent reviews in the Renters (Reform) Bill, subject to giving the tenant a right of challenge for increases above market rents. We agree that this would be a sensible compromise to reduce management time and costs connected with inflation based increases and preserve some certainty over rental forecasting, but unfortunately it was not accepted.

There is now a call for evidence, where anyone interested in the Bill can submit their views to the Public Bill Committee. The first sitting of the Public Bill Committee took place on 22 October and the Committee is scheduled to report by Thursday 28 November 2024. Anyone who wishes to submit their views can do so using the link below and are encouraged to respond as soon as possible, as comments cannot be accepted once the Committee has reported on the Bill.

Renters' Rights Bill: call for evidence - UK Parliament