Grab a mince-pie and enjoy today’s advent blog post - the pie may go down easier!
Regular readers of our blog are familiar with the rocky journey so far of private rented sector reforms. For a quick recap, our previous posts are linked at the end of this blog. Currently, the Public Bill Committee ("Committee") in the House of Commons completed its review and discussion of the Renters' Rights Bill on 5 November. We now await the Report Stage and Third Reading before the bill heads to the House of Lords.
Despite the progress of the Bill through Parliament, many in the sector, including us, still have serious concerns about the new regime, particularly regarding rental increases and obtaining possession through the courts.
Rental Increases
Currently, many rental increases in the private rented sector do not adhere to the process envisaged by section 13 of the Housing Act 1988. This section allows a landlord to serve a notice proposing a rental increase in a rolling periodic tenancy, which takes effect unless the tenant challenges it in the First-tier Tribunal (Property Chamber) ("Tribunal"). Transcripts of the Committee's discussions reveal that it typically takes about three months for the Tribunal to deal with a tenant's application to challenge the rental increase.
Perhaps because of this uncertainty and delay, most rental increases currently happen by renewing the tenancy for a fixed-term, with many build-to-rent landlords relying on rent review clauses for periodic increases. Alternatively, landlords may propose rental increases outside the section 13 notice mechanism. Whilst concerns do exist about landlords using section 21 no-fault terminations (or the threat of them) to pressure tenants into accepting rental increases, it is unfair to generalize all landlords in this way. In any event, the Renters' Rights Bill abolishes section 21 terminations, converts all fixed-term tenancies into rolling periodic ones, and bans rent review clauses, except for Registered Providers of low-cost social housing. Thus, landlords will, once the Bill passes into law, only be able to increase rent annually under section 13, with some proposed changes.
Under the terms of the Bill, landlords will be able to serve a notice once a year proposing a rental increase in two months' time. Tenants will be able to challenge this in the Tribunal and the Government has said that it is committed to making it easier and more accessible for tenants to do so. As the Tribunal is a no-cost forum (i.e., the landlord cannot pursue the tenant for its costs), there is no downside to the tenant in doing so. In fact, there is a real upside for tenants to challenge the landlord's proposed rental increase. Not only is the tenant protected by the fact that the Tribunal cannot order a rent higher than that proposed in the landlord's notice, but the increase will also only take effect from the date of the Tribunal's determination. The Tribunal also has discretion to defer the increase for up to two months in the case of undue hardship to the tenant. So, in every case, the worst-case scenario for the tenant is to delay the rental increase for however long it takes the Tribunal to deal with the application. These are obvious and, to date, unaddressed concerns that landlords should have about the current iteration of the Bill.
Questions were raised in the Committee's discussions over the three-month timescale that the Tribunal is currently seeing. Given broadly 4.6 million tenancies in the private rented sector, if even 25% of landlords serve a section 13 notice annually, it could result in over a million applications to the Tribunal every year. In reality, all landlords and agents of well-managed property portfolios will exercise this right annually as part of a responsible investment strategy, so this figure is likely to be much higher. This could extend Tribunal timescales by months, further incentivizing tenants to challenge increases and impacting residential property's attractiveness as an investment. The Committee acknowledged that delays were likely but found it hard to predict outcomes.
Obtaining Possession Through the Courts
The Committee's discussions have also shown no Government appetite for making reforms to the procedure for obtaining possession of residential premises (given the proposed abolition of section 21 terminations) conditional on court improvements (as was proposed under the previous Conservative Government). The Bill currently lacks details on how the Government will ensure the courts will handle the inevitable influx of possession cases under the new regime.
The Housing Minister made assurances to the Committee that the Courts and Tribunals Service is doing a huge amount of work preparing for the new system’s implementation. For now though, this assurance feels like Christmas morning anticipation - we know there’s a present under the tree, but it might just prove to be a pack of plain old socks wrapped in a sparkly bow…
Come back tomorrow to open the door to Day 13 of our advent calendar which will explore the challenge of delivering sustainable, and in particular, retrofit developments.
Previous posts
Act now: Landlords must speak up on rent reforms in the private rented sector
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.