I have been investing in property for over 20 years now. Whilst viewing many old run-down properties, I would make rough notes on the condition and ideas of alterations I could make to the properties which would add significant value, maximising my return on investment (ROI). After a few years of doing this, it led me onto my journey of becoming a residential building surveyor at Gold Crest.
With recent increased tax, legislation and interest rates the landscape for property investors has and still is changing. The latest thing to hit the new is the Renters’ Reform Bill which was introduced to parliament on the 17th May 2023.
What is the Renters’ Reform Bill and why is it being introduced?
The idea of the Renters (Reform) Bill is to deliver on the government’s commitment to “bring in a better deal for renters”, including abolishing ‘no fault’ evictions and reforming landlord possession grounds.
A healthy private rented sector is a vital part of the housing market, providing much needed flexibility and in many cases serving as a steppingstone towards home ownership. There is an estimated 11 million private renters and 2.3 million landlords in England, and that the overall number of privately rented properties has doubled since 2004, peaking in 2016 and remaining roughly stable since. The government claims that nearly a quarter of private rented homes do not meet basic decency standards and some renters face a precarious lack of security as a result of section 21 ‘no fault’ evictions. Short notice moves worsen children’s educational outcomes, make it challenging to hold down stable employment, and prevent families putting down roots and investing in their local area.
What does the new bill hold in store for Landlords and tenants?
No term for new ASTs
The Bill confirms the government’s ambition to simplify existing tenancy structures, by moving all Assured Shorthold Tenancies onto a single system of periodic tenancies.
Assured Shorthold Tenancies are currently the most standard type of rental agreement in the private rented sector. It is a common process for tenants to enter a contract of six or 12 months. After this time has elapsed, a decision would be made to either renew the contract or switch to a periodic (e.g. month by month) payment.
Instead, the Renters (Reform) Bill proposes that all rental properties will be under a periodic tenancy – rolling by every month without having a specified end date. The proposals outline that tenants would then need to provide two months’ notice when leaving a tenancy, to “ensure landlords can recoup the costs of finding a tenant and avoid lengthy void periods”. In addition, landlords would only be able to evict a tenant under “reasonable” circumstances.
Landlord Serving Notice.
The Bill confirms plans to abolish Section 21 – a process that enables private landlords to repossess their properties. Instead, landlords will only be able to evict a tenant under reasonable circumstances.
The 2022 government white paper states that “Removing Section 21 will level the playing field between landlord and tenant – empowering tenants to challenge poor practice and unjustified rent increases, as well as incentivising landlords to engage and resolve issues.” In place of section 21, the Bill outlines proposals to strengthen section 8. This allows a landlord to end a tenancy agreement early if they have a legal reason to do so.
This includes the introduction of a new mandatory ground for repeated serious arrears. This makes eviction mandatory where a tenant has been in at least two months’ rent arrears three times within the previous three years, regardless of the arrears balance at hearing.
There is also a new ground that means landlords can apply section 8 to a tenancy if they wish to sell a property, or if they wish to allow their family members to move into a rental property. This can apply after a tenant has been in a property for at least six months.
Rent increases will be limited to once per year and the minimum notice landlords must provide of any change in rent will be increased to two months, and these hikes must not exceed the rates suggested by market comparables. Tenants have a means to dispute unreasonable increases and a safety net to ensure they’re not being stealthily evicted through financial strain.
National landlords register & Redress.
It will be mandatory for all private landlords who rent out property in England could to register, regardless of whether they use a letting agent. A property portal will be introduced to help landlords understand and demonstrate compliance with their legal requirements. A landlord redress scheme would enable a former or current tenant to be able to make a complaint against a landlord, which would then be independently investigated.
The Bill adds an implied term that the tenant has a right to request to keep a pet and that the landlord cannot unreasonably refuse such a request. A landlord is required to evaluate each pet request on its individual merits and cannot unjustly deny the tenant. The examples provided on the government’s website are plentiful, and the term ‘reasonable’ pops up both in the existing guidelines and the new proposal. The landlord can require the tenant to take out insurance against damage from the pet or require the tenant to pay the cost of the landlord taking out insurance.
Ban on Discrimination.
The bill confirms plans to make it illegal for landlords and agents to refuse to rent properties to people receiving benefits, or those nurturing the next generation.
Whilst I believe that many of the tenant-focused elements are indeed warranted, I can’t help but feel that the target will be slightly missed. I anticipate that evictions will increase in the short term as landlords panic by the proposed regulations. I would expect that the tenant application process will become more rigorous to try and protect the landlord. This could be the final straw for some landlords, and they may make the decision to sell up.
On a positive, this could create an opportunity for new or existing investors wanting to grow their portfolios. The bill will now need to pass through parliament before becoming law and the government has promised to do this before the next general election (January 2025).
Tom Barnes AssocRICS