Recent uncertainties around the Renters Reform Bill appear to have been cleared up, as it now seems it will become law before the end of the year, but with significant changes from the initial proposal.
The bill is due to have its third reading in the House of Commons after Easter and then it will be in its final stages before becoming law.
The suggested changes are rooted in logic and they make sense, which is a positive for both landlords and tenants.
As for the most significant changes, they are as follows:
Minimum tenancy periods:
One of the most sensical changes is that they will be introducing a six-month minimum period for tenants when they move into a new property.
The original proposal had been that there would be no fixed-term tenancies and tenants would be allowed to move out at any time after occupying a property with two months’ notice.
This could have left landlords in a position where they pay a fee to their agent to find a tenant and then the tenant could just move out after two months and the landlord would have to cover the cost of finding another tenant once again.
This provision to prevent tenants from taking advantage of short lets will in effect create a default fixed term of six months according to the Minister for Levelling Up
This will also prevent bad practices from landlords. As we know, one of the main proposals of the bill is to abolish Section 21 eviction notices, meaning landlords will have to serve Section 8 notices to remove their tenants, which requires giving a reason.
And these amendments propose that say, for example, a landlord claims they want to sell their property and so serves a Section 8 notice to their tenants, they may then try to get around the legislation by doing a short let, but this will no longer be allowed.
Section 21 eviction notices:
The plan to abolish Section 21 eviction notices remains in place, but this will not be implemented until the courts have been sorted out and the government are putting £1.2 million towards digitising the courts to make them more efficient.
This means landlords have a bit more time to put a tenancy in place that will allow for them to serve a Section 21 notice to operate a break clause, or at the end of the tenancy.
This is because the government have already said there will be a transitional period after the bill becomes law, which means existing tenancies will still adhere to the laws prior to the Renters Reform Bill for an as of yet unconfirmed amount of time.
There will also be a provision for student tenants. Landlords will be provided with a new Section 8 ground for possession which will enable them to serve the equivalent of a Section 21 notice at the end of each university year to be able to relet to new students.
Local authority licensing schemes:
One of the main proposals of the Renters Reform Bill was the introduction of a property portal for landlords that would hold all the information that a landlord might need to make sure they’re complying with regulations, which is a good thing.
One of the issues, however, was that any existing licenses that landlords had applied for, HMO licenses for example, which we’ve done a lot of at Rocket, they would need to reapply.
But, the government now seems to have seen sense and they are suggesting that the old system will be reviewed alongside the new system, so there will be no need to reapply for licenses or add the same information to the new property portal.
Homeless prevention:
Under current legislation, if someone is struggling and can’t afford their rent to the point that they are handed a Section 21 notice to leave the property, local authorities won’t support the tenant until the matter is taken to court.
Once the matter is taken to court and the tenant receives an eviction notice, they can then take this to the local authority who is required to provide them with alternative accommodation.
But now, with Section 8 notices being introduced, we understand this will now be enough for local authorities to have to step in and support tenants from becoming homeless, which is excellent news.
Government reviews:
The government have revealed that they will be conducting a review 18-months after the Renters Reform Bill becomes law to see if any changes need to be made to the legislation.
I suspect there will need to be some changes made to the new Section 13 rent review process, because I predict this provision in particular could cause chaos.
The proposal is that landlords will not be able to negotiate a rent increase with their current tenants while they’re in the property.
Instead, once the Renters Reform Bill becomes law, landlords will only be able to serve a Section 13 rent review notice once a year to increase the rent.
If the tenant objects to it, however, they can refer it to a tribunal at no cost, so it’s likely that every single tenant will refer every single Section 13 notice to a tribunal every time.
These tribunals are unlikely to have the capacity to deal with this many referrals, meaning it will become a tactic from tenants to delay their rent increasing.
But, hopefully when the review comes after 18-months, the government will realise this particular provision is not practical and it will be amended.
The government have also promised to publish an annual report on the private rental sector, including how many landlords there are in the UK, which is a great idea as it will illustrate whether landlords are coming into the market or selling up each year, and this gives a good indication of how well the governments legislation is performing.
Our advice:
Ultimately, I think these amendments take the bill closer to fulfilling its purpose which is to provide tenants with more security while protecting the rights of landlords and their ability to make an income from their investments, which is what you need to do to keep landlords in the market.
As for our advice on how landlords should navigate these changes, we will be advising our clients to use the rental boom in the summer to get in good tenants who are paying a market rent and are preferably under contract for up to two years.
This will allow our landlords to take advantage of the transitional period that will still allow tenancies with Section 21 clauses in the contract.
And securing tenants to a longer-term contract over summer will mean landlords can see out the potential chaos that might come with certain provisions of the Renters Reform Bill such as the Section 13 rent review notices.
Then when the bill is reviewed in 18-months and any issues are ironed out, by that time our landlords’ tenancies will be coming to an end and they will be able to make their next move with a clearer view of the future of the rental market.
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