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Private rented sector reforms announced for landlords and tenants

Posted on 18 May 2023

17 May 2023 saw Michael Gove, Secretary of State for Levelling Up, Housing and Communities, introduce proposals for potentially radical reforms to the private rented sector. 

In their 2019 manifesto, the Conservative Party promised to abolish "no fault" evictions for tenants, all whilst strengthening rights of possession for landlords. 

Some four years later, the Renters (Reform) Bill has had its first reading in Parliament.

Assured shorthold tenancies will be abolished.

Assured shorthold tenancies are to be phased out. From the commencement date (which is not the date the Bill is passed, but instead a date chosen by the Secretary of State), a landlord will only be able to grant rolling assured tenancies with rent periods of one month or less (i.e., without fixed terms).

All existing ASTs will convert to assured tenancies upon:

  • expiry of their fixed terms (if the fixed term expires after the commencement date); or
  • a later date (known as the extended application date) chosen by the Secretary of State).

Without fixed term ASTs, there will be no more section 21. As such, landlords will no longer be able to evict tenants on two months' notice without cause.

Of course, for tenancies falling outside the assured tenancy regime (for example, those with rent in excess of £100,000), it will still be possible to have a fixed term and recover possession upon expiry.

The grounds for possession will be amended and new grounds added.

The Government has sought to mitigate the loss of section 21, with new or amended grounds for possession. Landlords will be able to seek possession where:

  • they wish to move into or sell their property, provided that the assured tenancy has existed for at least 6 months;
  • at least two months' rent has been unpaid for at least one day on three separate occasions in any three-year period; and
  • tenants are guilty of conduct capable of causing nuisance or annoyance to others.

Landlords cannot unreasonably refuse tenants with pets.

Every assured tenant (except for social housing tenant) will be able to keep a pet if they request consent from the landlord to do so and the landlord must not unreasonably refuse such consent. There are only limited circumstances in which consent may be refused (for example, where it would breach a superior lease). The landlord may also make the consent conditional upon the tenant obtaining insurance for any pet damage or the covering the costs of the landlord's insurance.

New landlord redress scheme introduced.

The Bill foreshadows the introduction of an ombudsman service. Tenants will be able to complain about non-compliance by landlords with any codes of practice issued by the Secretary of State. Remedies will include providing apologies and paying compensation. Landlords may be required to become a member of the scheme before renting, failing which they may be liable to pay a fine of up to £30,000.

A private rented sector database introduced.

The Bill establishes the foundations for a private rented sector database of landlords. A landlord will be prohibited from marketing their property to tenants without including in the database a landlord entry and dwelling entry. We are yet to see what information needs to be disclosed in the database, but local authorities will publish banning orders, so tenants will be alerted to any formal action taken against landlords. Failing to update the database or knowingly or recklessly providing false or misleading information may result in a fine of up to £30,000.

Long leases in excess of seven years will not be assured tenancies.

There existed an age-old issue where long leaseholders found themselves occupying under assured tenancies where the ground rent increased above the lower threshold fixed by the Housing Act 1988. That long leaseholder would thereafter be susceptible to the section 8 grounds for possession. The Bill clears this up by preventing any lease with a term in excess of seven years from becoming an assured tenancy.

Tenants will be able to challenge initial rents.

Whilst we will see no statutory cap on rent increases introduced for assured tenancies, tenants will be afforded the opportunity to challenge initial rent in the First-tier Tribunal within the first six months. This is in addition to their extant right to challenge any increase in rent by the landlord under section 13 of the Housing Act 1988. In both cases, the test will be whether the rent exceeds the open market figure for comparable properties, rather than a fixed percentage increase set by Parliament (as is currently the case in Scotland).

Qualified long leasehold covenants against subletting may be breached.

Some long leases include a covenant against subletting save where the sublease grants no security of tenure. By virtue of section 21, granting an AST would not breach this prohibition.  However, unless the sublease falls within one of the exceptions, it will become impossible to avoid security of tenure, and thus the caveat in the covenant is rendered almost entirely ineffective.

Concluding remarks

This is only the starting point. The Bill will now begin its passage through the Houses of Parliament.  It is likely to be subject to heavy scrutiny and amendments by MPs, whose constituencies comprise individuals and companies falling into both camps.  It remains to be seen if the Bill will strike the right balance.

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