It has been hailed as the biggest shakeup of the rented sector for 30 years, and there’s no doubt that the government’s latest white paper, ‘A Fairer Private Rented Sector’, will do just that.
But how will it affect letting agents? The answer is that it will have a tremendous impact on letting agents as well as landlords and tenants all over the country.
The government says that it aims to reset the relationship between tenants and landlords, and it will do this by:
- Abolishing Section 21 – so-called ‘no fault’ evictions
- Creating a new mandatory Ombudsman
- Outlawing landlords refusing to rent to tenants on benefits or families
- Needing good grounds to reject a tenant’s request to have pets
- Creating a new property portal for tenants and landlords
- Reforming the eviction grounds for possession
Here, we take a closer look at these issues.
Prospect of an exodus of landlords from the sector
The government says removing Section 21 will deliver greater security for tenants and retain the flexibility that the private rented accommodation offers. Currently, a landlord can only serve a Section 21 notice to tenants to evict them with no stated ‘reason’ on a rolling periodic tenancy or when their fixed-term tenancy ends. Instead, the proposed change aims to strike a balance between the rights of tenants and the rights of landlords.
Yet, there’s a real possibility that removing the ‘no fault’ Section 21 eviction process as part of the Renters Reform Bill will cause landlords being driven away from the sector. So perhaps the biggest concern for letting agents is the prospect of an exodus of landlords from the private rented sector (PRS) because they fear they may struggle to take possession of their property.
The impact of abolishing Section 21
Under the new law, Section 21 evictions will be abolished, and tenancy structures will be simplified. This will see all tenants with an assured tenancy, or an assured shorthold tenancy, moving onto a system of periodic tenancies. We will get into this in more detail below, but a periodic tenancy is simply a tenancy referring to a specific period, such as weekly, monthly or yearly.
According to the government, tenants will have to give two months’ notice under the new system. The landlord will have this time to find replacements and avert a void period when no rent is paid. The new rules will see landlords only being able to evict their tenants in reasonable circumstances – and these will be defined in law to support tenants, so they don’t have to endure an unwanted move.
Moving to periodic tenancies
The government is proposing moving to a single system of periodic tenancies to reduce costs associated with renewing tenancies on a yearly basis for landlords. The biggest change with moving to periodic tenancies will be felt by letting agents and landlords with student properties. The government says that their reform will give students the same opportunity of challenging poor standards and enjoy living in a secure home as others in the PRS do. However, purpose-built student accommodation (PBSA) will be exempt from this law.
This means that student landlords moving to a periodic tenancy will see them signing student tenants in September and have them leave the property when their summer term ends because there will be a 12-month minimum contract length. There are also fears that the law will have a clause that allows tenants to leave their contracts early. Many predict the implosion of the student lettings sector if the law is brought in.
So when will the legislation come into place? There’s no date set for the imposition of the new rules, but it’s most likely to come into force in 2022 or 2023. The government says its plans will be implemented in two stages to give a smooth transition for agents, landlords and tenants to adjust.
Letting agents and periodic tenancies
Having mentioned periodic tenancies, it’s worth taking a closer look at how this could impact letting agents. It goes without saying that the government’s idea came as a surprise to most landlords, and especially for those based in England who, after this is enforced, will no longer be able to offer fixed-term tenancies. Instead, periodic tenancies will ensure that landlords will only be able to end a tenancy by using one of the proposed grounds, for example, if the tenant has repeatedly gone into serious arrears. At the same time, the new system will give tenants increased flexibility should their circumstances change.
It’s maybe not unsurprising that more landlords will be worried about increasing void periods, as well as the prospect of insurance or mortgage costs increasing. With increases in interest rates leading to increased mortgage costs for any landlord that needs to refinance in the near future, the reduced flexibility when it comes to tenant management is a particular concern.
A new mandatory Ombudsman for tenants and landlords
Another big change introduced in the white paper is the introduction of a new mandatory Ombudsman for PRS tenants and landlords in England. The aim is to enable landlords and tenants to resolve disputes quicker and avoid cases going to court. The idea is that it will be a cheaper process and offer an impartial and fair resolution for the majority of issues.
The new Ombudsman will be able to tackle problems and systematic issues and offer education for landlords. Under the new scheme, the Ombudsman will have the power to solve issues for both tenants and landlords such as compelling landlords to provide tenants with more information, and if needed pay compensation of up to £25,000 to the tenants. Similarly, landlords may also be required to reimburse rents if the properties don’t meet the right standards.
If landlords fail to comply with the ombudsman’s decision they may be liable for a Banning Order. In some cases, the ombudsman’s decision may also be enforced through the courts if the landlord’s compliance becomes a concern.
A blanket ban on tenants on benefits and families with children
Whilst the blanket ban on accepting tenants on benefits and families with children will not have a huge effect on the PRS, it’s worth mentioning. The new rule means landlords and letting agents will no longer be able to refuse anyone who receives benefits because this will be classified as unlawful discrimination. The new law will cover renting to families with children. Still, there will be steps for the insurance industry to address agent and landlord fears over the difficulty of arranging insurance for properties where tenants are on benefits.
A tenant’s right to keep pets
One issue that may affect letting agents is the question of a tenant’s right to keep pets in their property. At the moment, this is at the discretion of the landlord, but in future, all tenants will have the right to request a pet in their home – and the landlord must consider this request and cannot unreasonably refuse it.
If landlords do deny the request, the tenant can challenge the decision although it is not yet clear how this will be enforced. The Tenant Fees Act 2019 will also be amended so that pet insurance will be a permitted payment. Essentially, whilst the landlord cannot refuse a tenant’s request for a pet reasonably, they can demand they have pet Insurance to pay for any damage to the property.
Changes to rent increases with the Renters Reform Bill
The white paper also outlines plans to prohibit landlords from using rent review clauses in their rental contracts. For example, the white paper outlines that any rent increases should only happen annually, and if the rent is increased, the landlord must give their tenant two months’ notice of any change.
The government says this would prevent tenants from being locked into an automatic rent rise that may not reflect market price changes or is ‘vague’. The Bill will also restrict how much rent a landlord can ask for in advance – to prevent rent charging in advance from becoming ‘disproportionate or widespread’.
The PRS must comply with the Decent Homes Standard
Currently, it is only social housing providers that have to comply with the Decent Homes Standard, but the Renters Reform Bill will see the Decent Homes Standard become mandatory for the PRS as well.
This is part of the government’s Levelling Up ambitions so that by 2030, the number of non-decent homes will be halved. This means landlords must:
- Have adequate bathroom and kitchen facilities
- Have clean, usable and appropriate facilities
- Have decent noise insulation
- Have no serious health and safety hazards, including the risks of fire, falling or carbon monoxide poisoning
- Have adequate heating for tenants to be dry and warm.
This is part of a big push to raise standards in the PRS and ensure landlords manage their rental properties effectively rather than waiting for tenants to complain, or having their local council undertake enforcement action.
How market complexity can boost agent’s competitiveness
The Renters Reform Bill will likely have a tremendous impact on letting agents and landlords across the country who are having to keep track of yet another set of regulations in an already highly regulated sector. Yet the regulatory complexity of the property market does not have to be disadvantageous. Instead, agents that can learn to better understand and manage that risk stand to differentiate themselves and win more instructions by offering more value to their customers – all whilst simultaneously protecting themselves against potential fines of non-compliance.
The Renters Reform Bill – Summary
The Renters Reform Bill brings in a new property portal so councils, landlords and tenants can access relevant information. The main aim is to enable landlords to understand what their responsibilities are, and for tenants to access information about landlord compliance. It’s also a way for local councils to access data so that they can crack down on rogue landlords.
There’s also a discussion about extending the functionality of the rogue landlords’ database so that all eligible landlord offences will be included and made public. There’s a long way to go before the White Paper reaches law, and some of the proposals could fall by the wayside – and perhaps be replaced by others that are even more controversial. This makes the life of a letting agent a complicated one for the foreseeable future.
This article’s purpose is to summarise the most important parts of the Renter’s Reform Bill for letting agents and should not be used as legal advice. For more information and guidance please visit the Government’s website.
