The Renters (Reform) Bill, 2023 – A Bit of Gove and Take
Michael Gove’s Renters (Reform) Bill 2023 passed the first reading in the house of commons on 17th May 2023.
Some of the changes outlined are set to shake up the UK housing landscape, bringing some major changes for both renters and landlords with the aim to deliver “safer, fairer, and higher quality homes”.
In this post, we will be setting out the key details of the bill and assessing the benefits and costs to landlords and tenants alike.
So, let’s take a closer look at what was announced:
1. No fault evictions (section 21) to be abolished, but evictions with due cause (section 8) are to be strengthened.
If the bill passes, landlords will no longer be able to serve section 21 notices on their tenants to evict without due cause. They will however be able to evict tenants under section 8 with a strengthened and streamlined court enforcement procedure. Landlords will be able to serve a section 8 notice on tenants who have a history of falling into arrears on their rent, or if the landlord wants to sell their property, make necessary improvements that would render the property unusable (e.g. installing insulation), or allow their family members to move into their rental property.
Advantages
Tenants:
o Removing the uncertainty around being unfairly and unexpectedly evicted from a property.
Landlords:
o The reinforcement for the section 8 process should help landlords and their families keep control of their properties.
o If the court reforms are successful, landlords will also benefit from a swifter eviction process which will be a particularly potent benefit when dealing with troubling tenants.
Disadvantages:
Tenants:
o Additional rights included in section 8 notices, allow landlords to evict tenants to move their family members in. This has been of particular controversy in recent debates as concerns about the lack of fail-safes in place to prevent landlords taking fraudulent advantage of this provision have come to light.
Landlords:
o The removal of section 21 notices removes a lot of the perceived flexibility from landlords and could cause potential financial or legal challenges down the line.
2. Introducing a single system of periodic tenancies
At present, contracts in the private rented sector (PRS) are a mess. AST agreements are non-standardised and can have contract terms of more-or-less any length. The bill aims to address this by enforcing a standardised system of “Periodic Tenancies” whereby the contract rolls forward every month with no set end date. When tenants want to end their tenancy, they will have to serve two-months’ notice to their landlords to “ensure landlords can recoup the cost of finding a tenant and avoid lengthy void periods”.
Advantages:
Tenants:
o Again, the big benefit is the removal of uncertainty from tenants. They will no longer have “moving anxiety” come the end of their fixed term contract. Instead, they can essentially stay as long as they like, until they wish to serve 2-months notice and move on.
Landlords:
o Stability. The proposed changes aim to provide greater security for landlords by implementing longer-term tenancies. This means fewer turnovers and the potential for more reliable income streams.
Disadvantages:
Landlords:
o Unpredictability of tenure. Landlords may now find themselves in a bit of a pickle when trying to map out their cash-flows as a tenant can serve their 2-months’ notice at any given period meaning Landlords will have to store up some contingency funds to remarket their property at a moment’s notice should the tenant choose to end their tenancy.
Therefore, despite the stability it provides, there is no guaranteed income stream for any set period making it more difficult for landlords to plan out their tenancies.
3. New limits on rent reviews
This is a pretty straight forward but pertinent reform: Landlords will be limited to reviewing their rent only once per year, with a minimum of two-months’ notice, and limited to what a court might consider a “reasonable” rent raise.
Advantages:
Tenants:
o This is an obvious win for tenants who will essentially be given a guarantee on their rent for a minimum of 12 months
Disadvantages:
Landlords:
o This is a bit of a sticking point for landlords as they will be limited to a rent set earlier in the year, so if extra costs arise, such as rising interest rates, then they will have no choice but to bare the brunt of it until the year is up and even then, they will be subject to what a court might decide to be a “reasonable” rent raise.
Tenants:
o Higher rents: Whilst this may look like a sweeping win for tenants, one key point may bring it back down to earth: in response to this part of the bill, landlords may decide to start their tenancies on higher rent rates to give them some leeway should any unexpected perennial costs arise
4. Professionalising the industry
The bill proposes three main forms of professionalisation:
Forming an ombudsman for the PRS industry, applying the Decent Homes Standard to private homes, establishing an industry “Property Portal” for landlords and tenants.
The ombudsman will have powers to enforce landlords to issue apologies, pay fines, provide information to tenants, give tenants refunds on their rent where the “service or standard of the property falls short” and/or perform remedial works on their property if it does not meet the standards as set out in the Decent Homes Standards (which currently only applies to social housing).
Landlords will be mandated to join the ombudsman and failure to comply with a decision may result in serious offenders being liable for a Banning Order.
The establishment of the ombudsman is then coupled with the central property portal proposed by the bill where landlords will be legally required to register their properties to the portal which will act as a “trusted one-stop-shop for guidance on renting in the PRS” providing tenants more complete information about the property they are renting and provide both landlords and tenants comprehensive information about their rights and obligations as well as acting as a central point of communication for landlords, tenants, and councils.
Advantages:
Tenants:
o The increase of transparency and the establishment of the ombudsman adds to the tenants’ sense of security from this bill with a clear central point of information provided by the portal and a clear route for complaints set out by the ombudsman
Landlords:
o Whilst signing up to the portal might be time consuming and the thought of an ombudsman looming over their head quite daunting, landlords will have a clear benefit here when it comes to disputes with their tenants. The transparency provided by the portal will allow landlords the opportunity to swiftly dismiss any unfair claims against them with supporting evidence and they will also benefit from the ombudsman setting strict and clear standards throughout the industry
Disadvantages:
Landlords:
o This portion of the bill adds a lot of administrative work to the already dizzying array of bureaucratic procedures involved in buying and renting a home and may put off many current and would-be landlords from listing additional properties to the sector
o The new standards and the irrevocability of the ombudsman’s ruling will inevitably add costs to the landlord and remove a portion of the passive aspect of property investment that draws so many to the industry
5. A ban on bans – welcoming pets, families, and benefit receivers
Quite simply put, the bill will restrict landlords from banning tenants with pets, children, or those on benefits so long as they have proof that they can afford to rent the property. For those bringing in pets, they will have to supply written evidence that they have the right pet insurance in place or, failing that, that they are willing and able to reimburse the landlord for pet insurance they may have to take up.
Summary:
The Bill comes at a pivotal moment in UK economics. The portion of homes that are rented is at an all-time high at just under 20% of all homes (close to double that of the 12% just 20 years ago), interest rates are rising globally, the UK is underperforming in controlling inflation making rents less affordable and future rate hikes more likely.
Overall, the Renters Reform Bill brings a mixed bag of opportunities and challenges for residential landlords in the UK. Though it is definitely overdue, it does pose some serious risks to landlords in the industry who are already confronted with mounting interest rate bills, remedial bills, works, and uncertainty. While greater stability and professionalisation of the industry can be positive, the potential limitations on control and increased responsibilities might create some concerns.
As the bill moves forward, it’s crucial for landlords to stay informed, adapt to the changing landscape, and ensure compliance with the new regulations. Good communication and fair treatment of tenants will continue to be key in maintaining successful landlord-tenant relationships.
Let us know your thoughts!
Are you a landlord excited about the changes or concerned about the potential implications? Get in touch to share your experiences and opinions: info@castelnau.com