What are the main changes The Renter’s Rights Bill will bring in?

Since the change to a Labour government, they have been charging forward with The Renter’s Rights Bill. The Bill is now awaiting second reading in the House of Lords and the rumours are that we can expect to see the legislation in force before Easter. That remains to be seen, but given the rapidity of progress so far, landlords should be considering their tenancies now and deciding if any action should be taken under the existing legislation to secure possession.

What is the purpose of the The Renter’s Rights Bill?

The Renter’s Rights Bill (the Bill) is intended to reform some of the perceived issues associated with an imbalance in the rights that tenants are afforded by the existing legislation. The Bill is intended to redress that imbalance in the landlord and tenant relationship by (a) imposing new obligations and requirements on landlords (b) giving more power to tenants to hold rogue landlords accountable for specific issues and (c) improving transparency, proper standards, and recourse for tenants in the event of non-compliance.

What are the key points in The Renter’s Rights Bill?

Abolition of s21 notices

On a date specified in the legislation (which could be on receiving Royal Assent), landlords will no longer be able to rely on Section 21 (so-called no-fault eviction) notices to evict a tenant. Instead, landlords will need to rely on an enhanced list of grounds to seek possession under Section 8 with differing justifications, notice periods and processes to work through.  Some examples are below.

Increased rent arrears threshold:

The requirement for rental arrears for eviction purposes will increase from 2 months to 3 months in an effort to stop tenancies ending where the tenant has temporarily fallen in arrears. The notice period is also set to increase, doubling from 2 to 4 weeks, meaning landlords may continue to use the discretionary rent arrears grounds, should rent be repeatedly late.

Restrictions on reclaiming rental properties to sell:

Should a landlord wish to sell or reclaim the property, they will be unable to do so within the first 12 months of the tenancy. Following the expiration of this period, a landlord must serve notice 4 months in advance under this possession ground.

Anti-social behaviour grounds:

A positive change for landlords (which has been much litigated) is that whilst non-compliance with procedural requirements will prevent landlords from seeking possession, that restriction will only last until the landlord is able to rectify the position.  If the ground being pursued is anti-social behaviour, then the position is more lenient still as the landlord can seek possession regardless of compliance/breaches.  

Changing tenancy types and restrictions

This government does not want the creation of a two-tier system, where existing ASTs could maintain their status for a while and section 21 could still be pursued.  The goal now is for full implementation all at the same time.  Meaning that from a date specified in the legislation, all new tenancies will be periodic, and all existing ASTs will convert to periodic.

Advance rents will not be permitted:

The current position is that there is no cap on the amount of advanced rent a landlord takes. This tool is often used by tenants with poor credit histories, no credit history or where they cannot provide a guarantor. However, the government considers that large advance rent payments are not affordable for most tenants and to reduce bidding wars, they should be prohibited. 

Recent passage of the Bill through Parliament has seen a new amendment added. Landlords and agents will be prohibited from asking for more than one month’s rent in advance of the tenancy in England.  Security deposits will remain capped at five weeks’ rent (or six weeks for tenancies with annual rents exceeding £50,000). This has caused major backlash by housing bodies such as the NRLA who issued a letter to the Housing Minister warning this will penalise many tenants, particularly those with poor credit scores simply because they are international students. There is ongoing debate about whether exemptions for certain groups, such as students, will be introduced as secondary legislation.

If advance rent of more than one month is taken, local councils will have the power to require landlords to repay a prohibited payment of rent to the tenant and to impose a civil penalty on the landlord or their agent of up to £5,000 for the breach. 

It is noteworthy that while landlords cannot require tenants to pay advance rent, tenants can choose to overpay if they wish to!

Other proposed amendments saw support in the House of Commons such as the proposal for tenants to be able to pursue ‘superior landlords’, even if they had not received any rent. Additionally, many MPs spoke in favour of an amendment that will prevent landlords from recovering rent from a guarantor where the tenant has died.

Changes to the Ombudsman Service

A new Private Rented Sector Landlord Ombudsman will be introduced with the aim to provide quicker, fairer, and binding resolution in disputes. It will be mandatory for landlords to join (all agents will be checking this has been complied with). There will be no need for a referral to this service so tenants may contact the Ombudsman directly. It is expected this service will run under the already existing Housing Ombudsman.

Private Rented Sector Database and Market Rate Rent Caps 

A new national database will be created for both landlords and tenants.

Landlords must pay and register with this database, it will outline their responsibilities, legal obligations and how they must comply with the legislation. Landlords will need to fully comply with the legislation to be able to use certain eviction grounds should they wish to remove the tenant. Local Council’s[AI1]  will be able to view this database and monitor landlords who do not comply.  It hasn’t been clear so far what government would expect Local Councils to do with this information in relation to non-compliance, but indications are that sanctions will be imposed. It is imperative landlords fully comply with this new service as non-compliance will result in inability to gain possession under any ground, except for the antisocial behaviour ground until the issue is rectified. 

When a landlord lists a property, they should do so in line with market rents, otherwise, they may be challenged by the tenants in the first 6 months of the tenancy. Further fines may be incurred by the local authority where a landlord accepts or encourages bidding higher than the asking price of the property. This type of conduct can see a landlord receive fines up to £7,000 for breaches. Landlords or landlord’s agents may be liable under these rules and receive multiples penalties for continued and repeat breaches. Additionally, where a landlord repeatedly breaches requirements, fails to register with the database or provides false information they may face an increased civil penalty of up to £40,000.  Agents will need to be wary of this too and check all landlord clients are registered.

On that database, tenants will be able to view if their landlord has complied with the legislation which could effectively create a “rating system” for landlords and ultimately affecting lettings if the legislation is not adhered to.  In addition, the database will record the rents landlords are proposing and neither a landlord or agent will be able to accept a price that is higher than the asking price they have listed; it will be illegal to do so.  In practice this is meant to stop the equivalent of gazumping in the private rental sector. 

It will also be illegal for landlords to discriminate against tenants who are on benefits, disabled, have children and for other similar reasons such as requesting a pet in the property.

Increased penalties to landlords

The maximum penalties for landlords who do not adhere to requirements will be increased, with rent repayment orders being doubled from the existing levels meaning they could go up to the equivalent of 2 years of rent. This may also be imposed against directors of a company, where the landlord is not an individual himself.

The government also wants to ensure that repeat offenders receive the maximum penalty as described above. Local authorities will be provided with more resources to investigate rogue landlords, who are repeat offenders, as well as being subject to new requirements to report and enforce the legislation. 

Rent increases

Landlords will only be allowed to increase rents once a year through a Section 13 notice, which must be in line with market rent prices and give 2 months’ notice to the tenant. Rent increases will also no longer be backdated.

Tenants will be granted more power to challenge the proposed rent increase through the First Tier Tribunal and new Ombudsman Service, as well as being awarded higher remedies, such as rent repayment orders, should they succeed. Should a tenant wish to challenge the rent increase, they must do so within a 2 month notice period, the Tribunal will also no longer be allowed to increase the rent to a higher level than what is proposed by the landlord,

Applying the decent homes standard and Awaab’s law

Landlords will have to ensure their property is ‘Fit to Rent’, otherwise it will not be compliant with the new legislation. This generally looks at the condition of the home, landlords must ensure the condition of the property is adequate before renting it out. Tenants (and local Council’s) will be able to hold landlords to account due to new set periods being introduced. These require a landlord to respond and remedy a property defect in a specific time frame otherwise they may be financially liable under the new legislation.  

If there are serious hazards to be addressed, such as mould and damp, strict time periods will be imposed on landlords to address those issues and enforcement action can be taken if the landlord fails to do so.

The Renter’s Rights Bill reactions/possible adjustments

Labour present this as the solution to tenant troubles in the private rented sector and believe this strikes a good balance in the landlord and tenant power dynamic. 

Some think the legislation does not go far enough for tenants and argued for further rent related measures such as a rent cap. There was push back to this on the basis it could create unintended consequences as we have seen in Scotland. These include market unaffordability and unavailability, firstly due to increased rent levels by landlords and secondly due to the amount of landlords that left the private rented sector.

We can still expect some tweaks to the legislation as there has been significant debate about the level of protection available for students, which has its own market requirements, and the proposals about exemptions are unclear (possibly to be clarified in secondary legislation).

The Conservatives have called this a ‘copy and paste’ version of their Bill but have warned it will cause more trouble than anticipated. They have suggested the legislation does not seem to be coming hand in hand with adjustments and invests into a court system which is already overburdened.

What seems clear is that when the Bill becomes law, there will most likely be a period of uncertainty whilst the sector figures out how everything works in reality.

The positive side of things is that the vast majority of landlord and tenant relationships are in fact long term, amicable and should not be overly impacted by the legislation.  That said, there are many reports that landlords are leaving the private rented sector and given housing shortages, high lending rates and general unaffordability this could cause issues in terms of available housing stock.

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