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On 17th May 2023, the UK Government introduced their long-awaited Renters (Reform) Bill into Parliament. The aim of the bill is to deliver on the current government’s commitment to “bring in a better deal for renters” and to make the system fairer for both tenants (renters) and landlords.

Your Foden Property team have unpacked the main points of the bill to help you understand what the changes could mean for both tenants and landlords.

What is the Renters (Reform) Bill and what is the purpose of it?

The Renters (Reform) Bill was introduced to Parliament on 17th May 2023 as a white paper. The bill is currently not law and may still undergo significant changes before it does become law. Its purpose is to help make the rental system fairer for tenants by ensuring that they have both a safe place to live in and more security during their tenancy. The proposed changes are also designed to help make the system fairer for landlords too, especially if they need to evict tenants due to non-payment of rent or for anti-social behaviour.

What are the key features of the new proposals?

The biggest proposal outlined in the new bill is the abolition of Section 21 ‘no fault’ evictions and the move to a more simpler tenancy structure. Landlords will need to have a legitimate reason to ask a tenant to leave their property such as because they are anti-social neighbours or are refusing to pay their rent. However, implementing this will involve a lot of amendments to be made to the current legislation. For example, you cannot use a Section 8 notice if you need to end a tenancy in order to sell the property. Therefore, the replacement for Section 21 will need to include some form of legislation that will allow a landlord to easily sell their rental property if they need to (such as for financial reasons).

Why does the Government want to get rid of Section 21 and replace it with something else?

The main theory is because Section 21 is perceived to be unfair as there is a notion that some tenants are being evicted from their property for no reason. In our experience, the reality is that most Section 21’s are genuinely given for a legitimate reason, so to just call it a ‘no fault’ eviction is to simplify what is often a very complex situation.

How is the Renters (Reform) Bill going to benefit tenants, if and when it comes into law?

In theory it will get rid of Section 21 ‘no fault’ evictions which means tenants will only be able to be evicted from a property for a genuine reason such as those previously mentioned. It should also help to give tenants more power within their tenancy such as being able to complain about poor practices without the fear of eviction.

Leading on from this, the bill is also proposing to tackle unfair rent increases to ensure a tenant is not forced out of their property by excessive above-market rents. Landlords will still be able to increase rents, as they can now, but an independent tribunal will assess if the increases are excessive before the increase is implemented.

Another important proposal is the introduction of a new Private Rented Sector Ombudsman, which all landlords will have to register with. This will help to provide a fair system for dealing with disputes without, in theory, having to go through the courts.

Could there be any negative outcomes if and when the proposed bill comes into law?

The current bill talks about removing fixed term tenancies and replacing them with a periodic tenancy right from the start of their rental. This is good if you move into a property which you are not happy with, but does not necessarily provide any more security for tenants.

At the moment, a tenant has to give a month’s notice at the end of their tenancy if they wish to leave the tenancy, whilst the landlord has to give them two months notice. However, the new proposal is that both the landlord and the tenant will have to give two months notice. This could be bad news for tenants if they are looking to move into another rental property, as we believe the chances of a new landlord waiting two months for them to move in is slim. If a landlord can move another tenant in quicker, then they will obviously choose to do so, which means you will miss out if you are still in your notice period with your current tenancy.

As the rental market is so tight at the moment, and there are so few properties, you are not going to risk handing your notice in and hope you can secure a new home within your notice period.

How will the proposals affect the current rental market?

In our experience, the current rental market is such that for every decent rental property which comes onto the market, there are at least 50 applicants for it. If you are in any way difficult to house, or a landlord has to wait too long for you, then they are going to pick somebody else. This can potentially make it harder for tenants in what is already a very crowded market.

For landlords, the new rules stating you can’t evict a tenant if you’re unhappy with them for any reason (and most Section 21’s are given for a reason) could make it harder for landlords to sell their property if they need to because their financial situation has changed. This combined with the fact that they will have to join the new ombudsman scheme, which is likely to cost them money to join, could result in landlords being driven out of the market. This in turn will obviously then mean there are less properties available for prospective tenants.

Another concern at the moment is the additional pressure that interest rate rises are having on monthly mortgage payments. If for example, the mortgage on a rental property goes up by £300, this doesn’t mean that the landlord can just pass the increase directly onto their tenants. The landlord will likely have to absorb these increases which could potentially leave them out of pocket and then in turn drive them out of the rental market.

Is the bill, in its current form, going to achieve a positive outcome for both landlords and tenants?

The short answer: no.

In our opinion, the rental market will be squeezed even more than it already is and anyone who doesn’t need to be in the market as a landlord will sell. A lot also depends on what the Government decides to replace Section 21 with and what happens to the existing Section 8 to make it more reasonable for landlords.

At the moment, any notice given under Section 8 where you have a court possession involves an actual hearing in the courts. The courts are so far behind with cases under the current legislation that many people are waiting as long as 18 months for their case to be heard in order to gain access to their property. This new legislation could actually just make the situation worse. By the time you put the legal notice in place, a tenant is already two months in arrears; the minute you give notice they stop paying; if it then takes 18 months to come to court then you are left with little to no money coming in for that property.

The bill also does not take into account how many properties are managed by a letting agent. The white paper currently only references private landlords and states that 30% of landlords are not compliant. However, in our experience, using a letting agent to manage your property ensures that you are compliant as they will keep you up to date with any legislation changes.

Does the new bill highlight the importance of professional letting agents and the role they can play in helping landlords to stay compliant?

Not explicitly, especially as many landlords might think that using the services of the new Private Rented Sector Ombudsman or Privately Rented Property Portal will cover them if they have any issues or disputes with their tenant.

The Property Portal is a great idea in theory for both landlords and tenants as it will ensure all documents relating to the tenancy are in one place. However, this misses the importance of the service offered by letting agencies, which is that they help landlords to keep on top of not just the basic compliance but the finer details and ongoing changes as well.

There are so many changes to property legislation that even we, the professionals, can struggle to keep up with it all. This is why we are members of ARLA as they constantly keep us up to date with any important changes and updates which we can then pass onto landlords. If individual landlords do not educate themselves and stay on top of changing legislation, then they could unwittingly find themselves on the wrong side of the law.

Another key point about the Property Portals is that whilst they will in theory save councils from having to do ‘on foot’ spot checks, do they have enough staff to keep on top of this? We know from experience that local governments, courts and trading standards do not have enough people in place to keep on top of compliance as the current legislation stands, so will the changes make their workloads even bigger?

Final Thoughts

The Renters (Reform) Bill as it currently stands has many interesting changes which could have long term benefits for both renters and landlords. However, it also raises lots of questions especially around the abolition of Section 21 and the lack of detail surrounding what it will be replaced with. We will be keeping an eye on the bill as it makes its way through parliament to see what changes, if any, are made before it comes into law.

For more detailed analysis on the bill, watch to the latest podcast over on YouTube from your Foden Property team.