Julie Gattegno and Anna Ralston offer practical advice to landlords as legislative changes in the private rented sector come into effect
Balancing the housing needs of individuals with ensuring that the private rented sector (PRS) remains an attractive sphere in which to invest is not a new challenge. In fact, this particular pendulum has swung both ways – several times – over the last century. The new factor is that the PRS in England now forms the second largest tenure after home ownership. The English Housing Survey 2012-2014 cited that there were 4.4m households renting privately, overtaking (for a second year running and by an increasing margin) the number of households renting from social landlords.
Coming out of the 1980s and into the 1990s, the focus was on increasing investment in the PRS. The cornerstone of that drive was the introduction of the assured shorthold tenancy (AST). ASTs have become the default position for the majority of residential tenancies created on or after 28 February 1997.
At its most simple, an AST allows a landlord to charge whatever rent can be agreed in the open market and to obtain possession with no justification, provided that: (i) the fixed term has expired or there is a relevant landlord’s break option; and (ii) the tenant has been allowed to stay for a minimum of six months. However, cutting across that simplicity have been a series of recent developments that have increased the administrative burden on residential landlords, potentially making it harder to obtain possession.
Establishing a right to rent
The Immigration Act 2014 received royal assent on 14 May 2014 and the initial pilot in the West Midlands is under way. Subject to its results, the legislation (in its current form) makes landlords responsible for checking the immigration status of all prospective adult occupiers, even if a person is not intended to be the named tenant. If a landlord appoints an agent, the agent will assume the potential liability for undertaking the relevant checks.
It is expected that this obligation on landlords or their appointed agent will be rolled out in phases across the UK during 2015.
When applicable, landlords will be expected to establish within 28 days before the tenancy agreement is entered into that the proposed tenant and all other adult occupiers:
- are either British, European Economic Area or Swiss nationals; or
- have a “right to rent” – ie, the occupiers’ immigration statuses are such that they have a right to live in the UK (for the moment, at least).
The legislation contains a list of documents that the landlord can accept as proof of the prospective occupiers’ nationalities or immigration statuses. The landlord will have to see the original document in the presence of the occupier and then copy or record the contents of the documents, noting the date on which the check was undertaken.
Such records will have to be kept for the duration of the tenancy and for at least one year afterwards. Landlords will need to be mindful of the Data Protection Act 1998 and ensure that documents are kept securely and for no longer than is necessary. A landlord cannot insist on keeping any original documentation.
If a proposed occupier cannot produce any of the relevant documentation but maintains that they nonetheless have a right to rent, then the landlord can seek a positive right to rent notice from the landlord checking service on the Home Office’s website.
Ensuring a right to rent continues
If the occupier has a time-limited right to rent (for example, their visa is for a limited period) the landlord must take steps to check the updated status of the occupier by the later of: 12 months after the original check was undertaken, or before the relevant deadline expires.
If any of the occupiers change, either by way of assignment, surrender or variation (to allow different people into occupation) then the landlord must ensure that the relevant immigration checks are undertaken.
There is a potential civil liability of up to £3,000 for permitting a person to occupy who does not have a right to rent. There is a fast payment provision where the landlord can reduce the fine by 30% if they pay in full within 21 days (and provided that it is their first penalty).
If it becomes clear that an occupier no longer has a right to rent, a landlord will have to give notification to the Home Office in order to protect itself against incurring the civil penalty. A landlord is not obliged to take steps to obtain possession of its property from a person who no longer has a right to rent.
Tenancy deposits
Detailed discussion on the tenancy deposit legislation, together with the potential financial liabilities and barriers to possession that a landlord may face for non-compliance, is outside the scope of this article (see EG, 21 February, p82). However, pending any change that the Deregulation Bill may bring, the practical steps for landlords can be summarised as:
- In respect of a new tenancy, ensure that the deposit is protected and that the prescribed information is served on the tenant within 30 days of receipt of the deposit;
- Diarise to ensure when the new tenancy’s fixed term expires (and the tenancy continues as a statutory periodic tenancy) that the deposit is still registered and make sure that the prescribed information is re-served;
- In the rare scenario where the fixed-term tenancy began before the tenancy deposit legislation came into force but the tenancy now becomes a statutory periodic tenancy, make sure that the deposit is registered and serve the prescribed information.
A mixed forecast for the future
In addition to the forthcoming changes to tenancy deposit legislation in the Deregulation Bill (which aims to simplify the position in respect of tenancy renewal) the Bill also proposes amendments to a landlord’s ability to serve a section 21 notice (and therefore obtain possession) if there has been a complaint about the state and condition of the property.
This is unlikely to be popular with landlords. There is a lack of consensus about whether retaliatory evictions are in fact widespread enough to justify the proposed legislative response. However, it is clear that, if enacted, the legislation will undermine a key principle of the AST: that a landlord can obtain possession without any form of justification.
With a general election, a bill working its way through Parliament and some wide-reaching proposals being tabled at a political level (such as Labour’s ideas on reintroducing a form of PRS rent control), the PRS is likely to see much change in the coming year. Landlords will need to navigate this carefully.
Checklist for landlords
Before granting the first tenancy:
- Check whether the obligation to undertake immigration checks applies to your property by using the right to rent tool on the Home Office website;
- Be clear about who is responsible for conducting the immigration checks. If an agent has been appointed to undertake these on the landlord’s behalf, there must be a written agreement setting this out;
- Ensure that the immigration status of all prospective adult occupiers is checked within 28 days prior to the tenancy being entered into and that detailed records are kept during (and at a least a year after) the tenancy;
- Protect any deposit received and ensure that the prescribed information is served on the tenant within 30 days of receipt.
During the term of tenancy:
- Be careful to re-do the necessary immigration checks whenever there is a new adult occupier (whether or not there is a formal assignment, variation or surrender);
- Where any occupier had a right to rent for a certain period of time (perhaps by reference to expiration of a visa) diarise to make sure that the immigration status is re-checked by the later of: 12 months after the initial check or before the expiry date in the relevant immigration document.
On tenancy renewal:
- Re-do any necessary immigration checks;
- Check that the deposit remains protected and re-serve the prescribed information, including at the point in time where the fixed term ends and a statutory periodic tenancy arises or a new fixed term AST is entered into.
Julie Gattegno is a partner and Anna Ralston is an associate in the real estate dispute resolution team at Nabarro LLP
