A number of issues affecting the student housing sector need to be addressed before the Bill becomes law.
The Renters’ Rights Bill was introduced to parliament by the government in September and goes further than the proposals in the Renters (Reform) Bill put forward by the previous Conservative government.
The Bill is expected to become law next year. It is proposed to be implemented in one phase, without any transition period and without any court reform before section 21 evictions under the Housing Act 1988 are abolished. Details on the proposed exemption for landlords of purpose-built student accommodation remain unclear. That means all student landlords, including PBSA providers, must be tuned into the details of this Bill and any amendments that are made as it passes through parliament.
It is important to note that this commentary responds to the current draft of the Bill. This may be revised or amended during its passage through parliament. MPs and others are likely to stress the following concerns raised.
Fixed terms to be abolished and tenant termination rights introduced
Currently, tenancies in the student housing sector run parallel to the academic year. However, the Renters’ Rights Bill proposes that fixed-term tenancies should be abolished. This means that landlords will generally only be able to offer students “rolling” tenancies, which will continue from month to month, with no fixed end date. Landlords will not know whether their tenants intend to leave the property at the end of the academic year, making it more difficult to relet to incoming students.
The Bill also proposes to introduce a general right for tenants to terminate on two months’ notice, at any time during their tenancy agreement. This means there will be no restriction on students terminating their tenancies part-way through the academic year.
There is a risk that existing student landlords will withdraw from the sector once the security of a fixed-term tenancy is removed, particularly since tenants can terminate on two months’ notice at any time. Landlords might raise their rents in response to this to mitigate the risk of loss of income. In this sense, the Bill could create market conditions that accelerate unfavourable conditions for the student tenant population.
Recovering possession
At present, landlords can use the section 21 eviction process to recover possession. They do not need to prove that a specific possession ground applies, which is why section 21 possessions are often referred as “no-fault” evictions. In practice, the section 21 process is typically used even where there is tenant “fault” (such as rent arrears), or a possession ground applies, because the section 21 process is quicker and more cost-effective than other routes.
Under the Renters’ Rights Bill, section 21 is to be abolished. Landlords will now need to prove that a possession ground applies. If the tenant disputes the ground, a court hearing will be required to resolve the claim (unless the tenant agrees to leave). This is likely to lead to delays in recovering possession.
The Bill proposes various changes to the possession grounds, which are set out in Schedule 2 to the 1988 Act. Under the Renters’ Rights Bill, ground 8 (rent arrears) can still be relied on, although the mandatory threshold is increased from two months’ rent arrears to three months.
Ground 4 still applies to specific student lettings. This gives specified educational establishment landlords the right to possession after two weeks’ notice, where the property was let to students in the 12 months prior to the tenancy. This allows universities to let their accommodation to non-students during academic holidays and to require possession back in time to re-let to students. However, this is limited as it only applies to certain educational establishments.
A new ground 4A is available for landlords of student houses of multiple occupation. This will apply where possession is required between June and September, so that the property can be relet to a new group of full-time students ahead of the next academic year. This is subject to the landlord having served a pre-tenancy notice indicating that they may rely on this ground.
This ground is limited as it doesn’t cover all student lettings; it will not be available for non-HMOs let to one or two students only, or where an HMO is occupied by a mixture of full-time and part-time students. Even where the ground is available, student landlords would generally still prefer the certainty of fixed-term lettings, to avoid the risks of having to serve and potentially enforce possession notices.
The risk of a two-tier system
The government has said PBSA landlords will be exempt from the changes proposed by the Bill provided they are signed up to certain government codes. This is not currently included in the Bill as drafted so further clarity on the proposed exemption is needed.
If PBSA is exempt from the Renters’ Rights Bill, this will create a two-tier system for PBSA and non-PBSA student landlords. This will increase the burden on non-PBSA landlords and could result in their withdrawal from the sector. In this case, PBSA may become crucial to meeting student housing demand. This situation would limit students’ accommodation choices, often leading to higher costs, and further reduce the already strained housing supply that struggles to meet demand.
The market impact of the Renters’ Rights Bill
Overall, these proposed reforms intended to protect student tenants could end up reducing much-needed supply, driving up rents, removing choice between PBSA and off-street housing, and making student housing unaffordable for many. The government must be cognisant of the detrimental impact this could have.
The government proposes to implement the Bill in one phase, with no transition period and without any court reform before section 21 evictions are abolished. There are real concerns that this will lead to significant delays in recovering possession from tenants. The courts simply do not have the capacity to deal with the inevitable influx of disputes once landlords are required to prove that a possession ground applies.
The risk of void periods will significantly increase, partly due to the anticipated delays in recovering possession, but also because student landlords cannot grant fixed terms and tenants will be able to terminate their tenancies on two months’ notice during the academic year.
There is the possibility that parts of the Bill might be amended, although no significant changes are currently anticipated. The key question is whether the government will have done enough by the time the Bill comes into force to provide student landlords with sufficient confidence to remain in the sector.
Jessica Parry is a partner at BCLP
