Joanne Hadley considers the implications of legislative changes proposed by the Labour Party and others should they win power on 7 May
With the general election approaching, housing is one of the issues that voters care about most. Promises are being made in terms of first-time buyers, empty properties, the bedroom tax and building new homes, towns and garden cities. However, the Labour Party’s proposal to provide a “better deal for renters” is particularly striking because, if it became a reality, it might result in a very significant change in the law governing residential short-term lets.
Generation rent
More people and, in particular, over 35s and families with children are renting privately because they cannot afford to buy. Naturally, they want the same security as a home owner. There has been much debate about whether or not rents are increasing and, therefore, whether any sort of control is necessary. However, it is difficult to dispute that, for those people who are living in the private rented sector for the longer-term, greater certainty and stability would be beneficial.
A precarious position
Since 28 February 1997, the assured shorthold tenancy (“AST”) has been the default mode of letting in England and Wales.
An AST can be granted for any length of time. However, the most common lengths of tenancy are six and 12 months (mortgage lenders often require buy-to-let landlords to limit tenancies to a maximum of 12 months). During a fixed term, a landlord cannot recover possession using the section 21 procedure (which does not require any default on the part of the tenant) although it might be possible to evict a tenant who has breached a term of the tenancy. Once the fixed term has expired, however, it is very easy for a landlord to recover possession by means of the section 21 procedure, giving the tenant little security of tenure. As a result, tenants can be reluctant to ask for genuine repairs to be done to the premises in case their landlord decides simply to evict them at the end of the fixed term instead (a “retaliation eviction”).
Rent increases are not possible during a fixed term unless there is a clause in the agreement which permits it. Once a fixed term has expired, a specific procedure will apply for increasing the rent payable under a periodic tenancy and there is a means of appealing the new rent. However, in reality, the landlord can, again, seek to evict the tenant at the end of the fixed term using the section 21 procedure if the new rent is not agreed.
A fairer deal?
In its manifesto, the Labour Party has promised to legislate for longer-term lets with more predictable rents and to regulate letting agents (similar to reforms introduced in the Republic of Ireland).
It has been suggested that the three-year tenancy would consist of:
- a six-month probationary period, at the end of which a landlord could terminate if, for example, the tenant was in rent arrears or there had been anti-social behaviour;
- a further two-and-a-half-year term during which time a tenant would be able to terminate on one month’s notice and the landlord would be able to terminate on two months’ notice only in certain circumstances, such as if the tenant was in arrears of rent, guilty of anti-social behaviour or had otherwise breached the tenancy, or the landlord wanted to sell or use the property or planned to refurbish it or change its use.
There would be exceptions, such as where buy-to-let landlords were already committed to conditions in their mortgage terms to grant shorter tenancies and when students and workers requested more short-term tenancies.
This would be coupled with legislation to place an upper ceiling on rental increases (once the original terms of the tenancy had been agreed), which would be based on a benchmark such as average market rent and would possibly be linked to inflation. From a buy-to-let landlord’s perspective, it might also need to take account of mortgage rates.
In addition, letting agents would be banned from charging tenants fees for signing up to new tenancy agreements and such fees would have to be paid by landlords.
The focus would be on providing greater certainty and stability to tenants. However, some landlords might also welcome the greater certainty that would come from longer tenancies.
What the others say
Of the other main political parties, the Green Party has promised a similar introduction of longer tenancies and a cap on rent. Plaid Cymru also proposes rent controls.
One of the Liberal Democrats’ “core” promises is the introduction of what they say is a “revolutionary” scheme whereby tenants would pay “rent” to purchase equity in their homes, thereby trying to bridge the gap between generation rent and first-time buyers. The Conservative Party, rather than reforming the rental sector, would focus instead on trying to make home ownership possible for more people.
The end of retaliation evictions?
In the meantime, the proposed end to “retaliation evictions” has received royal assent “via the back door”. While the Tenancies Reform Bill was blocked by Conservative MPs at its second reading, the principal amendments were swiftly resurrected in the Deregulation Bill.
Clauses 33 and 34 of the Deregulation Act 2015 are now due to come into force on 1 October 2015 and are intended to prevent landlords evicting tenants by the section 21 procedure when a notice has recently been served requiring certain repair work to be carried out by the landlord. These provisions are likely to be welcomed by many. However, it remains to be seen how successful they will be in practice. Landlords and letting agents will, understandably, have concerns as to what extent they will be exposed to frivolous and vexatious cases and it is hoped that they will not frustrate legitimate possession proceedings.
Joanne Hadley is an associate in the real estate litigation team at DWF
