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We provide the complete commercial debt recovery service; from outsourced early arrears collections through to expert litigation, all handled in-house by a multi-award-winning law firm.
Insight
The main point is the removal of ‘no fault’ evictions. Assured ‘shorthold’ tenancies and the Section 21 notice process will no longer exist, but there are many other changes proposed that will have a huge impact on the sector as a whole. Whilst the Conservative Government had promised to ensure that the court system was reformed before implementing its now superseded Renter’s Reform Bill, there is no such promise from Labour who instead want to get the Bill through as soon as possible. It remains to be seen if the courts will have the resources to be able to deal with these proposed reforms.
The Bill itself runs to some 220 pages (https://publications.parliament.uk/pa/bills/cbill/59-01/0008/240008.pdf) although the Government has also produced a shorter guide which can be found here: Guide to the Renters’ Rights Bill – GOV.UK (www.gov.uk).
The goal is to implement the changes under the Bill in one fell swoop rather than with any transition to avoid confusion. It will therefore apply to all new tenancies and convert any existing tenancies from day one. Although we are told that sufficient notice will be provided. Changes to the social housing rental sector will be announced at a later date.
The Bill operates by amending and substituting sections of existing legislation, and will therefore need to be read in conjunction with the Housing Act 1988 and Tenant Fees Act 2019 etc. once in its final form.
This is the headline point. Landlords will no longer be able to serve a ‘no fault’ eviction notice, requiring the tenant to vacate within two months. Currently, landlords do not need to provide a reason for wanting to evict their tenant or prove a breach of the tenancy agreement, hence the term ‘no fault’ eviction. However, in reality there is often a substantial breach or fault on the part of the tenant which leads to a decision to serve these notices. The benefit being that as long as the landlord has complied with various statutory requirements, they can obtain a possession order without a hearing and without the acrimony of evidence and open hostility. This option will no longer be available. Landlords will now have to provide a reason and justification, and the tenant will have a right of reply.
Conversely, the tenant will be able to simply end the tenancy on two months’ notice to expire at the end of a period. This means that there is less security of rental income for landlords. Fixed terms will be abolished, and all tenancies will be periodic. This gives the tenants greater flexibility.
Whilst additional grounds have been added, such as the right to evict a tenant when selling the property or the in the case of the landlord wanting to live at the property, there is a 12 month prohibition from tenancy commencement, and a four month notice period for these grounds, giving landlords no immediate control and attempting to strike a balance of fairness.
The threshold for mandatory possession pursuant to Ground 8, which has always been two months’ arrears and two weeks’ notice, will be increased to three months’ arrears, and four weeks’ notice, meaning that instead of being able to act relatively quickly when a tenant falls into arrears, landlords may now face four months of rent arrears before being able to commence proceedings. The idea being that the tenant will have longer to resolve any temporary issues which may be due to a change in circumstances.
The Conservative bill had previously proposed a mechanism to prevent persistent rent defaulters from bringing their arrears up to date only to avoid eviction. If a tenant falls into two months arrears more than three times in a set period, the landlord could rely on this, and the tenant would be unable to avoid eviction by a last minute payment to reduce arrears below the mandatory threshold. The purpose of this was to stop sporadic payers building up large arrears at will, and then simply paying a chunk of the arrears on the hearing date before defaulting again. This was a good idea, but this now seems to have gone.
Protecting deposits correctly is now an absolute must, and properties must be registered on the new database in order for a landlord to gain possession.
There will be an Ombudsman for tenant referrals and participation from landlords will be mandatory. The service will be free for tenants to use, with suggested remedies being an apology from the landlord, provision of information, remedial action, and compensation. There will be financial penalties for landlords failing to join which could be a penalty of up to £7,000, rising to £40,000 for continued breaches and potential for prosecution. There is also likely to be a joining fee. Landlords need to be aware of this and ready to sign up. Likewise, there will also be a Private Rented Sector Database which, as above, landlords will have to join or face similar penalties.
Tenants will be able to appeal excessive rent increases by referral to the First Tier Tribunal (FtT) (a process which already exists); however, the FtT will not be able to set a higher rent than that proposed, it will not be backdated and can also be deferred for two months in cases of hardship. Rent can be increased once a year by service of a notice and other rent review clauses will not be valid.
The guidance states: “as now, landlords will only need to go through the courts in a small number of cases where a tenant doesn’t leave at the end of a notice period. Ultimately, we can expect our rental reforms to reduce demand on the courts because only cases where this is a clear, well evidenced ground for possession will be able to proceed”.
However well-meaning this sentiment, it is unfortunately misconceived. Tenants do not simply “leave” at the end of a notice period, largely because local authorities have a practice of telling them not to do so. Further, the court will have difficulty in determining whether there is a “clear and well evidenced ground” for possession without considering this at a hearing, which means that nearly all cases will still proceed, and the demand on the court service will only increase as the paper process which avoided the need for such a hearing is removed.
Although not mentioned in the Government’s guidance, some comfort regarding implementation of the Bill is given by Schedule 6 (Section 2) at page 209, which provides that where before the commencement date of the Bill, possession proceedings based on a Section 21 Notice have already been issued, then the Section 21 Notice will remain valid until the proceedings are concluded, and if a valid Section 21 Notice has been served, and remains valid but court proceedings have not yet been issued, as long as the Section 21 Notice doesn’t become time barred, proceedings for possession can still be issued under the existing regime.
The Government has indicated that it is hopeful to implement the Bill by the summer next year. Landlords need to review their portfolios to ensure that all compliance information and prescribed requirements, such as provision of EPC, gas safety certificates and how to rent guides, are up to date.
Landlords should also consider returning any rogue deposits that have not been properly protected and should not put off any long-standing tenancy disputes or procrastination over evicting problem tenants. Once the Bill comes into force, the whole process is likely to be much harder and take much longer.
We expect to see an influx of Section 21 notices being served in the new year, which means that accelerated possession actions as a whole will take longer, and the risk is that if a section 21 notice is invalid there will be a race against time to get a new one properly served, assuming the provisions of the Bill don’t change.
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