Build to rent: the new property growth area

Since the 2012 Summer Olympics and the conversion of the East Village housing development in London, the growing buzzwords in the tenanted property sector have been ’build to rent’. Despite the concept being around for some years, build to rent itself is still relatively new, particularly in the regions, but appears to be rapidly picking up momentum.

Everyone has heard of ‘buy to let’, which creates the image of an individual landlord with one property or a small portfolio of properties investing for his or her own future. However, build to rent is a much bigger and brighter concept and the advantages that come with it will be highly prosperous for any city that embraces what it has to offer.

What is build to rent?

The build to rent concept is to design, develop, build and subsequently rent out (rather than sell individually) residential units in large property complexes, built with people and a sense of community in mind. It may initially conjure up a thought of something similar to student campus accommodation, but it is so much more than this. The focus is on high quality and well-managed properties, which are let on longer-term agreements rather than an initial term of six months. The idea is to simplify letting for both parties, and it works!

Notable examples of where build to rent has already been a success are in London. The former Athletes’ Village, now East Village, which boasts 2,818 new homes, complete with a school for 3-18-year-olds, cafes and bars, 27 acres of parklands and 30 shops right on the doorstep of Westfield Stratford City.

Wembley Park, which is also in London, includes all utility bills and ultra-fast broadband in the cost of the rent. The managing agent is also on-site, which means that issues can be resolved quickly and easily. Build to rent has proven to work well in London, and with the right concept and location, there is no reason that it should not work well in the regions and offer the perfect alternative to the current housing options.

What are the current issues with rented accommodation?

It is very difficult for young professionals to get a foot on the property ladder in the current climate and renting can be their only option. Unfortunately, isolated out of town substandard rental accommodation is often the only affordable opportunity, offering no incentive to stay in the area. The same goes for those who may not be starting out, but maybe making a fresh start after a career change, relocation or relationship break up. What can we do to keep this talent in our cities and to provide a desirable base for people to rebuild their lives or grow their families?

Last year, the Ministry of Housing, Communities & Local Government launched a consultation on ‘Overcoming the Barriers to Longer Tenancies in the Private Rented Sector’ seeking views on a new tenancy model which would provide more certainty to both landlords and tenants, primarily offering a longer fixed term than the current six to 12 months, which is the norm under an assured shorthold tenancy.

The consultation tells us that the average length of a tenancy in the private rented sector is 3.9 years in comparison with 17.5 years for an owner-occupier sector and 11.3 years in the social sector. However, 81% of tenancies are still granted for an initial fixed term of six or 12 months, which offers no real certainty for either side. Is this what landlords and tenants want?

What does this mean for build to rent investor owners and landlords?

For investor landlords, it is an attractive prospect representing a stable and long-term income stream and return, and for tenants, a high-quality rental experience from a landlord with the knowledge and skills to deliver the service.

Investors and owners will need to keep their buildings occupied to ensure a good return, so they will need to offer the right location, longer tenancies, good amenities, transport links and a fully integrated service where their renters will thrive.

In addition, new guidance issued by the Government will help local authorities grant planning permission for such schemes on the basis that more affordable housing is required to help solve the current housing crisis. The National Planning Policy Framework states that build to rent schemes should include both affordable and market rent units to be managed collectively by the same build to rent landlord. The guidance suggests that 20% would be a suitable benchmark for the level of affordable units within a scheme. More information on this guidance can be found on the Government website.

What should tenants of build to rent developments expect?

No doubt there will be a range of tenancy options available, however, it is expected that the majority of lets could be assured shorthold tenancies, governed by the Housing Act 1988, but with a longer initial fixed term of three years in line with the Minster’s consultation. The current legislative framework governing the termination of such tenancies is under the Housing Act 1988 and the Deregulation Act 2015.

There will need to be a strict vetting process in place. One bad tenant could be enough to reduce the overall experience to the extent that some tenants may look to exercise any available break clause or consider a claim against the landlord. Whilst the Housing Act 1988 does offer a route to evict a tenant who has breached a tenancy agreement, many of the breaches pertaining to nuisance or non-rental breaches allow the court discretion in deciding whether to make an eviction order. Therefore, in the absence of substantial rent arrears, it can be a drawn-out or uncertain process.

Landlords and their managing agents will also need to ensure that the requirements of the statutes are fully complied with in terms of protection of deposits and the provision of prescribed information such as EPC and gas safety certificates and guidance. This will ensure that there are no bars to serving a ‘no-fault’ notice to quit under Section 21 of the Housing Act 1988 in the event of an unsuitable tenant finding their way through the letting process so that they can, if necessary, be evicted using the accelerated possession procedure.

How we can help

Specialist property lawyers, such as Flint Bishop, are gearing up to deal with the growth in the build to rent investment work in the regions and the transactions that will flow from it. From initial investment and acquisition, development and completion, to day-to-day tenant management and legal services, we are looking forward to seeing the build to rent sector expand and the opportunities it can offer to those involved.

Our dedicated Real Estate Management team can advise and assist on all elements of landlord and tenant law. Our services include the eviction of residential and commercial tenants, repair and breach of covenant issues, Deregulation Act queries, collection of rent and service charges. We can also assist in relation to the acquisition and development of investment property for build to rent landlords, the set up of new leases and tenancies, formation of management companies, portfolio management, funding and joint venture arrangements.