Is this crunch time for residential landlords?

Proposed new legislation is latest in a fast-changing landscape for private rented sector

- By Jo Readman, Dispute Resolution Solicitor at Sharmans

The residential tenancy market has been subject to several pieces of new legislation and guidelines over the last few years, and landlords may have found it difficult to understand their obligations or keep up with the changes. New proposals from the Government in its long-awaited White Paper - A fairer private rented sector - finally published in June, brings promise of even more to consider.

Against the backdrop of the Government’s aim to improve conditions and rights for those in all rented housing (a tougher regulatory regime for registered social housing providers is proposed with the Social Housing Regulation Bill) the White Paper sets out the Government’s plan to fundamentally reform the Private Rented Sector with the Renters Reform Bill.

The overarching aim is to redress the balance between landlords and tenants, making rented homes more secure for tenants, whilst protecting the owners’ right to manage their property. Despite this, there are some with concerns the Government’s proposals may lead to a significant sell off in the private rented sector.

Re-shaping the renting landscape: A Decent Home

Private rented properties will be subject to the Decent Homes Standard for the first time. All renters will have the legal right to a safe and warm home which is kept in repair.

Banning s.21 ‘no fault’ evictions

Of key concern to landlords is the proposed abolition of section 21 of the Housing Act 1988, the so called “no fault” route to possession. The Government’s intention is to protect tenants from unscrupulous or unpredictable landlords but causes concern for landlords worried about their ability to deal with their property.

The Government plans to introduce a simpler tenancy structure it says will be more secure for tenants, yet more flexible for both parties. Assured tenancies and assured shorthold tenancies will shift onto a single system of periodic tenancies. A tenancy will only end if the tenant chooses to give two months' notice to the landlord, or if the landlord has a valid ground for possession.

Reframing the Grounds for Possession

The grounds on which a landlord can regain possession under section 8 of the Housing Act 1988 will be reframed. The Government says it will strengthen the position for landlords with legitimate grounds for taking back their property, including making it easier for them to evict tenants repeatedly fall into rent arrears or engage in anti-social behaviour.

New grounds of possession will enable landlords to seek possession where they want to sell the property, or for them or their families to live in the property.

The Government recognises that landlords endure most Court costs when seeking possession, and landlords with smaller portfolios are hardest hit. The Government aims to simplify Court paperwork, tackle Court delays, and produce a new Court User Guide.

Deposit Proposals

A new Passport Deposit is proposed to ease the financial burden upon tenants to raise second deposits when moving home. Exactly how this will work is unclear - the Government intends the private sector to develop the passport system, and Landlords foresee problems in releasing deposits before they may have had full opportunity to check for tenant damages.

Rent Increases

Rent review clauses in tenancy contracts will be abolished and rent increases will be restricted to once annually. There will be an easier route for tenants to challenge increases through the First Tier Tribunal.

Dispute Resolution

Landlords will be obliged to register with a new single Ombudsman service which will provide a dispute resolution service and alternative to court. The Ombudsman will have powers to compel landlords to put things right, issue an apology, supply information or compensation. Landlords and tenants will be encouraged to work together to avoid issues escalating, though there will be routes for Tenants to seek compensation through the Courts.

Property Portal

A new Property Portal will give landlords, tenants, and local councils a one-stop route to show and check compliance. Tenants will be able to check on landlords and the properties they rent before signing up to a tenancy agreement. It’s proposed this will make it easier for Landlords to understand their obligations and upload documentation to prove that they are meeting the requirements. Local councils will have access to tackle criminal landlords and stronger enforcement powers to deal with them. There are plans to integrate the Database of Rogue Landlords, to make this publicly visible.

Restrictions on use of the Property

Blanket bans on renting to families with children or those receiving state benefits will become illegal. In future, other vulnerable groups (such as those leaving prison) may also be offered this protection.

Landlords will have to show good reasons for refusing tenant requests to keep a pet in their property, though will be able to require a tenant to take out pet insurance to cover any potential damage by the pet. Landlords will also be encouraged to grant permission to decorate or hang pictures.

Timescale

The changes are promised this parliamentary session. There will be a six-month implementation period after which all new tenancies will be subject to the new legislation. At least 12 months later, there will be a second date following which all tenancies will be subject to the new rules and Landlords will be prevented from using s.21 notices.

Against this backdrop, many private landlords may be considering whether to divest and move out of renting altogether, or to move into short term holiday letting.

As ever, there are pros and cons, and it’s worth considering some of the other potential changes being considered by Government.

Weighing up the holiday let market

The rapid growth of short term, hotel-style letting on popular booking sites has been blamed for reduced levels of longer-term rental stock. There is an obvious attraction with higher nightly rates, payment in advance and no worries about long term problem tenants.

However, the Government has said it will review the impact of holiday lets on the shortage of housing for those living in popular tourist locations and consider the impact of holiday let rentals on anti-social behaviour, whether from stag nights or pop-up party events. Booking sites have taken steps such as banning parties in rentals, and local authorities are likely to act too.

The result is likely to be more new rules, from tax to health and safety regulations, or local bylaws to follow, such as the rule by which homeowners in London can rent their homes to guests on a short-term basis for up to 90 days in one calendar year. The 90 days can be a series of one-off nightly or weekly lettings or a single block of time, but once the quota has been used up, if the homeowner goes on to exceed the 90-day rule without obtaining planning permission to change the use of their property, there are penalties of up to £20,000 for each unlawful letting.

The Government is tackling the issue of second and empty homes in some areas by empowering councils to charge higher rates of council tax. Rates could double, and in Wales could even quadruple. There are reports that regional mayors may be given the power to ban properties from being used as short-term lets at all.

Taking a tax break – if talk turns into law

Other things to consider are the cost of selling and getting out of the rental market, including capital gains tax.

A gain on the sale of a property that is not a principal private residence may result in a capital gains tax bill if it exceeds a landlord’s annual allowance, with tax on the gain payable at a rate of 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Recent reports suggest that the Government is considering action to shrink the buy to let market, including offering tax breaks for those who are accidental property owners, perhaps where they have inherited a second property, to encourage sales and increase housing stock.

Seek advice if you need it

In this fast-moving landscape, taking regular guidance and keeping up to date is essential. Whether you are an accidental landlord, own a sole property or a major property portfolio, there is no exemption for lack of knowledge. Getting clear advice and checking the legal and financial implications may help avoid the situation becoming a problem for you as the sector continues to deal with these latest changes.

Jo is a Solicitor in the Dispute Resolution Department at Sharmans. If you need advice on a Landlord & Tenant issue, then don’t hesitate to get in touch.

This is not legal advice; it is intended to provide information of general interest about current legal issues