Earlier this week the Government announced to much media fanfare, significant changes to the private rented sector in England.  Jeremy Stephen assesses the announcement and what might really happen going forward.

The changes

The Government announcement indicates three substantial changes to the current law on residential tenancies, on which it intends to launch a consultation:

1. “Section 21 Evictions” will be abolished, ending the ability of a landlord to terminate a tenancy on notice without giving any legal reason.  The Government statement says that this “will effectively create open ended tenancies” ;
2. Section 8 of the Housing Act 1988 will be amended to allow a landlord to seek possession of the property if they want to sell the property, or move back in themselves;
3. The Court process for possession will be “expedited”.

The reaction

Reactions in the market have been polarised.  Tenant associations, and those parts of the press that have campaigned for the end of so-called “no fault” evictions, are jubilant.  Shelter, quoted in The Guardian, stated that the Government would “deserve great credit” if the plans were swiftly put through.

However, landlord bodies have reacted angrily.  In an article on the Residential Landlords Association (under the heading “Housing reforms risk hurting tenants”) David Smith, its policy director said:

 “Whilst the RLA recognises the pressure being placed on Government for change, there are serious dangers of getting such reforms wrong”.

The National Landlords Association, on its website said:

“The National Landlords Association (NLA) is lambasting the Government’s proposal to remove Section 21 ‘no fault’ evictions, essentially creating indefinite tenancies”.

The arguments

This is a highly political issue.

Section 21 of the Housing Act 1988 applies to assured shorthold tenancies, and permits a landlord to terminate a tenancy on or after the expiry of its fixed term, by serving at least 2 months’ notice on a tenant  (without giving any grounds) – a so-called “no-fault” eviction. There is also a  fast track court procedure by which a landlord, who has served a Section 21 Notice on a tenant, can obtain a possession order to be granted “on paper” without a court hearing if certain conditions are met.

Section 21 has never been popular with tenants, but with the growth of the private rented sector in recent years coupled with rising house prices and the identification of “generation rent”, much of the pressure from the tenant lobby has been directed at Section 21.  Reports abound of families being evicted from homes without notice, sometimes many times in the space of a few years.  Reports are also made of, so called, “retaliatory evictions”, where landlords serve Section 21 notices in response to tenants raising concerns over their homes, such as damp or mould.

Section 21, it is said, is a direct cause of homelessness and causes harm because of the uncertainty that it brings to tenants.

Landlords, on the other hand, say that Section 21 is a vital tool as proceedings under Section 8 of the Housing Act 1988 (which sets out the process for obtaining possession where a tenant is in default (for arrears, or causing damage to the property)) take far too long and are too costly. Even a disputed case under Section 21 can take months to resolve, and Section 8 cases often take longer.

The law around Section 21 was reformed to some degree by the Deregulation Act 2015, which placed limits on when Section 21 notices could be served, but the pressure has continued for there to be meaningful change to the law.

Section 21 was, in many ways, a reaction against the perceived abuses of the Rent Act 1977. It brought landlords more certainty in the management of their properties and the right to generate income from them.  The Housing Act 1988 has been heralded by many institutional investors as one of the reasons they feel able to invest in residential real estate, knowing that the landlord is in control.

Now it seems the pendulum may be swinging the other way.

What will the changes mean?

It’s tempting to view the Government’s claims of creating “open-ended tenancies” as somewhat hyperbolic, however, there is some justification to this claim.

As the law currently stands, an assured shorthold tenancy does not end when the fixed term ends, but continues until terminated by Sections 8 or 21.

If the Section 21 procedure is removed, then residential tenancies will simply continue, unless there is a ground to end them under Section 8.

This starts to feel a lot like the position for commercial tenancies under the Landlord and Tenant Act 1954. However, unlike the 1954 Act, these proposals do not seem to suggest that there will be any process for the landlord (or tenant) to request a new tenancy of the property and seek, for example, a change in the rent. As matters stand, the tenancy will just continue on its current terms.

Some big assertions have been made in response to this news.

The Residential Landlords Association has suggested that this will drive landlords away from the private sector, at a time when demand is rising:

“For all the talk of greater security for tenants, that will be nothing if the homes to rent are not there in the first place”.

The National Landlords Association predicts “chaos”.

It is certainly worth pondering the impact this may have.  There has already been a political squeeze on the private rented sector.  The increased tax burdens on buy-to-let properties; the Government’s recent consultation on a new, three-year tenancy model; and the ban on letting fees from June 2019, are all bound to impact  the private rented sector.  It’s not hard to imagine some landlords withdrawing from the sector if they consider that the risk and regulatory burden of renting out their properties will mean that it is not worth the hassle.

Whilst it is also proposed that court proceedings will be expedited to enable landlords to regain possession of their properties more swiftly and smoothly, the statements from the various landlord bodies have been unanimous in saying that unless the court process is substantially altered, and proven to work before these changes are brought in, they predict a flight of landlords from the sector.

At present, these changes say nothing about the thorny issue of “rent control” and Labour’s muted welcome of the news states that they fear “eviction by stealth” of rising rents.

Will these changes happen?

Of course, at present, this is only a consultation.  We are probably some years away from actual change.  However, even with the current Government seemingly so unstable, it seems  likely that changes along these lines are coming.

It has long been Labour’s policy to abolish Section 21, and with this change in tack from the Conservative government, it’s probably not premature to start writing that provision’s obituary.

What is less certain is what else will follow this change?  Some alterations to Section 8 are overdue, but it remains to be seen how the Government will seek to “expedite” the current possession process, with possession cases already taking up an inordinate amount of time in the stretched County Court lists.

Landlord responses to the consultation will, no doubt, focus on this issue.

Rent control, in some way shape or form, is also probably coming.  Whether that is by way of a light touch, for example by capping increases of rent to inflation whilst any tenancy continues, or by way of the heavier hand of state regulation, remains to be seen.

What of Build to Rent?

It may be too early to say with certainty, but this could catalyse the rapidly growing Build to Rent (BTR) sector.  If private landlords withdraw from the market, BTR institutions will likely see an opportunity to move into the sector or grow their existing operations.  Whilst initially certainty of income and the flexibility of Section 21 drove some investors into the sector, BTR operators are well placed to adapt to these changes and meet this new change in the market when it comes. However, investors will be mindful of their income streams.  If the pendulum swings too far back in time, towards 1977, then the Government may well risk reducing the rental housing stock that is so desperately needed.

We will keep you updated as these changes progress.

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