Renters Reform Bill (Part 2)

It is important to remember that this bill is in its draft form, and no doubt there will be further (and possibly significant) amendments.

Probably the most important reform of all under the RRB is that the assured shorthold tenancy is to be abolished.

There are to be no fixed terms; rather, all tenancies will be periodic with a period of at most one month. The statutory periodic tenancy ('SPT') will also disappear (because as there is no fixed term there is no need for an SPT to arise).  Sections 5 and 21 of the Housing Act 1988 will disappear.  

Once a tenancy is granted under the new regime, a landlord will be able to recover possession only under section 8 and using one of the grounds set out in Schedule 2. The quid quo pro of the security of tenure given to tenants by the abolition of section 21 is that the existing grounds for possession in schedule 2 are to be reformed "to make sure that landlords have effective means to gain possession of their properties when necessary".

Given the relative ease of the section 21 possession process, Section 8 has in recent years been used much less often to recover possession (with the exception of grounds 8, 10 and 11 - the rent arrears grounds).

There are many reasons for this, but the main reason is because the section 8 grounds are otherwise quite limited, and unattractive when the route under section 21 is available. Many are also discretionary.  It is understandable why a landlord will chose to rely on a section 21 notice without having to specify grounds instead of running the risk the court will not award possession under a section 8.  

Ground 1

Under the current rules, a landlord can only recover possession of a property for the purposes of living in it himself if (a) he has lived in it beforehand and (b) has given notice to the tenant that he might rely on that ground before the tenancy started. And as the ground could not be used during the fixed term there has been little point in trying to rely on that ground when section 21 could be used.

Ground 1 reforms

In the spirit of retaining the rights of landlords to control their own personal lives and property, ground 1 has been shored up. There will be no requirement for the landlord to have lived in the property or to serve a pre-tenancy notice. If the landlord requires the property for himself or for a family member to live in (and a list of who counts is set out), and the tenancy has existed for at least 6 months, this ground may be used.

Interestingly, in its current form there is no mention of company landlords. What if the landlord is a company and the sole director/shareholder wants to move in? 

A new Ground 1A permits a landlord to recover possession if he intends to sell the property and the tenancy has existed for at least six months.  There is already wide speculation that this ground will be abused, based on the experience in Scotland where a similar regime already exists. There are tenant safeguards in the form of sanctions against landlords who use this ground when they are not entitled to, which will be explored further below.

Ground 8

The most used ground under schedule 2 was ground 8, the mandatory rent arrears ground.  This provides that if the tenant is two months in arrears on (a) the day the notice was served, (b) the day proceedings are issued, and (c) the day of the possession hearing, the judge has no discretion and a possession must be made against the tenant.  No account can be taken of arrears in housing benefit payments because any benefits the tenant receives are not connected to the landlord–tenant contract.

However this is open to abuse by tenants - a canny tenant can currently keep the level of arrears such that they remain just under the two-month threshold for the making of a possession order on those key dates.

Ground 8 reforms

The reformed ground 8 provides that when calculating how much rent is unpaid for the purpose of that ground, any amount that was unpaid only because the tenant has not received a universal credit payment to which he is entitled is to be ignored.

This is good news for tenants in receipt of benefit payments who historically have struggled with marrying delayed payments with the monthly rental requirements.

A new ground 8A has been introduced. This is a mandatory ground for persistent arrears and is designed to protect landlords from tenants who abuse the system.  If the tenants have been in at least two months' rent arrears on at least three separate occasions within a three-year period the court must grant a possession order.  This ground seems to address the complaints from landlords about the difficulties in dealing with persistent rent arrears. However there remains scope for injustice in this respect for tenants who have slipped into arrears but brought them up to date.

It seems that the government has pre-empted the possibility that landlords who are unable to rely on section 21 might attempt to use the section 8 procedure when they are not entitled to do so. It proposes to introduce some robust sanctions against this.

The RRB provides that a landlord is to be specifically prohibited from purporting to let on a fixed term or to bring the tenancy to and end by service of notice to quit or serve on the tenant a document which purports to be a notice on which is not a valid notice and which causes the tenant to surrender the tenancy without a court order. In doing so the landlord commits an offence and faces prosecution or a fine of up to £5,000.

Although a notice to quit is already of no effect in an assured shorthold tenancy there has to date been no statutory prohibitions on doing so.  The only effect is that they cannot be relied upon in court.

These sanctions are presumably designed to prevent landlords from taking advantage of tenants' ignorance by claiming that they are entitled to possession when they are not, in the hope that the tenants will simply obey the purported notice.

However, if these sanctions are enacted further problems could arise. Firstly, if a tenant does not realise that the notice served is not valid, are they then likely to know their rights in order to enforce them?  Secondly, some landlords try to soften the blow of recovering possession by writing letters to the tenants that are not strictly notices (as such). If a tenant surrenders a tenancy as a result of such a notice, there is a chance that a landlord might inadvertently have breached the provisions of the new act.

If a tenant surrenders as a result of the landlord serving a notice which specifies any ground which the landlord is not entitled to rely on and the tenant surrendered as a result, the landlord faces a fine of £5000 or prosecution if the landlord knew that "they are not entitled to rely on that ground or being reckless as to whether they are entitled to rely on it".

If ground 1 has been used to recover possession, it will be an offence to advertise the property for let within three months. But this will of course require somebody to notice. 

The Bill has amended section 5 of the PEA 1977 which governs notices to quit in respect of residential premises.

The Housing Act 1988 already obliges landlords to give notice under the Housing Act 1988 rather than a notice to quit. Tenants previously have been governed by the common law rules of giving a notice to quit and the PEA 1977 which requires them to give not less than four weeks' notice.

The result was that a landlord in a statutory periodic tenancy had to give two months' notice under the Housing Act 1988 but a tenant only had to give notice of one period of the tenancy (subject to this being at least four weeks' notice). 

The rules on a tenant's notice to quit are set to be simplified.  The tenant must give not less than two months' notice, although a tenant can give shorter notice if agreed in writing with the landlord.

Landlords will, of course, be prohibited from serving a notice to quit at all (as explained above). 

The tenant will not be bound by any clause in the tenancy agreement which purports to restrict the "means of giving notice", defined as the mode by which the words of the notice are represented or reproduced in a visible form.  This suggests that notice in writing in any durable form will suffice, for example by electronic communication.

Additionally, a landlord and tenant can agree that a tenant's notice to quit may be withdrawn with the agreement of both parties.  This will bring the law into line with the practice of landlords and tenants agreeing a change of plan without the tenancy coming to an end (and a new one arising).

Section 19 of the RRB amends the deposit requirements of the Housing Act 2004 in relation to the granting of a possession order.  The prohibition on obtaining a possession order (if the tenancy deposit has not been protected properly) will no longer apply to the defunct section 21 procedure, and instead will apply to cover orders made under section 8 apart from antisocial behaviour grounds.

The RRB makes it clear however that the possession order may be made even if the tenancy deposit is protected late and the prescribed information served late, and any "initial requirements of an authorised scheme" are not complied with within 30 days. Provided the deposit is protected and the prescribed information served before a section 8 notice is served, the court will not be prevented from making an order for possession on the grounds of earlier failure to protect the deposit (although the financial sanctions may still apply).

Tenancies for more than seven years will not be assured tenancies. This is an interesting provision.  It will remove the current ground rent problem that has blighted long residential leases. Long leases with ground rents of over £250 per year (or £1,000 per year in Greater London) are technically assured tenancies within the meaning of the Housing Act 1988 and this has caused problems in the past when possession proceedings have been brought against long leaseholders on schedule 2 Housing Act 1988 grounds.

The reforms will remove this problem by expressly taking longer leases outside the scope of the Housing Act 1988.

As leases of more than seven years will not be assured tenancies, it is possible that landlords will be encouraged to grant long fixed term tenancies in order to avoid the restrictions of the Housing Act 1988.   

The government promised that it would strengthen the ability of tenants to hold their landlords to account and that it would introduce a new single Ombudsman that all private landlords must join and that it would introduce a 'Property Portal' to make sure that tenants, landlords and local councils have the information they need.

The promise of a landlord redress scheme is currently in skeletal form in the RRB. The provisions are that the Secretary of State may make regulations requiring landlords to be part of a redress scheme. The plan is that a decision made under the scheme can be enforced as if it were an order of a court.  

The RRB provides for the establishment of a database on which landlords and properties must be registered before a property can be lawfully marketed for rent, with information on banning orders and other landlord infractions to be publicly available.

The RRB provides that tenants will now have a statutory right to request permission to keep a pet.

The 11th point of the action plan was a promise to "give tenants the right to request a pet in their property, which the landlord must consider and cannot unreasonably refuse". The bill does this and sets out the circumstances in which a landlord might reasonably refuse (such as it would be in breach of his own lease). 

The right to keep pets might at first glance be dismissed as a gimmick or "first world problem" but the reality is that pets are a feature of life in England, and the restrictions in the private rental sector put tenants at a disadvantage in comparison to owner-occupiers. It is recognised that pets can be crucial to the mental wellbeing of many people.

Section 13 of the Housing Act 1988 will be reformed to allow rent increases such that rent can only be increased once every year, and the level of rent can be challenged by the tenant through the First-tier Tribunal (FTT). 

The timetable for change will depend on when and how the RRB gets enacted in its final form.  However if it is enacted with the current provisions coming into force, things will happen relatively quickly and there will be a short period before all tenancies are subject to the new regime.

After the commencement of the new Act, all new tenancies created on or after that date will be subject to the new rules. Every AST which is subject to an existing fixed term will become subject to the new rules as soon as the fixed term ends. Instead of a statutory periodic tenancy arising under section 5 Housing Act 1988 the tenancy will be a "Deemed continuing tenancy".

The government has taken lessons from the fact that the Housing Act 1988 did not replace existing Rent Act tenancies and the latter continue to this day, although in dwindling numbers. The government expressly stated that it does not want a two-tier regime and the aim is that once the Act is passed, all Housing Act 1988 tenancies will become subject to the new rules albeit with some transitional provisions.

This article gives only a brief examination of the provisions of the Bill. However, it does seem to cover most of the 12-point plan of action. A glaring omission is that there are no provisions that make it illegal for landlords to have blanket bans on renting to families with children or those in receipt of benefits.  Perhaps this will come in separate legislation.