The Renters (Reform) Bill and the changing landscape of the residential private rented sector

What is it?

The Renters (Reform) Bill aims to provide tenants with significantly greater protections. It is one of the biggest shake-ups of the residential private rented sector in a generation.

What is new?

Following the publication of the Government's response to the New Deal for Renting consultation in June 2022, the long-awaited Renters (Reform) Bill was finally introduced to Parliament in May 2023. A copy of the Bill and explanatory notes is available here. The Bill applies to England only.

The Bill is still at an early stage and is likely to be amended as it makes its way through Parliament. It is quite possible that it may not achieve royal assent before the next general election. Even when it does become law, a transitional period of at least 18 months is likely for tenancies already in existence before the commencement date.

Key takeaways

The key takeaways from the Bill are:

1. The assured shorthold tenancy (AST) is effectively abolished. All assured tenancies will be periodic, ie without a fixed end date and on a rolling monthly (or shorter) basis.

2. Tenants will be able to end a tenancy by providing two months' notice. No minimum term is currently proposed. This may leave landlords exposed to short lets.

3. Section 21 no-fault evictions will be abolished. Instead, landlords will need to demonstrate that they have satisfied a statutory ground for possession.

4. The statutory possession grounds will be strengthened. Some grounds are mandatory while others are discretionary. In particular, landlords will be able to take possession when they wish to sell, move into, or redevelop the property, or in the case of anti-social behaviour or non-payment of rent. Each possession ground has its own minimum notice period.

Where the landlord relies on the ground that it wishes to sell or move in, there is a three-month prohibition on advertising the property for re-letting, and on actively re-letting. However, in practice this may be difficult to enforce.

5. The landlord will not be able to increase rent more than once a year and it will no longer be possible to include contractual rent reviews in the tenancy. The landlord will only be able to raise rent by serving a section 13 notice. This is an existing mechanism under the Housing Act 1988, but it it is rarely used at present because contractual rent increases are normally agreed when a fixed-term AST is granted.

Under the section 13 procedure, the landlord must give two months' notice of the proposed rent increase. If the tenant chooses to challenge the increase, the FTT will determine the new rent based on the open market rent in accordance with the Housing Act 1988. This means that the landlord risks a downwards rent review. Therefore, the proposed compulsory use of the section 13 procedure is likely to result in uncertainty for both parties and if the tenant chooses to challenge the landlord's proposal then it will be a time-consuming exercise for both of them.

6. A new ombudsman will be created and all private residential landlords must join an approved redress scheme.

7. A new private rented sector database will record all persons who are, or intend to become, residential landlords and the dwellings that are, or will be, let under residential tenancies. Marketing and letting of dwellings will be prohibited unless both landlord and dwelling are on the database. It is understood that at least part of the database will be open to the public.

8. All tenants will have a legal right to request to keep a pet, which cannot be unreasonably refused. Pet insurance will be required.

9. Local authorities will be responsible for enforcement in respect of any breaches of the Bill.

10. However, a number of key government proposals are not included in the Bill, namely:

• It does not make it illegal to refuse to rent to tenants in receipt of benefits or with children.
• It does not apply the Decent Homes Standard.
• It does not strengthen councils' enforcement powers.

The ministerial statement of 17 May 2023 merely states that these proposals will be legislated for at the earliest opportunity.

When will it become law?

The proposed reforms will be implemented in two stages.

The reforms will apply in the first instance to new tenancies. At least six months' notice will be provided, but the timing depends on the date of royal assent and the court system having had time to adequately prepare for the reforms.

Following this, all existing residential ASTs will transition to the new system. This date will be at least 12 months from the implementation date for new tenancies.

How does it affect student accommodation?

Fixed-term tenancies will be permitted for purpose-built student accommodation, which typically cannot be let to non-students. Although not specifically mentioned in the Bill itself, this is stated in the explanatory notes.

It is possible that further exceptions will be added as the Bill makes its way through Parliament. Recent press coverage refers to the National Residential Landlords Association making the case for non-purpose-built student accommodation to benefit from the same treatment as purpose-built student accommodation.

How does it affect build to rent (BTR)?

The Bill has been welcomed by the BTR sector for the most part. The Bill's objective of improving management and reducing uncertainty for renters in the private sector is very welcome to BTR landlords, which already provide security to tenants that isn't always available in the traditional private rented sector.

Despite this, the Bill does expose landlords to new risks, in particular:

• The potential for very short tenancies lasting for only two months, as there is no prescribed period at the start of the tenancy during which the tenant cannot serve a notice to quit
• A prolonged process via the FTT to settle rent reviews if tenants challenge rent increases, leading to cost and delay.

BTR landlords who are subject to section 106 obligations to provide tenancies for a minimum fixed term should also consider whether such obligations will conflict with the new regime. This point needs clarifying, but arguably if the tenant can control the duration of the term under the new regime there may be scope for conflict between new periodic tenancies and BTR section 106 obligations.

Local authorities will also need to consider existing BTR planning policies to ensure that the proposed reforms will not prevent new developments satisfying the BTR criteria for a viable scheme.

What are the implications for long leases?

The Bill states that a fixed-term tenancy of more than seven years cannot be an assured tenancy. This will cover shared ownership leases and long leases with escalating ground rents. It means that no matter how high the ground rent is, the long lease cannot acquire assured status. As a result, the usual forfeiture rules will apply and landlords will not be able to make use of the mandatory possession grounds under the Housing Act 1988.

How does this affect intermediate landlords?

The bill causes a potential issue for landlords that are themselves tenants of a headlease of a mixed residential and commercial property. The intermediate landlord will need to give vacant possession of the property at the end of the headlease term. However, the Bill does not allow landlords to terminate residential tenancies on the grounds that its headlease is coming to an end unless the landlord is a private registered provider and the new possession ground 2ZA applies.. This exposes intermediate landlords to a risk of claims from their superior landlord for breach of the headlease, and tenants of mixed use properties will need to check their headleases carefully.

Are tenancy deposits affected?

The Bill provides that the landlord must protect a tenancy deposit in an authorised scheme before the court can make a possession order (except in the case of possession on the grounds of anti-social behaviour or serious crime). However, the remaining current requirements for serving a valid section 21 notice are not replicated in the Bill. They include the provision of the EPC, the "how to rent" guide and the gas safety certificate.

Where do we go from here?

The Bill has only had its first reading in Parliament and still has to undergo full legislative scrutiny before it becomes law. Given the number of stakeholders and the fundamental nature of the reforms, it is likely that Parliament will introduce further amendments to the Bill in response to concerns raised by both landlord and tenant groups.

Court reform is essential if the Bill is to deliver on its promise that landlords will be able to recover properties when they need to. The ministerial statement mentions that more aspects of the process will be digitised, but this seems to fall short of the Levelling Up, Housing and Communities Select Committee's recommendations for the introduction of a specialist housing court, which would agree target times for possession claims and provide guidance on anti-social behaviour as a ground for possession.

It is also important not to lose sight of why section 21 of the Housing Act 1988 was originally brought in. It was designed to energise a residential private rented sector because there was a lack of rental accommodation. We should ensure that a fair balance is maintained between landlords and tenants, so that this sector can flourish.

The Government appears to be committed to tenancy reform and the Bill has cross-party support. It therefore seems that the key elements of the Bill, such as periodic tenancies and an end to no-fault evictions, are here to stay.

Authors: Henry Moss, Partner; Charlie Reid, Counsel; Alison Murrin, Expertise Counsel; Alice Rowland, Associate.