Renters (Reform) Bill 2023: a long way to go

Mainstream media has been very excited about the “once in a generation” reform of the law for private renters to be introduced by the Renters (Reform) Bill 2023 (the “Bill”).  However, landlords do not need to panic – yet.  Legislatively, the Bill has only just had its first reading in the Commons, and even when – or if – it makes it to the statute books, there will be transitionary periods which will give landlords time to decide whether they wish to remain in the private rented sector. 

Below, we take a landlord’s perspective of what the new legislation might mean.

Main Changes

The headline change, which is good news for tenants but bad news for landlords, is that landlords will lose a significant degree of control over possession of their property.  We’ve all got used to the assured shorthold tenancy (“AST”), which allowed a landlord to let a property for as short a period as six months   After the initial contractual term of the AST had expired, the landlord could regain possession of its property by giving two months’ notice to the tenant, even if the tenant had complied with all the terms in the tenancy. 

The downside for the tenant was that the AST offered the landlord the chance of increasing the rent every six months, or of letting the property to new tenants at an increased rent, and so it did not afford the tenant much security or certainty for its occupation.  The upside for the landlord was that problematic tenants could be easily removed. 

The Bill proposes to abolish the widely used  AST, and to bring its less popular sibling – the assured tenancy – out of the shadows.  The assured tenancy can also, in theory, be granted for a short initial term, but once this has expired, it is replaced by the statutory assured tenancy which can only be terminated on certain statutory grounds (which we discuss below.) and so gives tenants additional protections 

This means that even if a landlord grants a six month tenancy, it cannot then recover possession after this six month period ends. The tenancy will be deemed to be a statutory periodic tenancy, referable to the rent payment period.  A tenancy could, therefore, have as short a period as a week, but cannot be more than twenty eight days or a calendar month.   The length of the period tenancy is however largely irrelevant, as given the on-going statutory renewal of the tenancy the landlord is parting with possession of its property for potentially many, many years, which may not be what it intended at the outset. 

The statutory grounds for recovering possession

Mainstream discourse has been all about “ending no-fault evictions”.  This is only partially correct. The current landlord grounds for bringing tenancies to an end include that the landlord (or its mortgagee) wants to sell the property, or, if the landlord is a person, that they require the property to house themself or with a member of their family. These types of situation may happen even where the tenant is blameless and has complied with its lease obligations.

Provision for termination of tenancies for breach of tenancy have been beefed up, in theory at least. These include failure to pay the rent, or breach of tenancy terms including nuisance and anti-social behaviour. In practice, however, county court waiting times will make enforcement of a landlord’s rights slow, potentially leaving an anti-social or defaulting tenant to build up huge arrears whilst a court date is awaited. 

Rent

Some readers may remember the ossification of the private rental market before its liberalisation in 1988.  The assured tenancy is very closely related to the dreaded “Rent Act tenancy“; what is different is that the landlord of an assured tenant is able to charge a “market rent”.  Under the Bill, the landlord would only be able to increase the rent once a year, but it must use the “section 13” procedure to do so.  This means that a rent review clause in a tenancy agreement would be of no effect. The landlord must serve a notice in statutory form, advising the tenant of the rent increase, and also of their right to refer the increase to the First Tier Tribunal.  The First Tier Tribunal will then have the task of deciding whether the increase is “market”.  Worryingly for landlords, it would appear that, as the draft Bill now stands, the tenant would be able to refer the rent to the tribunal as soon as it got the keys. 

Whilst the Bill does not mean a return to the bad old days of rent control, the need to serve compliant rent increase notices every year, combined with possible tenant activism to slow or frustrate rent increases, is likely to lead to an increase in administration costs for landlords and agents.

Other provisions

There are a raft of other changes which are being mooted, including compulsory registration of landlords on a central database, and a new Ombudsman, but these are likely to be later to the party, as they are not set out in detail in the Bill and will need detailed secondary legislation. 

Purpose Built Student Accommodation

This will not be affected by the Bill.

Conclusions

Anyone who buys property which contains ancillary residential lettings should monitor the progress of the Bill closely to ensure that they retain maximum control over their property.  While there are transitionary provisions –  currently envisaged as six months after the Bill becomes law for new tenancies, and a year before existing assured shorthold tenancies become fully assured – it will be better for landlords to be proactive to ensure they are not encumbered with “sitting tenants”. 

***

If you wish to receive periodic updates on this or other topics related to UK real estate, subscribe to our Real Estate Insights mailing list.

For any other legal questions related to UK real estate, please get in touch with your usual Mayer Brown contact or one of the blog editors.