Impacts of the possible abolition of Section 21 on the rental sector
By Daniel Stern, Partner and Head of Property Litigation at Slater Heelis
Back in 2019, the Conservative Party Manifesto pledged to introduce a Renters’ Reform Bill that would, amongst other things, eliminate Section 21 accelerated possession claims from UK law. Fast forward to June 2022 and the Government, acting upon this pledge, released a white paper entitled ‘A Fairer Private Rented Sector’, aiming to rebalance the law to deliver ‘a radically fairer deal for renters’.
Section 21 of the Housing Act 1988 was initially introduced in order to more easily enable the termination of a tenancy. It enables a landlord to serve two months’ notice on a tenant, followed by a possession claim, to be dealt with on paper only, in order to evict them from the rented premises. The landlord does not give a reason for their decision, leading to the term ‘no fault eviction’.
The one barrier to this bill being passed is political turmoil within Westminster. Under Johnson, it appeared as if these legislative changes were indeed going ahead and Truss’ first PMQs reaffirmed the Conservative Party’s commitment to getting rid of no-fault evictions. Rishi Sunak hasn’t openly commented on Section 21; however, his voting record falls in line with the Renters’ Reform Bill, implying his support.
So, what’s actually changing and how will this impact the rental sector?
If Section 21 is scrapped, it will trigger a tsunami of change – the ripples of which will be felt for years. There will likely be increased costs to the tenant with further demands for evidence of affordability and suitability for renting. Landlords will probably seek greater assurances of the tenant’s intentions for long-term renting – this could include asking for rent on a quarterly basis, an increase in the general practice of the 3:1 ratio for renter’s income vs monthly rent, or an increased emphasis on guarantors.
The eviction process will likely become more difficult and expensive. By repealing Section 21, eviction hearings and their associated costs will become more common, in turn deterring landlords whose return on investment will be reduced due to their legal fees. ‘Professional landlords’ will likely be in a much better position to mitigate the loss of Section 21 protections too – having lawyers or property agents on hand to assist with legal issues.
With the removal of this useful possession route there may be an increase in the sale of rental properties in the coming months, as well as potential Section 21 evictions before sale, as landlord’s try to turn a quick profit on their rental portfolios before the introduction of this measure.
If this happens, the rental sector will likely witness a huge growth in the number of professional landlords. With significant capital at their disposal, relative to landlords with perhaps one rental property, professional landlords could expand their portfolio at a discount, given a possible glut of properties on the market.
This is not guaranteed though. These legislative changes represent huge roadblocks for current and future landlords. For the swathes of people unable to afford buying their own home, there will be a consistently large number of renters seeking homes with less landlords able to provide accommodation for them. This could lead to an artificial inflation in rent until the market is stabilised. For those willing to weather the storm, this could represent significant monetary gain.
Ultimately, the proposed changes are still making their way through the long-winded legislative process. As a result, it may take months or even years for these changes to kick in. It also depends on continued parliamentary support – so all eyes will be on Rishi Sunak to see whether he kicks the bill into the long grass or not. These changes are the biggest threat that landlords have faced in Britain, and they require due attention from us all.