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Renters Reform Bill – to be or not to be…

By Balraj Birdi, partner and head of residential sales and investment at Eversheds Sutherland

The Government’s 2019 manifesto pledge to provide ‘a better deal for renters’ signalled an intention to reform the current system of renting in favour of residential tenants, to be achieved primarily by abolishing ‘no-fault’ evictions.

On 16 June 2022, the Department for Levelling Up, Housing and Communities issued the white paper, setting out proposals as to how a reformed rental system could lead to a fairer private rental sector for tenants. The Government’s stated intention is that the proposals set out in the white paper will be implemented via the Renters Reform Bill, due to be introduced to Parliament in the 2022/2023 parliamentary session.

There is no draft legislation in circulation as yet and so we cannot be certain as to the proposals discussed below as they could well change as and when draft legislation passes through Parliament. That said it makes sense to look ahead to consider the possible future of the private residential rental sector.

The proposals set out in the Government’s white paper for ‘a fairer private rented sector’ will, if made law, represent the most significant changes to regulation in the private rented sector in over 30 years. It is the Government’s aim to redress the balance between landlords and tenants in order to correct perceived unfairness and give tenants greater security in their homes.

Two key proposals stand out:

  1. The abolition of ‘no-fault’ evictions – landlords will need to show evidence of tenant default or that the landlord has good reason for requiring possession under a number of statutory grounds before the courts will order the tenant to vacate. As such contractual break rights will also be prohibited. In effect, tenants who comply with the terms of their tenancy agreement will in most cases be entitled to a tenancy for life; and
  2. The abolition of contractual rent review clauses – rent review will be governed by statute instead. The proposals are that reviews may only be carried out once per year and rents may only be revised in line with the open market rent for the property in question. Bringing all rent reviews under one statutory system will eliminate the current patchwork of differing contractual review clauses, simplifying the process for tenants and helping to ensure that they do not pay more than is reasonable.

It has been recognised by the Government that it is unfair to burden landlords with tenants who do not pay their rent or fail to comply with the  terms of their tenancy agreements. So, whilst the plan is for no-fault evictions to be abolished, the current grounds for evicting tenants who are in breach of their agreements are to be overhauled, with the aim of improving the possession system for landlords. This will be coupled with promised improvements to the court process for the actual obtaining of possession, which the Government acknowledges does not currently meet the needs of landlords, not least due to unacceptable delays.

Whilst the approach certainly appears to seek a balance between landlord and tenant, it does seem that the removal of no-fault evictions may not be replaced by adequate rights for large scale landlords who build and/or maintain and operate private rented schemes. For example, the proposed termination right where a landlord is going to sell the let property is likely to be of little use to build to rent/PRS landlords whose primary strategy is usually for full occupancy with minimal void periods So this right will likely benefit the smaller buy to let landlords only.

Equally the private rented sector has attracted substantial institutional investment over recent years (which of course was not present in the pre-Housing Act 1988 era) and continues to do so on the strength of its attractive index linked rental returns coupled with the ability to refurbish and relet properties when required usually at increased rents.  The white paper proposals do not contain any ability for landlords to terminate for refurbishment purposes causing difficulties for landlords where repairs or refurbishment works are required which cannot be efficiently undertaken with tenants in situ.

The Government has been keen to stress that the rent review proposals are not a return to the rent controls of the 1980s. Landlords who currently rent their properties at market rent with reasonable market rent review provisions will be able to continue to do so, albeit within a new statutory framework. Ultimately if a landlord and tenant are unable to agree the new rent level, it is expected that the onus will be on the landlord to incur the cost of applying to the Tribunal for determination of the open market rent. As such the rent review process is likely to become more costly and require a greater degree of documentation and record keeping from a landlord’s perspective.

Whilst the proposals will require a certain amount of adjustment on the part of all landlords in the private rented sector, their effect will be to end the unfair practices of a small minority.  Unscrupulous landlords will no longer be able insist on rents in excess of open market level using the threat of no-fault eviction as leverage. Whilst this is a positive for the industry, it cannot be left unsaid that there could well be some unintended consequences of the proposals if they become law in their current guise.