The second reading of the Renters' Rights Bill

On the 9th of October, the Renters' Rights Bill had its second reading in the Commons. Opened by Deputy Prime Minister and Secretary of State for Housing, Communities and Local Government Angela Rayner, it was clear this is a Bill the Government intends to progress with some velocity through to becoming law. This comes as no real surprise given that (a) the Government had a "still-warm" draft law to work from, and (b) by enacting this law, they'll be seen to have delivered long-promised sector reforms, distinguishing them from their predecessors.

In opposition, the main thrust of Shadow Secretary of State for Housing Kemi Badenoch's submissions was that the (old) Bill ultimately failed because the previous Government "recognised its flaws" and that the Renters' Rights Bill will also fail to deliver in practice because it is based on "policy rather than first principles".

In this piece, we look at just a few issues with the Bill for tenants and landlords, namely, the confusion over "rent in advance," the requirement to end fixed-term tenancies, and the consequences of the abolition of Section 21. Spoiler alert: they're neither exhaustive nor new, and they highlight the need for urgent clarity for landlords and tenants, the industry, and practitioners in this area.

Rent in advance

The Bill does not indicate whether advance rental payments are permitted. Based on the monthly periodic tenancy structure, the text suggests they are not.

Aligning with that view, Ms Raynor submitted:

"This Bill will protect tenants from requests for large amounts of rent in advance, but we are in listening mode. We will keep this issue under review during the passage of the Bill, and we will take the necessary action. We think that we have done enough on that, but we are open to interventions, if people feel that they would help."

Echoing Ms Rayner, Matthew Pennycook later added:

"We think that the Bill protects renters against requests for large amounts of advanced rent, but I will happily continue to engage with individuals and organisations who have concerns that it does not, and I am entirely open to keeping that under review as the Bill progresses."

Two observations here:

1. Quite rightly, the Bill contains direct anti-discrimination measures against those tenants who receive benefits or have children. No decent landlord engages in such practices anyway. However, preventing rent in advance engages the issue of indirect discrimination against other classes of tenancy applicants. The UK economy proudly boasts some of the world's leading universities and employers. International tenancy applicants often have no credit footprint (or UK guarantor); therefore, they often pay sizeable sums of rent in advance. We'll have to wait for clarity, as well as for the referencing industry's response in due course, but as things stand, both ministerial statements appear to place overseas applicants at a comparative disadvantage when compared to domestic applicants, and this has the potential to harm essential sectors of the UK economy.
2. Neither were Ms Rayner's nor Mr Pennycook's statements on all fours with paragraph 111 of the explanatory notes to the Bill itself. Albeit expressly not a comprehensive description of the Bill, these notes profess to "explain what each part of the Bill will mean in practice…". This is what the notes say about rent in advance:

This Clause entitles tenants to a refund of rent paid in advance where the tenancy has ended earlier than the period that has already been paid for. This includes where the tenant may have paid multiple months of rent in advance and applies regardless of how the tenancy ended. This Clause does not restrict landlords from requesting rent in advance.

The terms ‘multiple months of rent in advance' is interesting. It seems clear from this wording that the Bill actively contemplates rent in advance. However, the text of these notes needs to be reconciled with the Ministerial statements.

Fixed Terms

On these, Pennycook submitted:

"I want to be clear that it is the Government's firm view that there is no place for fixed terms in the future assured tenancy system."

As followers of the last Bill might recall, the House of Lords exercised this point in the last debates on the previous Bill just prior to the election.

A couple of points worth noting here:

1. It's a hallmark of our legal system that consenting parties can enter into a lawful agreement that suits them both. The law currently allows landlords and tenants to agree the length of tenancy as befits their needs. Where the fixed term ends, the law gives those parties a choice: they can either enter a new fixed term or let the tenancy roll over into a periodic one. Either way, fixed terms lock in security for tenants against rent rises, giving them certainty of costs. Fixed terms have become lengthier as tenants look to insulate themselves from the cost of living rises for longer. It seems perverse, then, that the single system of periodic tenancies denies tenants this protection, substituting it with the 'assurance' that they can (for which read 'have to') engage with a formal tribunal process for challenging a rent increase, which rent increase might be entirely reasonable in any event should market rents rise on the back of reduced supply levels.
2. Upon commencement date, all existing assured shorthold tenancies will immediately convert to the new periodic regime. This 'big bang' approach imposes a de-facto retrospective element to the Bill: fixed-term tenancies agreed before the commencement date (decided because that's what the landlord and tenant both wanted) will be cancelled once the new law comes in. Instead, landlords and tenants will be exposed overnight to earlier vacant possession and rent reviews, respectively. A system that allows the option of fixed terms where parties agree - or at the very least a transition period to allow pre-existing tenancies to expire before new laws take effect (mirroring the approach taken to other laws in recent years, e.g. the Tenant Fee Act 2019) would be fairer.

The Court system

The abolition of Section 21 will increase the court system's workload significantly because every possession claim will need to be heard before a judge.

On this, Rayner said (with no further elaboration):

"To support the changes, we will digitise the county court possession process, working closely with colleagues in the Ministry of Justice to create a modern, efficient service for our courts."

As litigators and litigants already know, courts are already digitised to an extent. The Money Claims Online procedure enables claimants to file claims online and pay fees electronically. Remote hearings are also common. All this has done little to alleviate historic backlogs and the truth is that claimants and defendants still face lengthy delays while waiting for hearing dates. By itself, making claims processes digital isn't going to work. One also needs to consider increasing court staff numbers (judges, back-office staff, etc), so that waiting times can be improved. That is a process that takes time.

The cost of access to justice, too, needs to be factored in. Those parties who find themselves in a dispute will need expert advice and representation as well to navigate the court system and will have to bear these costs directly themselves.

Abolition of Section 21 notices

Already much publicised and undoubtedly the centrepiece of the reforms, this needs a bit of context. Assured shorthold tenancies do not universally place tenants at risk of being evicted under Section 21. Though notices can be served during a fixed term, it's an inherent feature of fixed terms that protect tenants from being evicted by preventing Section 21 proceedings from being commenced any earlier than the expiry of the fixed term itself or in accordance with a break clause. By contrast, notices can be served at will during statutory periodic tenancies, but in these cases, landlords and tenants have invariably both agreed to proceed on a monthly tenancy basis post-fixed term because that's what suits both sides.

Summary

A healthy PRS is vital for the economy. A law that subverts the supply side in favour of the demand side without due analysis risks backfiring and failing those it is intended to protect. Ms Badenoch summed this up when she said:

"Landlords provide a vital service. The private rented sector is essential for those who cannot afford a mortgage, young people and those who need to move for work. Landlords selling and giving up homes for rent for mortgages do not help many of the people who need to rent."

It's welcome news that the Bill will implement a decent homes standard. This aspect of the Bill isn't an issue and isn't featured in this piece for that reason. However, genuine concerns in other areas remain. It's far from clear at this stage that the difficulties with the old Bill have been grasped (there still needs to be a published impact assessment). Instead, the reforms feel like a relay race where the baton, dropped by the previous runner, has been picked and is now speeding towards the finishing line. What we can't afford is a Bill that crosses the finishing line at lightning speed, at the expense of one that disincentives landlords, depletes stock levels and makes the lives of tenants harder and more expensive.

If you'd like to talk to an agent for more personalised advice, our team are always on hand to help. We'd love to hear from you, whether just a quick chat or a no-obligation property valuation.

Warm wishes,

The team at Rolstons