The new Solicitors Accounts Rules: what has changed?
In what they have described as “the biggest change to the private rental sector for a generation”, the government has unveiled plans to hold a consultation on their proposal to abolish “no-fault evictions” under Section 21 of the Housing Act 1988.
Section 21 notices, or “no-fault evictions”, allow landlords to remove tenants at short notice and without explanation (provided that the term allowed by their assured shorthold tenancy agreement or “AST” has expired).
The government suggest that the consultation proposals are balanced, increasing the security for tenants whilst allowing landlords to regain possession of their property where there is a legitimate reason to do so. However, early responses have suggested that the proposals are a disaster for landlords. Below, I have addressed some of the key questions which are arising from this proposal:
Section 21 notices allow a landlord to terminate a tenancy agreement on or after the end of a fixed term AST, giving at least two months’ written notice but importantly, not providing any ground for the termination.
Should the landlord wish to terminate the tenancy agreement during the fixed term, they must follow the Section 8 notice procedure. This procedure requires the landlord to evidence one of the statutory grounds for obtaining possession (for example, where rent has not been paid) and provides that the landlord cannot evict the tenant without obtaining a court order.
The National Landlords Association (“NLA”) has described the Section 8 procedure as “slow, costly and inefficient” and for this reason Section 21 notices (where available) are often the preferred method for bringing a tenancy agreement to an end.
The new proposals are part of the government’s promise to tackle the housing crisis, increasing tenant security and balancing the bargaining power between tenants and landlords. Indeed, reforms banning letting fees and capping rent deposits will take effect on 1 June 2019.
Despite this pledge, the legislative reforms achieved to date do little to change the substantive terms of the AST nor do they change the experience for many tenants. In fact, the new proposals are as a result of the consultation discussed in my previous blog where the government proposed a minimum three year term for residential tenancies. This consultation concluded that there was no consensus around mandating a certain tenancy length and as such, it now seems that this proposal will not go any further.
The government argue that the proposals are balanced, as they also ensure that landlords can get their property back where they have proper reason to do so.
The new proposals include amendments to the Section 8 statutory grounds, enabling landlords to regain their property in the event that they wish to sell it or move into it. However, possession to allow the landlord to occupy themselves is already a section 8 ground (though it cannot be used during the fixed term).
The NLA has criticised this suggestion, explaining that the Section 8 procedure requires landlord to endure a slow and expensive court process simply to end the tenancy legitimately. As such, landlords often opt for the Section 21 route, not because they are without good reason, but because the end result is delivered far more smoothly, swiftly and cost-effectively. To combat this complaint, the government have suggested that court processes will be expedited to allow repossession of property in the event that the tenant is in rent arrears or has damaged the property. This is, however, easier said than done and the proposals to “digitise the court process” and “provide better guidance” are hardly ground-breaking.
Under the new proposals, landlords will continue to have the ability to evict tenants where the tenant breaches the AST terms (e.g. the tenant fails to keep the property in a state of good repair and condition), where rent is in arrear or where the landlord plans to sell the property or live in the property themselves. The proposals do not, however, provide a platform for the landlord to terminate the tenancy where they wish to rent to another tenant for an increased sum. After all, landlords are running a business and businesses need to make money. That said, rent reviews will continue to be allowed annually, restricted only by the opportunity for the tenant to challenge the new rent if they do not agree that it reflects market value. In other words, landlords will still be able to ensure that they are receiving the market rate for their properties.
In addition, at the outset of the previous consultation, the government argued that a high turnover of tenants means increased costs in finding new tenants (e.g. agency fees) and increases the possibility of vacant properties. Empty properties do not generate income for landlords and therefore improved terms for tenants will provide increased financial security for landlords. The government also suggested that tenants who spend longer in a property will take better care of the property. This means that less would be spent in repairing and professionally cleaning property between tenancies (where this cost cannot be recovered from the tenant’s deposit). These arguments are still applicable to the new proposals.
Whilst the proposals are undoubtedly favourable to tenants, it remains to be seen how they would affect the tenant’s position in reality.
The government argue that the proposals balance the tenant-landlord relationship. However, the NLA criticise the proposals as effectively creating indefinite tenancies, and it is foreseeable that landlord’s will seek to mitigate this risk, tipping the tenant-landlord see-saw back in favour of the landlord.
This is demonstrated by the example in Scotland, where the same proposals were implemented in 2017. Scottish landlords have responded by exercising their continuing right to review rent annually, thereby ensuring that they receive the market rate. Where one of the key issues facing tenants is crippling rent prices, it is arguable that by allowing annual rent increases the proposals do not protect the tenant and that the prospect of increased rent may lead to the tenant ending their occupation.
Furthermore, where a landlord is faced with the potential of an indefinite tenancy, they are far less likely to take on tenants who they perceive as “risky”. It is therefore likely that tenants will face increased scrutiny during the due diligence process and landlords will seek lengthier and stricter guarantees. This may leave the most vulnerable of tenants (the very tenants that the government are seeking to help) in a position where they are unable to find a landlord who is willing to let to them.
The previous consultation did not lead to reforms and has instead breathed life into further consultations. A more cynical view could argue that the proposals are well timed sound bites aimed at the ever-growing pool of tenant voters. The housing crisis is an undeniable reality, but whether the latest proposals provide the solution and lead to legislative reform remains to be seen.
The requirement to obtain a court order is likely to attract criticism during the impending consultation. Indeed any reform that proposes to remove a tried and tested process in favour of increasing the court’s workload is unlikely to be well-received.
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