Analysis of the second reading of the Renters' Rights Bill by Foxtons Director - Legal and Compliance, Manjit Kataora.
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 intend 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 of the issues that remain with the Bill, both 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 not only for landlords and tenants but for the industry and practitioners in this area.
Rent in advance
It remains unclear from the Bill whether or not rental payments in advance are permitted. The suggestion in the text is, based on the monthly periodic tenancy structure, that 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 as it stands 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 who have children. No decent landlord engages in such practices anyway. But preventing rent in advance engages the issue of indirect discrimination against other classes of tenancy applicant. 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 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 important 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 came to an end. This Clause does not restrict landlords from requesting rent in advance.
The terms ‘multiple months of rent in advance’ is the interesting bit. It seems clear from this wording that rent in advance is something the Bill actively contemplates. The text of these notes, however, needs reconciling 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.”
This point, as followers of the last Bill might recall, was one that exercised the House of Lords 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 then gives those parties a choice: they can either enter a new fixed term or let the tenancy roll over into a periodic tenancy. 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 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 prior to the commencement date (agreed because that’s what the landlord and tenant both wanted) will be cancelled once the new law comes in. Instead, landlords and tenants will overnight be exposed to earlier vacant possession and earlier 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 brings with it a more significant workload for the court system 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 relatively little to alleviate historic backlogs and the truth is that claimants and defendants still face lengthy delays while they wait 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 not an overnight process.
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, quite possibly, 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 no doubt the centrepiece of the reforms, this needs a bit of context. Assured shorthold tenancies do not universally place tenants at risk from being evicted under Section 21. Though notices can be served during a fixed term, it’s an inherent feature of fixed terms that they protect tenants from being evicted by preventing Section 21 proceedings from being commenced any earlier than either 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 yet afford a mortgage, for young people and for 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 doesn't feature in this piece for that very reason. But genuine concerns in other areas still remain. It’s far from clear at this stage that the difficulties with the old Bill have actually been grasped (there is still no published impact assessment). Instead, the reforms feel a bit 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.
