Outlawing of section 21 no-fault evictions and other major changes in the Renters’ Rights Bill

Summary  

The Renters’ Rights Bill will make significant changes to the residential private renting system. While the headline may be the abolition of the section 21 no-fault eviction, there are fundamental changes throughout the system, further detailed in this Law-Now. 

Key aspects of the Renters’ Rights Bill

The changes below apply to England and in some places the devolved administrations are mentioned.  This is a lengthy Bill and we have split coverage into particular topics headlined below.

Abolition of section 21 evictions and other grounds for possession

Outlawing of section 21 notices

• The outlawing of section 21 evictions is probably the most noteworthy proposal.
   
• The current position is that a landlord can evict a tenant without providing any reason – known as a “section 21 eviction”. This requires the landlord to give the tenant 2 months’ notice and it is mandatory for the court to order eviction of the tenant if the tenant does not leave during the notice period. This means that tenants can be asked to leave with little notice and minimal justification. They may be also concerned about complaining to landlords about substandard accommodation for fear of being evicted. There is a lack of security of occupation.
   
• The Bill seeks to address this by abolishing section 21 evictions.
   
• Landlords will only be able to end tenancies in specific circumstances set out in law using a section 8 ground for possession – they include where the tenant is at fault or if the landlord needs to sell (see below). There will be no fixed-term assured tenancies and assured tenancies will become periodic.

Tenant’s right to end the tenancy

Tenants will, however, be able to end the tenancy by giving 2 months’ notice. The end date of the tenancy will need to align with the end of a rent period. This tenant’s right to end the tenancy is an important concern for landlords/investors, since it provides tenants with an opportunity to leave at a very early stage and the rental income from those premises will cease. 

Section 8 Grounds for possession and changes to notice periods

• As is the case currently, landlords will have to go to court if a tenant does not leave and provide evidence that the relevant mandatory or discretionary ground is met. For mandatory grounds, the court must award possession if the ground is proven. For discretionary grounds, the court can consider if eviction is reasonable, even when the ground is met.
   
• While some of the current grounds are covered in the new Bill, the numbering and detail of many of the grounds differ as do the relevant notice periods. Further details are included in Table 1 at Guide to the Renters’ Rights Bill - GOV.UK (www.gov.uk) 
   
• Landlords will be able to use the equivalent of current possession grounds for where a tenant is at fault including where a tenant commits antisocial behaviour, is damaging the property or falls into significant arrears.
   
• The possession grounds will be expanded to enable landlords to recover their property when reasonable, for example, to sell or move in. Tenants will benefit from a 12-month protected period at the beginning of a tenancy, during which landlords cannot evict them to move in or sell the property and landlords will need to provide 4 months’ notice. Many of the mandatory grounds have a 4 months’ notice requirement.
   
• There will be new protections for tenants who temporarily fall into rent arrears, with the mandatory threshold for eviction increasing. This means that the tenant must have at least 3 months’ (or 13 weeks’ if rent is paid weekly or fortnightly) rent arrears both at the time notice is served and at the time of the possession hearing (it was previously 2 months’ arrears). The notice period for the rent arrears mandatory ground will be increased from 2 weeks to 4 weeks.
   
• The new tenancy system will be used by landlords outside the private rented sector including private registered providers of social housing (typically housing associations) and providers of supported accommodation, as well as landlords providing temporary accommodation to homeless households. In that regard, there will be a limited number of possession grounds to ensure there is an adequate supply of properties for temporary and supported accommodation and for critical housing schemes such as ‘stepping stone’ accommodation. The changes for social tenancies will be applied at a later date (see below).

Procedural steps for landlord to gain possession

Importantly, landlords will be prevented from gaining possession if they have not properly protected a tenant’s deposit or registered their property on the private rented sector database (for which see below), but such restrictions will not apply to antisocial behaviour grounds. Landlords will be able to rectify non-compliance, so they are not prevented from regaining possession indefinitely.

Rent increases

• The current position will continue with landlords being able to increase rents to market price for their properties. However, tenants will be able to appeal excessive above-market rents with recourse to an independent tribunal. The Government wishes to stop landlords using rent increases as a backdoor means of eviction. Importantly, the Government states that it does not support the introduction of rent controls, and nothing in the Bill restricts landlords raising rents in line with market prices.
   
• All rent increases in the private rented sector will be made using the same process. Landlords will be able to increase rents once a year to the market rate (if the property was newly advertised to let), by serving a “section 13” notice, setting out the new rent and giving at least 2 months’ notice before it takes effect.
   
• If the tenant accepts the proposed rent increase, they simply need to pay the new amount on the next rent day.
   
• If a tenant believes the proposed rent increase exceeds market rate, they can challenge this at the First-tier Tribunal, who will determine what the market rent should be. The Tribunal will not be able to increase the rent beyond what the landlord initially proposed. There will also be no backdating of rent increases – the new rent will apply from the date of the Tribunal determination. If there is undue hardship, the Tribunal will have the power to defer rent increases by up to a further 2 months.
   
• Rent increases by any other means – such as rent review clauses – will not be permitted.
   
• These proposals do not apply to social rented tenants who meet the definition of “relevant low-cost tenancies”. 

Implementation of abolition of no-fault eviction and new system for gaining possession

• The proposal is to implement the new system in one go, so that all tenants will have such security immediately and to avoid a two-tier system. The new tenancy system will apply to all private tenancies - existing tenancies will convert to the new system, and any new tenancies signed on or after the date of implementation will also be governed by the new rules.
   
• Existing fixed terms will be converted to periodic tenancies, and landlords will no longer be able to serve new section 21 or old-style section 8 notices to evict their tenants. The Government’s guide states that there will be sufficient notice ahead of implementation (although no specific timeframes have yet been formally provided). The Bill will seek to avoid unnecessary ‘cliff edges’, for example by maintaining the validity of rent increases and notices served prior to implementation.

Social rented sector

The Government says that it is committed to abolishing section 21 in the social rented sector too, but this will be applied to social tenancies (where the landlord is a private registered provider of social housing) at a later date, yet to be announced.

Alternative to Court action and resourcing fears

There will be provision for the ombudsman to provide landlord-initiated mediation, enabling disputes to be resolved before they escalate to court.

While the Ministry of Housing, Communities and Local Government is working with the Judiciary, the Ministry of Justice and HM Courts and Tribunals Service to ensure that the county court is prepared for the proposed changes to the tenancy system, there are significant concerns as to whether the court system has sufficient resources to deal with the new system.

Private Rented Sector Landlord Ombudsman

• There will be a new Private Rented Sector Landlord Ombudsman that will provide impartial, quick and binding resolution of tenants’ complaints against their landlord. Only tenants will be able to seek redress from the service. All private landlords in England with assured or regulated tenancies will be required by law to join, including those who use a managing agent. When a property is marketed for letting, the landlord will be required to be a member of the ombudsman service and landlords will be expected to remain members for a reasonable amount of time once they have ceased to be a landlord.
   
• Tenants will be able to use the service for free to complain about a landlords’ actions or behaviours and the service will offer fair, impartial and binding resolution for tenants, and will have powers to compel landlords to issue an apology, provide information, take remedial action and/or pay compensation.
   
• Local councils will be able to take action against landlords who fail to join, or against anyone who markets a PRS property where the landlord is not registered. This will include civil penalties of up to £7,000 for initial breaches and up to £40,000 or criminal prosecution for continuing or repeated breaches. Tenants will be able to seek rent repayment orders against their landlord if the landlord commits an offence by persistently failing to join the ombudsman service.
   
• The ombudsman service will be introduced as soon as possible after Royal Assent. Landlords will be given notice of the date by which they will be required to sign up to the ombudsman service and sufficient time to sign up etc. Landlords are likely be required to pay a small annual fee per PRS property.

Private Rented Sector Database

• There will be a new Private Rented Sector Database. All landlords of assured and regulated tenancies will be legally required to register themselves and their properties on the database and could be subject to penalties if they market or let out a property without registering it and providing the required information. Initially it would be a civil penalty of up to £7,000, but if a landlord repeatedly breaches the requirement, or if they commit a serious offence such as providing fraudulent information to the database, they may be issued with a civil penalty of up to £40,000 or could face criminal prosecution. Required information is likely to include (among other matters) information related to property standards. Not all data will be publicly accessible.
   
• Landlords will be required to pay to register on the database.
   
• The database will help landlords to understand their legal obligations and demonstrate compliance and will also assist tenants when deciding whether to enter into a tenancy agreement. Local authorities will be able to use the database for enforcement against non-compliant landlords.
   
• Landlords will need to be registered on the database to obtain a possession order except where the ground under which possession is sought is ground 7A or ground 14 (tenant anti-social behaviour).

Right to request a pet

Landlords cannot unreasonably refuse a tenant’s request to have a pet in the property, but landlords can require pet insurance to cover property damage caused by the pet. The Tenant Fees Act 2019 will be amended so that the reasonable costs of insurance for this taken out by the landlord will be recoverable from the tenant.

Decent Homes Standard (DHS)

• This will be applied to the private rented sector to address concerns over the blight of poor-quality homes. Regulations will set out DHS requirements for private rented sector homes and will provide local authorities with effective and proportionate enforcement powers.
   
• If a privately rented property fails to meet DHS requirements, the local authority will have a range of enforcement mechanisms available.
   
• Landlords who fail to comply with enforcement action can be subject to a civil penalty or criminal prosecution. If such an offence is committed, the tenant or local council can also apply to the First-tier Tribunal for a rent repayment order. 
   
• There will be a legal duty on landlords to ensure their property meets the DHS. For landlords who fail to take reasonably practicable steps to keep their properties free of serious hazards, local authorities will also have a new power to issue civil penalties of up to £7,000.

‘Awaab’s Law’

This will set clear legal expectations about the timeframes within which landlords in the private rented sector must take action to make homes safe where they contain serious hazards. The Bill will require private rented sector landlords to address hazards, such as damp and mould, within a specified time period. If landlords do not comply, tenants will be able to bring enforcement action against them through the courts. In this regard, terms will be implied into private rented sector tenancy agreements.

Tenants in receipt of benefits or with children

• It will be illegal for landlords and agents to discriminate against prospective tenants in receipt of benefits or with children. These protections will be introduced in England and the Government will work with the Welsh and Scottish Governments to extend rental discrimination provisions to Wales and Scotland.
   
• The Bill will ensure that terms in mortgages and superior leases, which restrict the letting of a property to private renters without children or who do not receive benefits, are of no effect, preventing any breach of contract where a landlord fails to fulfil them. A superior landlord may only include restrictive terms on letting to those with children if it is a proportionate means of achieving a legitimate aim.
   
• Any equivalent restrictive terms in a new insurance contract following the legislation coming into force will be of no effect, preventing any breach of contract.  
   
• Local authorities will have powers to impose civil penalties on landlords and anyone acting directly or indirectly on their behalf up to £7,000 for breaches, subject to appeal at the First-tier Tribunal. Landlords and letting agents can receive multiple penalties for continued and repeat breaches.
   
• These protections will be introduced in England and the provisions will be extended to Wales and Scotland via the devolved administrations.

Stopping rental bidding

• The Bill seeks to end the practice of rental bidding by prohibiting landlords and agents from asking for or accepting offers above the advertised rent. Landlords and agents will be required to publish an asking rent for the property and it will be illegal to ask for, encourage or accept offers made above this rate.
   
• Local authorities will have powers to impose civil penalties on landlords and anyone acting directly or indirectly on their behalf up to £7,000 for breaches. Landlords and letting agents can receive multiple civil penalties for continued and repeat breaches.
   
• The rental bidding provisions apply only in England.

Increased powers for local authorities

Local authorities will have stronger enforcement powers through expanded civil penalties and investigatory powers.

Rent repayment orders

These deter landlords from non-compliance and empower tenants to take action against landlords. They will be extended to superior landlords and company directors, the maximum penalty will be doubled to 2 years’ rent and repeat offenders will have to repay the maximum amount.

An end to the risk that a long residential lease can be repossessed on mandatory grounds

As well as significant changes to the private rental system, the Bill also confirms that any lease over 7 years in length cannot be an Assured Tenancy. Significant concerns by leaseholders and lenders, where ground rent payable under a long lease exceeds certain limits, will be allayed. Under the existing Housing Act 1988, long leases can be Assured Tenancies in certain circumstances meaning that a Court would be mandated to order possession where there are significant rent arrears. This has required additional insurance or variations to long leaseholds when an owner seeks to sell. The removal of such leases from the scope of Ground 8 possession will bring comfort to the market.

Comment

The changes proposed in the Renters’ Rights Bill will have a transformative impact on the private renting system.

The changes will provide greater protection for tenants and there will be agreement that some, if not most, of the proposals are needed.

However, there will be significant concerns that the changes especially around abolition of section 21 notices will have a potentially adverse impact on the property market, deterring investment and thereby limit growth in the sector where further investment is required to build new housing.

There will also be concerns about tenants’ ability to end tenancies on 2 months’ notice.

Concerns also remain about resourcing issues with both the courts and tribunal systems, in being able to respond to the increased demands placed on them by the Bill. The Government should provide further details on its proposals for further resourcing for modernising the courts and tribunal systems.

It remains to be seen what changes will be made to the Bill as it passes through Parliament Renters' Rights Bill (parliament.uk)

The British Property Federation has confirmed that the Government has informed them that the PBSA sector will continue to be allowed to issue fixed-term tenancies, based on membership of the Student Codes.