Analysing the Proposition

I’ve recently been looking at the government’s latest proposal for housing reform, and I thought I’d invite you to join me in dissecting the latest act in the ever-evolving drama of British real estate - the introduction of a Rental Reform Bill. Hurriedly brought to the limelight of Parliament last week, with a second reading scheduled the very next day - quite the brisk pace for our usually leisurely legislature, wouldn't you agree?

I can see many landlords are panicking, again. Take the opportunity, and advantage, of joining a good peer group like a Table, or if you’re not quite ready for that, attending a networking environment like Blackfriars Pin or Central London Property Network, to discuss the changes with other landlords and find out what it all actually means. Or you can pour yourself a tea, or something stronger, and read on for my own humble opinion. 

As we sit reading this, drinking a well-earned glass of our favourite tipple, one can't help but wonder if this accelerated rhythm of law-making reflects the typical increase in gravity borne by landlords. The past five years have witnessed a saga of tax reforms (please accept my apologies as this link actually downloads a document written for the NRLA but it’s the best resource I found), as engaging as a poorly written tragicomedy, with landlords cast in the role of the villain. Painted as 'the wicked ones', these once proud characters have been increasingly at the mercy of an unsympathetic public opinion.

The tightening grip of regulatory oversight can indeed feel like an unyielding squeeze – I picture a Bing Crosby classic playing over the grating sounds of mounting frustration, and see it turning into the frenzied run on the bank depicted in It’s a Wonderful Life 4 as we rush to sell. However, it would be remiss to overlook the balancing act at play. The rental scene in the UK has been heavily skewed, with a rogues' gallery of unscrupulous landlords profiting from subpar living conditions, leaving renters grappling with the raw end of the deal. When I was starting off many years ago, I saw a great deal of squalor, and renting conditions have largely improved, but there is still far to go. 

The new legislation brings with it a host of questions. Is it the long-awaited blessing for renters? Might it bridge the gap, serving both landlords and tenants alike? Or is it merely another jab at the bruised image of landlords, echoing the blows dealt by past tax reforms?

I first dipped my toe into the waters of renting property in 1993. By the 2010s, my presentations at the enjoyable and informative property investment gatherings of Pin were about compliance, practical implementation, and how to embody the role of a landlord who fosters harmonious relationships with tenants. My selling point to be invited to present to investors, as I confidently proclaimed, was "A good tenant is one who stays and pays". However, the narrative of Landlord 101 was not without its horror show – landlords painted as Johnny from The Shining - to encourage peaceful occupation, and images of houses in flames - to drive home the importance of up-to-date gas certificates and fitting smoke alarms. In more recent times I've been witness to the troubling disparity in the level of service provided to landlords and tenants by reputable industry establishments. Legacy letting agencies, basking in their reputations, are unfortunately often found wanting, leaving renters facing a highly disappointing reality. A more modern tech embracing combination, mixing Home Made with Evo Property Management for example, would charge less and yet be more aligned with their landlord client. Somehow, they also manage to understand and get on well with the tenants. And that is, after all, the goal, isn't it? 

And so, we find ourselves contemplating the conundrum: What does the new bill hold in store for the landlords and tenants? Should it pass muster and be enacted, when might we see its impact and what does it portend for the future? 

Let us delve into these ponderings together, shall we?

No Term for New ASTs

Among the first proposals that piques my interest, is the intriguing notion of having no minimum term for a tenancy - indeed, no term to speak of at all. A rather curious move, wouldn't you agree? Especially considering this contradicts some of the sage counsel that the powers-that-be have received, particularly in relation to our young, our students at university. The young, standing on the precipice of life's grand adventure, could undeniably benefit from a spoonful of responsibility, such as signing up to a years’ tenancy, in line with their year’s accommodation. 

Tenant Serving Notice 

Our renters, under this proposed legislation, can blow the proverbial whistle on their lease with two months' notice. Unlike their landlord, which I discuss below, reasons can be as varied as the notes of a symphony (well, any reason to vacate, that is).

Now, in one sense, this could be seen as a small nod to stability for our beleaguered landlord’s business. The period of notice has seen a growth spurt, from a rather impractical one month to a slightly more comfortable two. This provides the landlord slightly more opportunity to hire personnel for clean-up, any redecoration, and then the tenant find. Furthermore, it seems to level the playing field somewhat for the Assured Shorthold Tenancy (AST) contract, bestowing a more equitable power balance upon our two key players - landlord and tenant. This, as I've always understood, is a fundamental statutory requisite for contracts.

Yet, as we tip the scale to inspect the other side, we stumble upon an interesting wrinkle. Due to the 'no minimum term' rule, our tenant can decide to pack up their bags from the very first day of their tenancy, serving their two months' notice right off the bat. This throws a rather unexpected spanner in the works, making the act of leasing a dwelling slightly more perilous for our landlords.

In general, given the costs associated with changing domiciles, it's highly unlikely that a good tenant would make haste to serve notice. Yet, when we draw up the rulebook, it's not designed to police the actions of the virtuous, but rather to shield them from the transgressions of the less principled. In this respect, it appears the bill has rather lost its compass on both sides. 

And this is the issue, from my perspective, of the way the bill is proposed. We are all hoping to see less of the nightmares portrayed on programs like Channel 5’s Nightmare Tenants, Slum Landlords. I’m just not sure this will do what’s needed to help. 

The contractual term in an AST, you see, is there to provide a soft cushion of reassurance for both tenant and landlord, a mutual agreement to abide by the rules of the game for an agreed-upon period. And theoretically both get a say as to the length at the outset. If our tenant isn't bound to the terms for any given period, it does seem to leave our landlord standing rather precariously on the edge of a cliff. An unnecessary gamble perhaps? 

Landlord Serving Notice

No Fault Evictions 

Quite the tantalising headline, isn't it? And I have heard many landlords complaining about the very idea. But this is truly the case and the proposal is to end Section 21 as a form of termination. And how does the ink dry on this sensational script? 

The scope for a landlord to bid adieu to their tenant would be limited to four very specific instances under the proposed regulations. Casting our gaze towards the first two reasons, we find that they pivot around the behaviour of our tenant:

Rent Arrears 

The alterations here aren't drastically distinct from the present situation. An eviction notice can be served if the tenant's arrears amount to two months of rent payments. The tenant would need to be two months in arrears on the day the notice is served and on the day of the court date for the standard rule to apply. 

Another circumstance where arrears can serve as a reason for eviction is when the tenant has fallen two months behind on three separate occasions - presumably a signal that the tenant's behaviour has become too weighty a cross for the landlord to bear. 

However, the proposed alteration does raise a few eyebrows when we consider the potential actions of a rogue tenant. An opportunistic tenant could saddle the landlord with substantial costs by exploiting the loopholes in the regulations. Without alternative mechanisms outside of the "drag your tenant to court" pathway, bearing the costs of eviction seems to be the only game in town. 

Antisocial Behaviour

At first glance, it seems that the tide has turned in the landlord's favour when it comes to evictions due to antisocial behaviour. The notice period is projected to be shorter. 

But any landlord who has wrangled with antisocial or other troublesome tenants knows all too well that the court system is a labyrinth of delays and a sure-fire recipe for financial strife. If you've taken this journey once, you'd likely consider hari-kiri rather than face the prospect of a repeat performance. And it seems that being a landlord these days is a financial burden in and of itself, what with the recent tax alterations. You might well have felt the urge for hari-kiri on your first round. 

The government has assured improvements to the court systems for landlord-tenant disputes but colour me sceptical - will this really materialise? Housing, as Blackstock Consulting continue to point out, hasn't quite been at the top of the government's to-do list for a while now.

The remaining two grounds for eviction revolve around the landlord's own business model: 

Sale of the Property

& 

Family Members Moving Into the Property 

It seems fair that someone might want to provide accommodation to themselves, or their children. It also seems fair that a landlord might at some point wish to cease being a landlord for a specific property, or perhaps exit the business altogether. 

Both actions are off-limits for the first six months, which seems like a reasonable ask and frankly could have been 12 months. After all, a good landlord ought to have sufficient financial forecast for their business model to function as projected for that long. The fair contract rule does come into question though. 

To prevent misuse of these grounds for eviction, certain rules have been proposed. For instance, the landlord cannot remarket the property within three months. However, I would contend that the current proposals may not be stringent enough and could still leave room for manipulation by unscrupulous landlords. It’s worth viewing at least one episode of that Channel 5 show, as it’s compellingly shocking. 

Other Reasons

The only other reasons, other than for very specific landlords like university halls operators and RPs, are if you're beneficial interest as a landlord is being terminated, either by a mortgage repossession, or in the case of Rent to Rent operators, your lease ending. Again this seems like a point open to abuse by the less scrupulous.

Rent 

Now, let’s look at the matter of rent, a topic that could potentially raise the blood pressure of you readers who are landlords. 

In truth, the proposed changes aren't that far removed from the current lay of the land overseen by Section 13. Given that the idea of a tenancy term has been tossed out like last season's fashion, it follows suit that contractual rent reviews should also be given their marching orders. Instead proposed is essentially what currently sits in a periodic. Landlords can propose rent increases only once in every twelve months, providing 2 months’ notice for the change, and these hikes must not exceed the rates suggested by market comparables. Tenants have a means to dispute unreasonable increases and a safety net to ensure they're not being stealthily evicted through financial strain. Overall, this seems like a fairly balanced measure, barring one small caveat - wouldn't it be prudent to set a cap on a single increase, close to 5%, to avoid situations where prices spiral out of control, as we witnessed in the wake of the recent pandemic?

1/2 Time Verdict?

So, what's my verdict on the matter thus far?

The fundamental principles hold water, but the devil, as they say, is in the details, and the finer nuances of the proposals seem somewhat hastily conceived or slightly misguided. 

The majority of landlords, those who are good-hearted and conscientious, have no issue with running a stable enterprise. They recognise that they are in the business of providing homes and that this honour comes replete with responsibilities. They aspire to provide their tenants with a joyful existence in secure, comfortable accommodations, provided it doesn't result in their own personal turmoil.

However, extending a lifeline to the less scrupulous characters in our story hardly seems wise, no matter how you frame it.

As we traverse further into the labyrinth of proposed changes, we stumble upon elements that seem to carry a rather distinct bias against landlords and the enterprise of property letting.

Maintenance Redress 

This measure introduces an additional fiscal burden for landlords, heaped on top of the landlord license that debuted what seems like a few short years ago, to fund yet another ombudsman-style department. Shifting the financial weight off tenants when they must prod their landlord into action is indeed a laudable concept. However, as mighty as this proposed redress scheme appears on paper, with hefty fines for being in breach, I question its potency in the face of wilful miscreants. It's akin to spending good money on a splendidly forged sword for a knight, but not teaching him how to swing it, and watching as he loses his arms.

Landlord Database 

The establishment of a landlord database seems like an unequivocal necessity. The database would enable prospective tenants to scrutinise the track record of a landlord before making an offer and parting with their holding deposit. On the surface, it's a stellar concept.

But let's not stop there. Why hasn't the creation of a national tenants database received a similar nod in these proposals? The absence of this equally critical tool in the blueprint leaves me a little flabbergasted, if expectedly so. At present, various private entities are attempting to stitch together tenant databases – and the first one I recall encountering appeared on the scene around 2011. Yet, due to them being private, they lack coherence. A feedback system of both sides would benefit both landlords and tenants hugely, and the government's intervention seems urgently needed to weave the disparate privately made threads into a seamless tapestry, and arguably would force an impact for rental reform above anything else. 

Pets 

And finally, we come to the seemingly 'hairy' subject of pets. A very personal subject for myself, as I recall being overjoyed when touring US multifamily schemes owned by Greystar and Bozzuto, from whom we could all learn a thing or two, that pets were catered for and encouraged, and yet I was also distraught that my own dog, a beautiful, and well behaved German Shepherd, was unilaterally banned from all schemes due to breed, despite historically making some of the best blind dogs.

The verbiage of the proposed changes around pets is about as clear as a historic London smog. As it stands, a landlord is required to evaluate each pet request on its individual merits and cannot unjustly deny the tenant. The examples provided on the government's website are plentiful, and the term 'reasonable' pops up both in the existing guidelines and the new proposal. As far as I can interpret, the legal definition remains largely unaltered.

Ban on Discrimination

Tugging at the reins of our residential property realm, the impending Renters Reform Bill is primed to cast a firm 'no' towards the notion of blanket bans on renting to tenants receiving benefits, or those nurturing the next generation.

Our Government is apparently determined to uphold the banner of fairness and posits this as a safeguard against unjust discrimination, ensuring no family is unduly disadvantaged in their quest for shelter. This manoeuvre echoes a deep-seated belief of mine: that in our quest for financial stability and success, we must not overlook our duty to extend a helping hand to those less fortunate than ourselves. Life is a dance of give and take, after all. What a step in the right direction!

My Summation

After digesting the proposed bill, I find myself concluding that most of the raft of proposed changes are more akin to a gust of hot air than any genuinely unnerving reform. Much of the tenant-focused elements are indeed warranted, but I can't help but feel that the target was slightly missed. 

For the Tenant 

I anticipate an uptick in evictions in the short term, as landlords may rush to do so before they find themselves shackled by the new regulations. 

Furthermore, I expect future tenant applications to undergo an increasingly rigorous vetting process, as landlords will want to compensate for the perceived, heightened risk by scrutinizing their tenant selection more meticulously. 

Is this a positive development for those in desperate need of homes?

For the Landlord 

Financially, this could prove another strain on landlords, many of whom are already treading water, barely keeping their heads above the current tide of interest rates. 

Consequently, we may witness a minor property shuffle, with a few dwellings changing hands, and perhaps the odd opportunistic investor snatching up a bargain. 

They do refer to such developments as 'all in the name of progress', don't they? 

For Us All

If you're a landlord or tenant, in need of assistance from a well versed legal firm, you could do a lot worse than to contact Jessica Howard at Gunner Cooke. She knows your rights and, in my experience, brings about cost efficient solutions.

Keep up to date with TableNetwork’s posts by signing up for Blog Updates. And if you’re a landlord looking to improve your game, let us know if you’re interested in joining one of the real estate focused Tables  starting in September. 

You can also get in touch with me, your humble author, on LinkedIn. 

Ed Fowkes 

May 2023