Section 21 Reform: A return to the rent acts?
The balance of power shifts further towards residential tenants as proposals for radical leasehold reform march on.
The term 'leasehold reform' is most commonly being used to refer to the government's current proposals to rework enfranchisement and commonhold legislation. However, in fact the proposed changes go even deeper into the leasehold system than might first be apparent, with the most recent consultation focusing upon the private rented sector in particular.
Firstly, and to understand why the current proposals may seem unprogressive, it helps to remind ourselves of some key dates in the evolution of private sector residential tenancies and the government's proposed changes.
A brief timeline
Rent regulation has been around since the First World War and the legislation was eventually consolidated into the Rent Act 1977 which governed most residential tenancies up until 1989.
The were some exclusions to this, including lets to limited companies, resident landlords, or those with very high or low rents. These remained ‘common law tenancies’.
Rent Act tenancies were different in three main ways: they were subject to a 'fair rents' register; offered long-term security of tenure; and rights of succession.
However, with the introduction of the Housing Act 1980, it became the Conservative party's policy to dismantle rent regulation.
Regulation for all new tenancies was abolished by the Housing Act 1988, leaving the basic regulatory framework as freedom of contract for the landlord to set any price, thereby leaving rent levels to the market.
Since then most residential tenancies have been assured tenancies, and primarily assured shorthold tenancies, or ASTs.
In addition to paying a market rent, security of tenure was removed by giving the landlord of an AST the right to regain possession of the property at the end of the fixed term (or, if the fixed term is less than six months, six months after the tenancy began), as long as they give two months' notice (section 21 of the Housing Act 1988).
The current government publishes a consultation paper entitled 'Overcoming the barriers to longer tenancies in the private rented sector'. The paper notes the following measures that are being introduced, namely:
- banning letting fees to tenants and capping tenancy deposits to ensure that tenants have more money in their pockets;
- insisting that all landlords are members of a redress scheme so that tenants have quick and easy resolution to disputes; and
- ensuring all letting agents are registered and are members of a client money protection scheme to provide assurance to tenants and landlords that their agent is meeting minimum standards.
However, they also note that “the change in size and make up of the private rented sector has led to growing need for longer, more secure tenancies than the minimum six months offered by the assured shorthold tenancy regime”. The government accordingly launches a consultation seeking views on longer tenancies in the private rented sector, which proposed a new, three-year tenancy model.
The government published its response to the 'Overcoming the Barriers to Longer Tenancies in the Private Rented Sector' consultation and announces that for assured shorthold tenancies it 'will introduce a generational change to the law that governs private renting. This government will put an end to “no-fault” evictions by repealing Section 21 of the Housing Act 1988’.
They identify that it will be important to find a balance between giving tenants greater security whilst ensuring landlords are able to recover their property if needed – 'We do not want to discourage investment in the sector or affect the supply of good quality rental accommodation'.
Therefore, to ensure landlords have confidence they will be able to end tenancies where they have legitimate reason to do so, it is stated that 'we will also strengthen the Section 8 possession process, so property owners are able to regain their home should they wish to sell it or move into it'. These will be in addition to the existing grounds which allow landlords to evict tenants who don’t pay the rent or commit anti-social behaviour.
On 21 July 2019, the government published a further consultation: A New Deal for Renting: Resetting the balance of rights and responsibilities between landlords and tenants.
This consultation confirms that, at the same time as repealing section 21, the government proposes to remove the entire AST regime. This means that in future, the default position will be that a tenancy is a periodic assured tenancy unless the landlord and tenant have agreed a fixed term in writing. A tenant under an assured tenancy may not be evicted unless the landlord can provide grounds (under Schedule 2 of the Housing Act 1988) or where a break clause has been agreed between the landlord and the tenant.
The consultation closes on 12 October 2019.
Once the consultation closes we can expect draft legislation to effect the government's proposed reforms.
Interestingly whilst the government moves towards reintroducing security of tenure, the London major Sadiq Khan has confirmed he will demand an overhaul of tenancy laws in a campaign for London rent controls that is set to be the cornerstone of his 2020 re-election campaign.
The government has commented on Khan's proposal by stating that its proposals to abolish no fault evictions and ending letting fees "will create a housing market that truly works for everyone – in direct contrast to rent controls which could drive responsible landlords out, could reduce investment in high quality housing and ultimately push rents up''.
The good news for tenants is that in the current political climate, both parties appear to have identified a need to redress the balance of power and improve the position of renters.
However, it remains to be seen whether the requirement for a landlord to prove a ground for possession every time they want to terminate a tenancy may well make some reluctant to let out their properties in the first place, reducing the available supply.
The responses to the consultation will certainly make for interesting reading, and both landlords and tenants would be well advised to have their say whilst the government is listening.
Emma Gosling is a senior associate in our Property Litigation team.