14/06/2023
Introduction
This is our final article in our Spotlight series of articles looking at the key changes proposed by the Renters (Reform) Bill. This article will cover the main outstanding areas of change which include the proposed right for tenants to keep pets, the proposed new rent increase procedures, the introduction of a new PRS ombudsman, and the introduction of a database of residential landlords and privately-rented properties in England.
Background
As we have discussed in previous articles in this series, the Bill is intended to provide tenants with a greater degree of security and certainty when it comes to renting, whilst simultaneously seeking to balance the interests of landlords and not dis-incentivise them from letting out their properties. Looking at the changes considered by this article in depth:
- Rent Increases: Overall, the Bill looks to create a more level playing field in the residential lettings market and to stamp out unfair practices. On rent increases, it is proposed that the only way that a landlord (subject to some important exceptions) will be able to raise the rent going forward will be via the statutory “section 13” procedure, thus ruling out contractual rent increase clauses that would operate outside of section 13. This aims to prevent landlords obtaining possession by increasing rents unfairly to achieve rents above market norms.
- Database: By introducing a private rented sector (PRS) database, the Bill’s stated aim is to help landlords understand their legal obligations and demonstrate compliance, and provide better information to tenants so that they can make more informed decisions when entering into a tenancy agreement.
- Redress: It is acknowledged that in other, similar, sectors there already exists redress schemes, such as the Housing Ombudsman in the social housing sector. The Bill seeks to introduce a similar scheme for the private rented sector which will enable tenants to seek redress via a binding ombudsman service. The Bill aims to provide a means of redress for tenants as an alternative to the court system; being to provide a forum to provide easier and cheaper access to fair, impartial and binding resolutions to landlord-tenant disputes.
- Pets: The Bill acknowledges the potential significance to a tenant of keeping a pet and looks to bolster the right of tenants to be granted permission to keep a pet in their rented property. This is consistent with the Bill’s overall aim to create a greater sense of ‘home’ for tenants in their rented accommodation. Despite being one of the more peripheral changes proposed in the Bill, this has already generated a lot of public interest.
More details on the proposed changes
Rent Increases
Currently, residential landlords have a number of options available to them to increase rents. These include:
- putting contractual rent increase terms in tenancy agreements at the outset to govern how, when and by how much the rent will increase
- relying on the annual statutory rent increase procedure in S13 of the Housing Act 1988, or
- ending the tenancy agreement using a S21 notice and entering into a new tenancy agreement at a new, higher rent.
If the Bill passes in its current form, this will all change. Going forward, the only route available to a private residential landlord to increase the rent will be by using the (modified) statutory procedure under S13 of the Housing Act 1988. This will require the landlord to give the tenant two months’ notice of the proposed new rent in a standard form, an increase from the current one month’s notice. If the tenant considers the new rent to be too high and above the market norm, they will be able to apply to the First-tier Tribunal for an assessment of the new rent. The tenant will also be able to seek a rent assessment in the first six months of any residential tenancy agreement.
The effect of this provision is to achieve a degree of rent control, by ensuring that all private sector rent increases will be subject to independent review if the tenant feels the proposed increase is too high. The Bill will also prohibit ‘backdoor evictions’, where landlords raise rents to unsustainable levels in order to ‘manage tenants out’ of their property. The Tribunal would assess the rent based on market rents in the local area and could determine a lower or higher rent than the landlord originally proposed. Whilst the section 13 procedure has been on the statute book for many years, the changes proposed will see it used universally in the private sector. This could significantly increase the workload of the First-tier Tribunal, particularly in the short term whilst the new changes bed in and landlords have to adjust their rent-setting practices.
The Bill introduces this change differently in respect of what it calls “relevant low-cost tenancy” agreements. Broadly speaking, these are tenancy agreements of social housing. The Bill treats these differently as social housing is regulated, therefore rent levels are regulated by the Rent Standard.
For tenancy agreements of social housing regulated by the Rent Standard, the Bill will change very little. The landlord will retain the choice between increasing the rent via the Section 13 process (this will be modified by the Bill and different from the Section 13 process for tenancies that are not “relevant low-cost tenancies”), or by operating a contractual rent increase process that would operate outside of section 13 (with the protection for tenants in the latter scenario coming from the wider regulation of social landlords imposed by the Rent Standard).
It is common for large social landlords to offer a range of tenancy agreements, often from a number of different organisations within a group of companies. In such cases, if these changes are enacted then such landlords may need to manage two different rent increase regimes – one for “relevant low cost tenancies” and one for all other types of tenancy.
New PRS Database
The Bill seeks to increase the regulation of the private rented sector, and one way in which it seeks to do this is by capturing the details of all private residential landlords, and the properties that they let (or intend to let), on a new PRS database. (Note that not all properties will be required to be registered, for example houseboats and caravans would not need to be registered.)
It is proposed that landlords should register themselves and their properties on the database, as well as also logging certain prescribed information on the database. The detail of what will need to be registered for a property will follow in future regulations, but it is expected that this will include current gas and electrical safety certification. The intention is that this information will need to be registered before a property can be marketed for let. Whilst the Government envisages a ‘grace period’ whilst the database is implemented and populated, there will in due course be significant penalties imposed for those marketing a property that is not properly registered on the database. These penalties will apply to letting agents as well as landlords.
The new database is expected to replace the “Database of Rogue Landlord and Property Agents”, which was introduced with some fanfare by the Housing and Planning Act 2016 but never really gained any momentum. It will also record details of any ‘banning orders’ relating to a particular landlord or other significant notices such as statutory improvement notices.
The database is intended to provide a central place for tenants to find relevant information in order to make an informed decision about the properties that they are considering renting. There will be a fee for landlords to pay to join the database and, potentially, significant fines for failing to join the database when required to do so. All landlords of relevant tenancies, which are not social housing, must join the database once it is established. All landlords (including registered providers who offer a mix of tenure types) will need to understand whether any of their stock means they are required to join the database.
Redress
The Bill seeks to increase the availability of redress for dissatisfied tenants. The proposed new Ombudsman scheme is intended to ensure that tenants can have complaints against landlords heard in a fair and balanced manner, resulting in a binding decision outside of the court system
There is already precedent for this in the social housing sector, with the Housing Ombudsman increasingly involved in deciding disputes and imposing sanctions against landlords who have fallen short in their duties to their tenants. Landlords will be charged a fee to join the scheme and, like the database, they must join. The scheme will provide for the investigation and determination of complaints from prospective, current and former tenants of a residential landlord. It is intended that decisions made by the Ombudsman will be binding and as enforceable as a court order, though the detail of how this will be achieved is awaited.
Whilst residential landlords can currently join the Housing Ombudsman scheme voluntarily, and the intention going forward is that there will be one Ombudsman scheme for the private rented sector. This is to cover all private rented tenancies, including those that are let and managed by registered providers. This means that those providing social housing and non-social housing may become subject to two separate Ombudsman schemes.
Right to keep pets
It appears to be a policy priority to strengthen the rights of tenants to be able to keep pets in their properties. There are of course many and good reasons why the ability to keep a pet can be very important for a tenant and the Bill seeks to address this. Accordingly, the Bill will introduce an implied term into tenancy agreements that will prevent absolute prohibitions on pets and give tenants the right to request to keep a pet. A pet, for the purposes of the Bill, is defined as an animal kept by a person for personal interest, companionship and/or ornamental purposes. How such a provision will be applied in practice remains to be seen!
On receipt of a tenant’s request, the landlord would be required to provide the tenant with a written decision within an appropriate timeframe, which will need to reflect the complexity of the request. A landlord will not be able to unreasonably refuse the request. What constitutes a reasonable refusal will be fact-sensitive and this is likely to lead to dispute in many cases. Where a superior landlord has refused a landlord’s request for permission to keep a pet, or if granting permission would put a landlord in breach an agreement with a superior landlord, a landlord will be able to refuse permission and such refusal will be reasonable.
As a condition of granting permission, a landlord will be entitled to require the tenant to take out insurance against damage caused by their pet, or, as an alternative, the landlord may require the tenant to pay for the landlord to take out such insurance.
In many respects, the Bill simply clarifies and codifies the current law in respect of pets in rented properties, which has developed via consumer law (see here for example). However, what the Bill will do is raise awareness across the rented property market that the Government’s stance is that the default position should be that a landlord will need good reason to refuse a tenant’s request to keep a pet.
These proposed changes would not apply to tenancies of social housing. However, this does not mean that landlords of social housing should be able to impose blanket bans on keeping pets, as the existing law around unfair terms in consumer contracts will continue to apply.
Other miscellaneous changes
Although we will not comment on these areas in detail, the following additional proposals contained in the Bill are worthy of note:
- Transitional arrangements: The Bill contains detailed transitional provisions setting out how the new regime would be phased in.
- Tenant Notices to Quit: There are provisions to regulate how tenants wishing to end their tenancy agreement will need to do so. The proposal is that tenants will need to give two months’ notice to quit to end on the last day of a tenancy period. Tenants will not need to give a reason to leave.
- Statement of Terms: Landlords will need to provide tenants with a “statement of terms” at the start of a tenancy. The statement is intended to bring clarity for a tenant about the core terms of the tenancy and therefore avoid disputes. Landlords will therefore need to be careful to ensure that the information contained in them is accurate.
This article is the last of our Spotlight Series on the new Bill. It will be subject to change as it passes through parliament. We will be tracking the Bill’s progress and will issue further updates at the appropriate times.
If you wish to discuss this further, please contact Kate Hicks, Senior Associate or Steve Eccles, Partner.
This article was co-written by Fiona McDonald, Legal Director and Angus Kirkwood, Trainee Solicitor.
If you’ve missed any of the previous Spotlights in this series, you can find them here:
Spotlight on: an overview of the Bill
Spotlight on: New grounds for possession
Spotlight on: Supported and Temporary Accommodation
Spotlight on: Tenancy structure reform and the abolition of S21 ‘no fault’ evictions
