The long-awaited Renters (Reform) Bill had its First Reading in Parliament on 17 May 2023. The Government’s objective is to grant tenants greater security from eviction by significantly reforming landlords’ existing rights to possession under sections 8 and 21 of the Housing Act 1988. The key changes that are proposed include abolishing the current use of “no-fault eviction” under section 21, reforming the grounds for possession under section 8 and transitioning all assured shorthold tenancies to periodic tenancies. In addition, the Bill will end the current use of rent review clauses by restricting any rent increases to once per year and will require all private landlords in England and Wales to join a government approved Ombudsman.
The prospect of increased legal protection for tenants and greater commercial restrictions on rental increases could be an early warning for landlords to act sooner rather than later if they wish to regain possession of their property.
The Abolition of Right to Possession under Section 21
Under the existing legislation, a landlord may regain possession for any reason by validly serving a section 21 notice on their tenant who then has a two-month notice period to vacate the property. The landlord has a right to possession irrespective of fault by the tenant (for example they do not need to have breached any terms of the tenancy agreement). If the tenant fails to vacate by the end of the notice period the landlord may apply to Court for a possession order. The notice is useful for landlords who wish to gain possession for any commercial reason or are unhappy with issues caused by their tenant which fall below the legal threshold of grounds for possession under section 8.
The Government’s position is that the “no-fault” element of section 21 is unfair on tenants, exemplified by a record level of evictions in the past year as both landlords and tenants bear the weight of the cost-of-living crisis. However, by removing section 21 and limiting rental increases, landlords may be incentivised to regain possession of their property prior to the Bill’s introduction - inadvertently leading to a greater number of evictions as mortgage interest rates continue to rise and landlords are forced to mitigate the risk of their investment.
The Government aims to achieve an appropriate balance by strengthening landlord’s grounds for possession under a reformed section 8.
Strengthening of Mandatory Grounds for Possession under Section 8
A section 8 notice is issued to end an assured shorthold tenancy when the tenant has breached the criteria under Schedule 2 of the Housing Act 1988. The most common grounds for possession are for rent arrears or a breach of the tenancy agreement:
- Ground 8 – Serious Rent Arrears
- Ground 10 – Rent Arrears
- Ground 11 – Persistent Delay in Rent Payments
- Ground 12 – Breach of Tenancy
The benefit to a landlord of serving a section 8 notice is that the notice period for eviction under many of the grounds are shorter (two weeks as opposed to four weeks) and they can also apply to the Court to recover any rent arrears from the tenant. There are two types of grounds for possession under section 8; mandatory and discretionary. An application under mandatory grounds must lead to an order for possession if the ground is made out. In contrast, an application under discretionary grounds permits the judge to assess whether an order for possession is reasonable, taking into account all circumstances of the case.
In order to mitigate landlords’ loss of protection when section 21 is abolished, the reforms to section 8 include introducing a new set of mandatory grounds for possession. These new grounds allow landlords to apply for possession for new reasons without being burdened by passing the ‘reasonableness’ threshold in Court. A few of the new grounds are as follows:
- Grounds 1A and 1B – new grounds for possession (for sale or transfer of the property)
- Ground 7A – severe anti-social behaviour
- Ground 8A – repeated rent arrears (when at least two months rent has been unpaid for at least a day on at least three distinct instances)
The new grounds 7A and 8A aim to bind problematic tenants with liability who would have previously caused issues to a landlord but fell below the existing legal threshold of grounds for possession. The freedom for landlords to manage their property and exercise their commercial interests are recognised under grounds 1A and 1B. However, the introduction of the new mandatory grounds are not without increased obligations on landlords. The Bill introduces a new set of tenancy deposit rules in section 215 that now apply to the reformed section 8 notice. At present, landlords are required to comply with tenancy deposit rules and must serve adequate documentation regarding the property on the tenant, prior to the start of the tenancy in order to use section 21. These pre-requisites act as a strong limitation on the enforcement of the section 21 notice and many landlords are left with section 8 as their only recourse, with the rules acting as a clear barrier to enforcing “no-fault eviction”. This addition highlights how landlords must take greater care than ever when entering a tenancy agreement and provides tenants with greater protection both from eviction and abuse of deposit schemes.
Increased Notice Periods under Section 8, Limits on Rent Increase and the New Ombudsman
The benefit to tenants under the reformed section 8 is that the notice period for many of the grounds have been extended from two weeks to four weeks, even when they are at fault. Furthermore, the risk of consistent rent increases has been mitigated to once a year. The Bill recognises the difficulty faced by tenants who may be forced to relocate their home and this is further demonstrated by the requirement for all private landlords to join the new Ombudsman. The purpose of the Ombudsman will be to provide a quicker and cheaper resolution to a dispute and will allow tenants to seek redress for free where their landlord has failed to deal with a legitimate complaint.
It is unclear exactly how much greater protection tenants will be afforded and it may pose a greater barrier to landlords regaining possession if greater assistance is provided to tenants than under the current system.
Further guidance on the proposed changes under the Renters (Reform) Bill can be found here: https://www.gov.uk/guidance/guide-to-the-renters-reform-bill
If you would like any further information on these changes and how this may affect your property or you would like to regain possession of your property prior to new legislation coming to effect, please contact: Mark Brassey (mb@cbglaw.co.uk)