Legislation continues to play a critical role in shaping the rights and responsibilities of both tenants and landlords. Our previous article on The Renters (Reform) Bill (“Bill”), which remains a hot topic in the real estate industry, discussed potential implications for rental property owners.
What is new with the Bill?
Whilst the Bill remains subject to debate and change, it is imperative that landlords and managing agents are aware of the possible implications, so they are best prepared for the day the Bill receives Royal Assent and becomes law. In this regard, we consider the impact of rent increases will be key and provide our initial thoughts on this aspect below.
Under current legislation, landlords are able to benefit by the utilisation of a statutory process (Section 13 Notice) to increase the rent. If the tenant does not agree to the proposed increase, then the landlord may be at liberty to terminate the tenancy by serving a Section 21 (‘no-fault’) Notice and find a willing tenant to pay the desired level of rent. The Bill seeks to reverse this inequality.
What happens if Section 21 is abolished?
If the Section 21 Notice eviction procedure is abolished (as currently anticipated), then landlords and managing agents will need to be aware of all statutory rights and obligations to ensure rental income is maximised. Government guidance on the Bill states:
‘… all rent increases will be via one mechanism which replicates the existing section 13 process.’
In summary, this means:
- landlords will need to serve tenants with notice to increase the rent; and
- tenants will be afforded an opportunity to challenge the proposed revised rent and (if agreement is not reached) be able to refer the matter for determination by the First-tier Tribunal (Property Chamber).
This process is presently available but rarely used given a landlord remains entitled to invoke the Section 21 Notice procedure should a tenant not be willing to agree the proposed increase.
What effects will these changes have to landlords and tenants?
This is a fundamental change to the status quo and has the potential to significantly increase i) costs incurred by landlords; and ii) the Tribunal’s workload.
Whilst tenants may not presently consider it prudent to seek determination from the Tribunal (given the landlord is at liberty to retaliate by way of eviction), such change is likely to embolden and empower tenants who may feel they have nothing to lose by challenging proposed rent increases.
This is particularly so where tenants are unlikely to be subject to eviction ramifications.
A further concern for landlords is not only the immediate cost implications of responding to a Tribunal application, but whether such costs may be recoverable. Unless the tenant applicant has acted unreasonably, a Tribunal is unlikely to award costs.
Furthermore, the Tribunal procedure may be subject to significant delays should it become overburdened with tenant applications. This is also likely to be prejudicial to landlords who would be prevented from increasing the rent until applications have been determined.
Conclusion
Whilst the Bill remains at the initial reading stage, it is clear that the proposed legislation seeks to fundamentally change the rental housing landscape, with a focus on protecting tenants and regulating rent increases.
We are closely following progress of the Bill and will provide further updates as it progresses through Parliament. In the meantime, landlords and managing agents should carefully consider the likely implications to ensure they are fully informed and ready for when the Bill becomes law.
To discuss any of the points raised in this article, please contact Daniel Blake or fill in the form below.
