A Fairer Private Rented Sector

Written by Sean Kelly

“Nothing new under the sun”

The Government has just published its White Paper on amendments to residential landlord and tenant legislation including amendments to the Housing Act 1988 (“the 1988 Act”).

The White Paper proceeds on the premise that an assured shorthold tenancy under the 1988 Act (“an AST”) is a long-term tenancy which can be terminated by the landlord by service of a notice under section 21 of the 1988 Act (“a section 21 notice”) and that a section 21 notice can be used as a device to stifle justified complaints by tenants about the quality of the demised premises. 

The White Paper includes a number of commitments to amend or replace the 1988 Act. The commitments include the following:

1. It will no longer be possible to obtain an accelerated possession order following the service of a section 21 notice. This is referred to in the White Paper as “Section 21 ‘no fault’ evictions”. As a quid pro quo, landlords will have additional rights to seek possession for fault based upon antisocial behaviour and persistent rent arrears and have additional rights to seek possession in order to facilitate sale. The Government appreciates that these routes to possession will involve contested hearings. To deal with this, it states that it “will work with the Ministry of Justice and Her Majesty’s Courts and Tribunal Service (HMCTS) to target the areas where there are unacceptable delays in court proceedings”. Good luck with that.
   
2. Landlords will be prevented from refusing to let to tenants whose rent is paid by the DSS or who have young children.
   
3. Landlords will need to justify a ban on particular types of pet.
   
4. All landlords will be required to accept the jurisdiction of a new dedicated ombudsman in relation to disputes with their tenant.

Paragraph 3.1 of the White Paper is not drafted with precision. It states as follows:

            “We will abolish Section 21 evictions and simplify tenancy structures. To achieve this, we will move all tenants who would previously have had an Assured Tenancy or Assured Shorthold Tenancy onto a single system of periodic tenancies.”

The use of the word “move” indicates that the new regime will apply to current tenancies. This would be a unique way of amending residential landlord and tenant legislation. All previous amendments have operated prospectively for new tenancies created after a set date.

It may assist to go through how we have arrived at the present position.

The Rent Acts

I started in practice in 1992 and was faced with Rent Act possessions many times in my early years.

The first of the various Acts grouped under this title was passed in 1915. By 1992 the most important was the Rent Act 1977. Under the Rent Act 1977, even persistent arrears of rent was not a mandatory ground for possession. Mandatory grounds were limited to tenancies by specific types or landlord (such as owner-occupiers) to specific types of tenant (such as ministers of religion). For obvious reasons, a landlord wants to rely on a mandatory ground for possession. It does not want to incur the expense of proceeding to trial against a Legally Aided tenant, establish its case and then give the judge the opportunity to refuse to make the order.

The 1988 Act

The 1988 Act was passed because of the injury to the residential letting market caused by the Rent Acts. The problem is recorded in the 1987 Conservative Party Manifesto (being the last election fought by Margaret Thatcher), which states as follows:

            “Most problems in housing now arise in the rented sector. Controls, although well-meant, have dramatically reduced the private rented accommodation to a mere 8 per cent of the housing market …

            First, to encourage more investment by institutions, we will extend the system of assured tenancies. This will permit new lettings in which rents and the period of lease will be freely agreed between tenants and landlords. The tenant will have security of tenure and will renegotiate the rent at the end of the lease, with provision for arbitration if necessary.

            Second, to encourage new lettings by smaller landlords, we will develop the system of shorthold. The rents of landlords will be limited to a reasonable rate of return, and the tenant’s security of tenure will be limited to the term of the lease, which would be not less than 6 months. This will bring back into use many of the 550,000 private dwellings which now stand empty because of controls, as well as making the provision of new rented housing a more attractive investment.”

Save for some transitional arrangements, the 1988 Act only applies to tenancies created after 15^th January 1989.

As originally enacted, the default tenancy was an assured tenancy. There was no accelerated procedure for assured tenancies and claims for possession mirrored the Rent Acts in many respects. There remained mandatory non-fault grounds for possession based on status. More importantly, “serious rent arrears” was now a mandatory ground for possession. For a monthly tenancy, this was two months’ arrears. However, the tenant could set off any claim for damages against such arrears. Such damages could arise as a result of a breach of repair covenant or any other act committed by the landlord.

The 1988 Act created the AST being “a fixed term tenancy granted for a term certain of not less than six months”. Possession could be obtained under the accelerated procedure following service of a section 21 notice. An AST could only be created if the appropriate notice was served before its commencement. The landlord had to prove receipt of the notice.  In practice, this could be difficult. I recall a judgment of DJ Buckley in Blackpool County Court in which he recited (probably with irony) that such notices were never received in Blackpool.

The creation of ASTs had the desired effect and the growth of the private rented sector can be traced to this time.

The 1988 Act as amended

The AST became the default for new residential tenancies created after 28^th February 1997. From that time, the tenant could no longer challenge possession based on a failure to serve an AST notice before commencement.

The fee for an accelerated possession order is currently £355 and there is usually no hearing. Under the accelerated process, no rent arrears can be claimed. Most landlords are content to proceed in this manner.

The 2015 Act

The Deregulation Act 2015 (“the 2015 Act”) affects the ability of a landlord to obtain possession in two respects, being as follows:

1. A landlord is prevented from claiming possession for 6 months after a complaint by the tenant as to the condition of the premises (referred to as a “retaliatory eviction”); and
   
2. A landlord was prevented from serving a section 21 notice if certain prescribed information was not served on he tenant before the commencement of the tenancy. This included various energy compliance certificates.

The 2015 Act only applies to new tenancies created after 1^st October 2015.

The justification for the first restriction is repeated in the White Paper. Tenants who complain about the condition of the premises are more likely to receive section 21 notices. The justification does rely on the erroneous premise that the relationship is intended to be long-term. If a landlord is entitled to serve a section 21 notice as of right, it is difficult to see why his motivation for doing so is relevant. Statute does not need to be logical.

The justification for the second restriction was that other mechanisms to enforce compliance with the obligation to provide specified information were either ineffective or too expensive. However, depriving the landlord of a right to possession under the accelerated procedure for failure to provide information is a sledgehammer to crack a nut. Be that as it may, this requirement means that any properly advised landlord will only let through a professional agent. Only a professional agent has the administrative systems in place to prove service of the required information. This mechanism for enforcement will be lost if the proposals are implemented.

Comments on the proposals

1. Any amendment to residential tenancy legislation which applies to current tenancies is unacceptable as it is retrospective legislation. A landlord should be entitled to decide whether to let under any statutory regime. If the new regime is to apply to current tenancies, then many landlords may decide to serve section 21 notices and use the accelerated procedure before the new regime comes into force.
   
2. It is submitted that the use of the word “evictions” in the White Paper is emotive and inaccurate.  The whole premise of the White Paper is incorrect. An AST is a fixed-term tenancy which may (if both sides want) continue beyond that fixed term. This is how the same was sold to the nation in 1987. The premises are not the “home” of the tenant in any normal sense of that term. The tenant has a right to live there for such term as is agreed. The ability of the landlord to make use of a section 21 notice merely reflects such agreement. The Government does not appear to understand the difficulty faced by a landlord in obtaining a contested order for possession even for the most persistent of rent arrears. I recently represented a young couple who had bought a property to let as an investment. Unfortunately, their letting agents did not serve the appropriate notices before the commencement of the tenancy and they could not serve a section 21 notice. One of four tenants never paid rent and drove the other three out. It took 18 months to obtain possession as that tenant made unfounded allegations of breach of covenant and bullying against his landlords. Their loss of rent and legal costs were so substantial that they had to sell the property after the possession order was made. In my experience a tenant who wishes to keep a roof over his head will do or say almost anything.
   
3. A landlord wants to achieve two things. He wants to ensure that the rent is paid on time and he wants to ensure that the premises are returned in condition which enables them to be re-let. No landlord should be entitled to select tenants based on anything other than these concerns. One tenant’s money is as good as any others. However, as a matter of logic, selection based upon ability of the tenant to pay the rent or to deliver up the premises in a proper condition must be acceptable. This is normal for commercial tenancies or assignments. It is nonsense to require a landlord to accept a tenant whose rent is paid by the DSS. There are frequent delays in DSS payments and there is no good reason why a landlord should be required to accept the deficiencies of the DSS. The tenant may lose the right to claim benefits and expect to remain rent-free. Further, as possession is now to be fault based, the landlord will want to ensure that the tenant is able to pay at least some of the costs of any claim for possession. Private landlords are not there to undertake the work of the state.
   
4. It is unclear why a landlord should wish to avoid letting to a family with young children.  This is normally seen as being an advantage. Once the children are in a nursery or school which they like, the parents are not likely to want to move.
   
5. Pets can be a problem for landlords.  Large dogs can make a property smell to such a degree that future tenants will be put off. Refusing to let to tenants with a large dog is not unreasonable. The White Paper contains no indication as to who will decide on the issue of reasonableness.
   
6. The White Paper contains little detail about the ombudsman schemes, but it is reasonable to assume that it will be akin to the Financial Ombudsman Service (“the FOS”). Although many customers assume that the FOS is biased in favour of service providers, this is not the case. The FOS is very good at determining complaints. It will obtain the full file of the service provider and go through it meticulously to reach a determination. Often, it will go behind the way in which the customer has made its complaints to seek out the real problem. The service provider effectively pays for this service. It would be very unusual for the FOS to hold an oral hearing. Determinations are based on documents. It is difficult to see how something akin to the FOS could work for residential landlord and tenant disputes. The ombudsman will not be able to inspect premises to see whether they are in repair and will not normally be able to determine issues of fact.

Questions arising from the White Paper

The two obvious questions which arise are:

1. Does the Government want to drive individual private landlords from the market?
   
2. How can an individual private landlord protect his position?

As to the first question, the starting point must be that a government intends the obvious consequences of its actions. A private landlord who can no longer rely upon the accelerated procedure is at risk that it will take time and money to remove an unsuitable tenant. This is a risk which has to be taken into account in the decision to put his property on the rental market. Tax relief on mortgage interest for buy-to-let properties is no longer available either. Many individual private landlords may well feel that there are other better investments. This happened before 1988.

As to the second question, there are letting agents who will guarantee the payment of rent and insurance products which will cover the cost of court proceedings. However, these services or products are geared at the current position and not that which applied before 1989 (or 1997). It remains to be seen whether these services or products will be cost effective. If they are, then it will ultimately be the tenants who will have to pay by way of increased rent.

Author

Sean undertakes a broad range of chancery and commercial work with emphasis on partnerships, company law, banking, contractual disputes, land law (including land registration), landlord and tenant and administration of estates.