The future of the UK rental market is emerging. The government wants views on its plans for removing the assured shorthold tenancy (AST) regime and bolstering the court process for gaining possession of a property. Will it be enough to fill the vacuum left by the AST regime?

Background

In April, we blogged about the government’s plans to abolish section 21 of the Housing Act 1988 which, the government said, left tenants vulnerable to indiscriminate and arbitrary eviction. Under section 21, landlords can terminate a tenancy on two months’ notice following the initial fixed term of not less than six months, without an underlying reason. The government also assured landlords that it was mindful of their need to legitimately and swiftly end tenancies to reclaim their property under the section 8 process.

This consultation, published on 21 July and lasting 12 weeks until 12 October, will help put the flesh on the bones of what James Brokenshire, former Communities Secretary, described as “a generational change to the law that governs much of the rental sector”. While the government has set out its broad principles and objectives, there are unanswered questions on the scope and nature of the changes. This consultation will inform the detail of what comes next and how the government will balance the interests of tenants and landlords, which it says at the moment is “not as fair as it should be”.

Specifically, the government is still pondering a number of issues including:

  • Should it go further and introduce a minimum length for fixed term tenancies?
  • How can it beef up the section 8 process?

The fixed term tenancy: an endangered species?

Abolishing section 21 does not mean the end of fixed term tenancies. Parties can specifically agree a tenancy agreement for a fixed length of time or for a period that continuously rolls over. Contractually agreed break clauses are a common feature of fixed term ASTs and give both parties the ability to exit the tenancy at given points during the agreement. How will these break options operate in the post section 21 regime?

A tenant will (as currently) be able to end a fixed term tenancy after the end of the fixed term or at an agreed break point but a landlord will only be able to end the tenancy (fixed term or periodic) by issuing a section 8 notice and demonstrating one of the statutory grounds for seeking possession. It could operate a break clause but, if the tenant refuses to leave, the landlord will have to seek possession under section 8.

As with its previous consultation, the government is still considering whether to introduce a minimum length for fixed term tenancies and seeks views on whether that should be six months, 12 months or two years.

It says that a minimum term: “would provide landlords with the assurance of guaranteed rental income for a defined period of time. Tenants would benefit from the certainty of established terms and conditions, without the worry of having to routinely agree to end the tenancy early”.

Eight with weight

Without section 21, landlords will need to rely on section 8 to reclaim their properties. The government is considering enhancing section 8 powers in two ways – by expanding the grounds to end a tenancy and by expediting the underlying court process.

Under the current rules, a landlord may only issue a section 8 notice to possess their property in specific circumstances, principally where the landlord wishes to occupy or redevelop the property themselves or where the tenant has substantial rent arrears. The government is contemplating allowing section 8 notices to be served if a member of the landlord’s family wishes to live in the property. It is also pondering allowing section 8 evictions when the landlord wishes to sell the property, although this right would only be available after two years of a fixed tenancy. Neither of these grounds will benefit institutional investors.

According to the Ministry of Justice, it takes on average 22 weeks for a landlord to take possession of its property under the section 8 court procedure. The government hopes it can reduce this by two weeks by freeing up bailiff resources to enforce judgments and amending the Civil Procedure Rules requirement for a first hearing between four and eight weeks after the Notice is served. This timeframe could be reduced by one week, with Civil Procedure Rules Committee approval, the government says.

Conclusion

The government’s reform of the rental market is still at a relatively early stage and many issues are still in play. Its intended direction of travel is clear though and landlords and tenants should prepare for a future without section 21.