Residential property reform is high on the government's legislative agenda as announced in this week's Queen's Speech. Proposed changes to the rental market include banning the so-called no-fault evictions, a commitment to further changes to enfranchisement and outlawing leasehold homes.
Abolition of no-fault evictions
The government has promised a Renters' Reform Bill and a White Paper, the latter which is expected to be published shortly. One of the key features of the Bill will be the abolition of “no-fault” evictions. These derive from section 21 of the Housing Act 1988 under which landlords can terminate an assured shorthold tenancy on two months’ notice following the initial fixed term of not less than six months, without an underlying reason. Landlords have always stated that there is a need to be able legitimately and swiftly to end tenancies to reclaim their property in certain circumstances, but the government perceives that this has led to poor practice and unfair rent increases. The government wants to provide greater security and better quality accommodation across the private rented sector (PRS).
Given the growth of the PRS, the government should be wary of adversely affecting the market by removing section 21 without re-instating the balance and providing the legitimate controls that landlords need to protect their investment. Whilst the government proposes to strengthen possession grounds for landlords including for persistent rent arrears and anti-social behaviour, it remains to be seen whether this will go far enough, given the current burdens on court time and process. How this works in practice will be key.
The Bill will also introduce a “Decent Homes Standard”, an Ombudsman to resolve disputes and a property portal to provide information to assist all parties.
Following the introduction of the Leasehold Reform (Ground Rent) Act 2022, which comes into force on 30 June and which bans landlords from charging ground rents on new long leasehold homes, the government is further set on reforming the leasehold market. The government has stated that it is committed to further reforms although no specific Bill has been promised for the session so the timing remains unclear.
Future reform, which has been on the agenda for some time, will include reform of enfranchisement, so that it will be easier and cheaper for long leaseholders to extend their lease, buy the freehold or collectively manage a building. The other reforms carried forward include banning new leasehold houses so that all new houses are freehold from the outset other than in exceptional circumstances. For many developments there may be sensible reasons for houses to be leasehold, such as to accommodate legitimate estate service charge arrangements or where the housebuilder does not itself have a freehold interest, so close scrutiny of “exceptional circumstances” will be required. Also carried forward is a promise to reform the commonhold system as an alternative to leasehold ownership.
Many of the reforms will receive broad support but the complexities of the issues, and the different stakeholders involved, will make many details difficult to resolve. The recent ban on ground rents was a long time in the making, so it will be interesting to see how many of these changes make it through this session of Parliament. The abolition of no-fault evictions is the one to watch as this is likely to prove popular in principle but could adversely affect and derail PRS as an investment class. This growth sector is currently favoured by institutional and overseas investors, but may become less attractive if landlords cannot rely upon quick and effective means of regaining control of their properties in appropriate circumstances. That could lead to fewer homes being built when the UK is already facing a chronic housing shortage.
Whilst the Renters’ Reform Bill is listed in this Queen’s Speech, until the White Paper is published, it is questionable how far this Bill will progress in this parliamentary session. As for the leasehold reforms, no draft legislation has been promised for this session.