The Welsh Government has consulted on Increasing the minimum notice period for a 'no fault eviction' (the Consultation) in order to offer more security to residential renters. The proposed changes, if implemented, will give renters a minimum of 12 months' security from the date they take occupation.
Whilst the proposed changes will be welcomed by many, they present challenges for the timely recovery of possession by landlords, as well as the enforcement of security by lenders and receivers in the private rented sector (the PRS).
The PRS in Wales is undergoing significant policy and legislative change. The respective rights of landlords and tenants are being reset with the balance more in favour of tenants.
The Renting Homes (Wales) Act 2016 (the Act) will, when implemented, introduce an entirely new regime for renting homes in Wales. We have previously written about the main changes the Act will bring in. The Act introduces new terminology: 'occupation contracts' rather than 'tenancies'; and 'contract-holders' rather than 'tenants'.
The possession regime under the Act as currently drafted is already much less favourable to landlords and lenders than the Housing Act 1988 regime which it will replace. The Act will impact on the ability of landlords and receivers to obtain possession of PRS property in Wales. The Act as currently drafted allows landlords to issue a two-month notice to end an occupation contract without providing a reason and even though the contract-holder may not be at fault (known as a 'no fault eviction'). Section 173 of the Act contains this power in relation to periodic occupation contracts and it is in section 186 of the Act for fixed term occupation contracts.
This is broadly equivalent to a notice under section 21 of the Housing Act 1988, although the UK Government is consulting separately on proposals to remove landlords' ability to serve a section 21 notice.
What are the main proposals of the Consultation?
It is these so-called 'no fault eviction' processes which are the main subject of the Consultation. The Welsh Government believes that the current system does not offer sufficient security to renters and is proposing to increase the minimum notice period.
Specifically, the Consultation's main proposals are:
- Increasing the minimum notice period to be given by landlords to contract-holders for section 173 no fault evictions under periodic contracts from two months to six months.
- Increasing the period at the beginning of an occupation contract whereby a landlord cannot issue a section 173 notice from four months to six months. For this purpose, if there have been any preceding occupation contracts between the same landlord and contract-holder relating to the same property, this six-month time period is counted from the start of the first of the successive occupation contracts. For example, if a six month occupation contract expires and the contract-holder remains in occupation, a periodic contract arises. If a landlord then sought to recover possession three months into the periodic contract, it would not have to delay serving a section 173 notice because at that point the contract-holder would have been in occupation for nine months.
- Removing a landlord’s ability to issue a notice, under section 186, during a fixed term standard contract (seeking possession after the fixed term has ended).
Does the Consultation contain anything else of note?
The Consultation also sought views on:
Removing landlords' ability to serve a section 173 notice within the six month period following expiry of any previous section 173 notice which the landlord has served on the contract-holder. This is intended to avoid the practice whereby some landlords might issue a section 173 notice ‘just in case’ they wish to use it.
Preventing a landlord from issuing a further section 173 notice for a period of six months from the date of a court’s decision that a previous section 173 notice had been issued by a landlord acting in a retaliatory manner.
Restricting the issue of a section 173 notice where a landlord has not complied with certain legislation, such as the provision of a Gas Safety Certificate or an Energy Performance Certificate.
The use of break clauses in fixed term standard contracts.
How will the Consultation proposals impact landlords' and lenders' ability to recover possession of a property?
The 'no fault' grounds for possession in sections 173 and 186 of the Act are likely to be the most frequently used grounds for lenders and landlords seeking to enforce their security. These Consultation proposals will lengthen the amount of time it will take to recover possession under the 'no fault' grounds.
To avoid being stuck with a fixed term contract which they cannot serve notice to end until the fixed term has expired, landlords may only be prepared to offer much shorter fixed term contracts, or may insist on contracts being periodic from the outset. This appears to run against the Welsh Government's desire to increase security of occupation for contract-holders. However, even if an occupation contract is initially granted as a periodic contract, the contract-holder will still benefit from a minimum of 12 months security of occupation if the Consultation proposals are implemented.
Certain other grounds for possession under the Act are not affected by the Consultation proposals and will remain available to landlords and lenders, although these generally require a reason to be made out and/or the contract-holder to be at fault.
How might the Consultation proposals affect the PRS in Wales more generally?
The impact is not easy to assess. The Welsh Government believes that the changes "will not be fundamentally detrimental to the operation of the buy-to-let element of the rental market".
Landlords and lenders may disagree. Lenders may face increased costs when taking enforcement action and, as a result, be forced to increase the cost of borrowing or other fees charged to buy-to-let landlords. This could, in turn, increase landlord's operating costs which may feed into higher rents for contract-holders.
If landlords' operating costs do increase, the buy-to-let sector may become less attractive as an investment option. Landlord numbers may fall, leading to fewer properties available to rent and putting further upward pressure on rents due to lack of supply. As a consequence the PRS may not be able to fulfil the important role in the provision of good quality housing which the Welsh Government envisages.
When are the proposals likely to be implemented?
If implemented, the proposals will be put in place through amendments to the Act. The Act is not yet in force and the Welsh Government has committed to giving six months' notice of its implementation date. On the date the Act comes into force, it will apply not only to future occupation contracts but also to all existing tenancy agreements, which will be converted into occupation contracts under the Act. The Consultation closed on 5 September 2019 and the Welsh Government is currently considering the responses it received.