When it eventually comes into force, the long-awaited Renting Homes (Wales) Act 2016, which received royal assent back in January 2016, will overhaul the private rented sector in Wales.
In this update, we remind you of the main changes envisaged by the Act and consider what, if anything, landlords, lenders and receivers can do now to prepare.
What is the aim of the Act?
The Act seeks to simplify the letting process and provide more transparency and flexibility. It will replace the various different pieces of existing residential tenancy legislation with what it is hoped will be a clear legal framework.
The Act will have a very wide scope, applying to all rented housing in Wales.
When will the Act come into force?
The year of its title, 2016, betrays the long delays already experienced in the implementation of the Act. We do not yet know when the provisions of the Act will come into force but many expect further developments in 2019 and we are monitoring developments.
Importantly (and somewhat unusually for a major legislative change), on the day the provisions do come into force, the Act will apply not only to future occupation contracts but also to all existing tenancy agreements, which will be converted into one of the two types of occupation contracts under the Act.
What are the main changes proposed by the Act?
Some of the key changes proposed by the Act are:
"Occupation contracts" not "tenancies"
The Act will introduce the concept of an occupation contract. There will be two different types: the standard contract for the private sector and the secure contract, generally for “Community Landlords”, including local authorities.
Written contracts will be compulsory
Landlords will have to issue a written statement of the occupation contract to the tenant or licensee (known as a "contract holder") setting out the rights and responsibilities of each party. The Welsh Government plans to publish model contracts to assist, but these are not yet available.
No equivalent of many of the mandatory grounds for possession in Schedule 2 to the Housing Act 1988
The grounds for possession not carried into the new regime include ground 2, which allows a mortgagee whose mortgage pre-dates the tenancy to repossess a rented property if it has a valid power of sale which it wants to exercise to dispose of the property with vacant possession. This is subject to notice that this ground may be relied on having been given to the tenant before the tenancy commenced, unless the court uses its discretion to dispense with the notice requirement in a particular case.
Provisions to tackle retaliatory evictions
A court will be able to refuse to make a possession order where it is satisfied the landlord is seeking to avoid complying with its repair obligations or duty to ensure the home is fit for human habitation.
Fitness for human habitation
The Act requires landlords to ensure the property is fit for human habitation at the time of occupation and for the duration of the occupation contract. Similar provisions were recently introduced in England by the Homes (Fitness for Human Habitation) Act 2018.
Will it be more difficult to obtain possession of rented property under the new regime?
We have previously explained how the Act may affect the ability of landlords and receivers to obtain possession of a rented property.
As can be seen from the above changes, there is no equivalent of ground 2 of Schedule 2 to the Housing Act 1988 – the lender's right to repossess the property in the event of the landlord defaulting on mortgage payments. Although the Law Commission considered ground 2 was not significantly used in practice, undoubtedly this will close off a useful route to obtaining possession which a lender would otherwise have enjoyed.
Additionally, the Welsh Government has also announced that it intends to consult on the possibility of removing from the Act the power of a landlord (equivalent to that under section 21 of the Housing Act 1988) to give a tenant notice to quit without specifying any particular breach or reason. Similar proposals to remove section 21 in England were announced in April 2019. If, as seems likely, these changes do come in, another of the principle methods of obtaining possession will no longer be available.
How can you prepare for the coming into force of the Act?
Whilst planning on the basis of draft legislation is never straightforward, landlords, lenders and receivers need to start considering the changes to their processes that the Act may bring about.
At the outset of an occupation contract, landlords will need to ensure contracts are in writing. They may wish to consider using the model forms provided by the Welsh Government once they are available.
Lenders will need to update their mortgage conditions to require landlords to let their properties by written occupation contracts, rather than on assured shorthold tenancies as is typically the case at the moment. Some lenders require landlords to give notice to tenants before a tenancy commences so that ground 2 to the Housing Act 1988 may be used to regain possession. That will no longer be possible for properties in Wales.
Lenders' main alternative to ground 2 might be issuing a notice to the tenant seeking possession without specifying any breach or reason. However, as we have seen, that power may also be cut before the Act finally makes it into law.
There is no doubt that the new renting regime in Wales will present new challenges for landlords, lenders and receivers. Some have warned of an exodus of private landlords given these proposed changes, along with other recent reforms in the private rented sector.
Whilst landlords evaluate their portfolios and continued involvement in the sector, lenders should also consider their exposure. It remains to be seen whether or not lending fees and rates will creep up for properties in Wales to reflect the increased work required and risks in lenders obtaining possession.
In planning for these changes, the hard start date of the Act should be remembered – on the day it comes into force it will apply to all new occupation contracts and existing tenancy agreements with no grace period.
We would expect the Welsh Government to finalise the legislation and give notice of the expected commencement date at least a couple of months' before the Act comes in. For now it may be a case of awaiting the final legislation before any truly meaningful preparation can be completed.
The Act is being supplemented by other reforms of the private rented sector in Wales. On 24 May 2019, the Welsh Government published a consultation seeking views on aspects of the Renting Homes (Fees etc.) (Wales) Act 2019. That Act is expected to come into force on 1 September 2019 and, subject to limited exceptions, will ban the charging of landlord or letting agent fees to tenants. We have previously written about similar changes in England.