Consultation issued on abolition of assured shorthold tenancies

The government has published a consultation seeking views on implementing its proposal to end no-fault evictions of residential tenants, which will have the effect of abolishing assured shorthold tenancies entirely.

Our previous article 'An end to no fault evictions of residential tenants' described the government’s initial proposal to end the practice of residential landlords using section 21 notices to end assured shorthold tenancies (ASTs) in England on a no-fault basis.

The promised consultation document has now been published. It reveals that the government intends to abolish the AST regime altogether. This is because once section 21 notices are abolished, there will be little to distinguish ASTs from assured tenancies. The changes will not apply to tenancies granted before the new law take effect.

The proposals apply to properties in England only, although the Welsh Government announced in April that it intends to implement similar proposals for properties in Wales.

The consultation lasts for twelve weeks, which is a tight timescale in view of the summer holiday period. The last date for responses is Saturday 12 October 2019. This article highlights the principal proposals, although the consultation paper contains many more.

An end to assured shorthold tenancies

The proposal is that all tenancies granted after the changes take effect will be assured tenancies, either for a fixed term or on a periodic basis. Assured tenants may not be evicted unless the landlord can evidence a ground under Schedule 2 to the Housing Act 1988. The purpose is to give tenants assurance that they will not be required to move at the end of the fixed-term tenancy, and therefore be better able to put down roots in a community.

The government is asking again whether there should be a minimum length for fixed-term tenancies, after the previous consultation concluded that there was no consensus (from either landlords or tenants) on what a suitable minimum length should be for a residential tenancy.

The consultation says that break clauses will still be permitted in tenancy agreements, although presumably landlords will only be entitled to recover possession on one of the Schedule 2 grounds. The document is unclear on this point.

No return to rent controls

Concerns have been raised that even if landlords will not be able to end a tenancy using section 21, the same outcome could be achieved by raising the rent at the end of the fixed term.

The government says that it does not support introducing rent controls at the outset of a tenancy, as historical evidence suggests that these would discourage investment in the sector, and would lead to declining property standards.

However, it intends to outlaw provisions that would enable landlords to increase rents just before the end of the contractual term. If the contract turns into a statutory periodic tenancy, the landlord will be able to use section 13 of the Housing Act 1988 to adjust the rent once a year, as they can do now. This provision enables the First-tier Tribunal to set a fair market rent for a property. The procedure is already available, but is little used at the moment – presumably because it is simpler for a landlord to agree a new rent with the tenant when a fixed term tenancy expires and grant a new tenancy.

Ending tenancies

The methods by which a tenant will be able to bring a tenancy to an end remain unchanged:

• fixed-term tenancy – tenants will be able to terminate after the end of the fixed term (or at a break point), as long as they provide sufficient notice to the landlord in line with their tenancy agreement
• assured periodic (open-ended) tenancy – tenants will be able to end a tenancy at any point provided they comply with the appropriate notice period

However landlords will only be able to end the tenancy by issuing a notice under section 8 of the Housing Act 1988, using one of the grounds in Schedule 2. They will no longer have the option of serving a section 21 notice.

There are currently 17 grounds in Schedule 2, some of which give the court discretion on whether to grant a possession order and others giving no discretion. The consultation suggests amending the Schedule 2 grounds to generally give landlords more opportunities to recover possession. The three most significant suggestions for change are:

• amending ground 1 to allow a landlord to gain possession if a family member wishes to use the property as their home and to remove the requirement for a landlord (or their spouse or civil partner) to have lived in the property previously. Notice would need to be given at the beginning of a tenancy that the landlord may want to rely on this ground later on and the ground would not be available during the first two years of a fixed term tenancy.
• introducing a new mandatory ground to allow a landlord to obtain possession in order to sell the property. Again, prior notice would be required and the ground would not be available for the first two years of a fixed term, although there is some suggestion that it may be possible to apply for possession earlier, and to dispense with the notice requirement, in extenuating circumstances.
• In both these cases the landlord would need to provide sufficient evidence of the relevant intention. The government is asking consultees for views as to what sort of evidence should be required. The obvious risk is that unscrupulous landlords could claim to want to occupy or sell their properties just to obtain possession and so the government says it will work closely with stakeholder groups and members of the judiciary to balance the needs and security of both parties.
• restructuring ground 8 so that the landlord can serve a two-week notice seeking possession once the tenant has accrued two months of rent arrears. This will be a mandatory ground if the tenant still has at least one month’s worth outstanding by the time of the hearing, or a discretionary ground if the arrears are under one month’s worth. However, if the landlord can prove a pattern of behaviour showing the tenant has built up arrears and paid these down on three previous occasions, then the judge must consider it a mandatory ground. These changes are intended to prevent tenants building up arrears and paying them off at the door of the court.

Tenant protection standards

The consultation says that current measures aimed at ensuring tenant safety will be carried over into the new regime. This includes the requirements for landlords to provide the guide ‘How to rent: the checklist for renting in England’, gas safety certificate, prescribed information concerning deposits, and an Energy Performance Certificate, to the tenant before the start of a new tenancy. It will also consider applying these protections to all users of the Housing Act 1988, not just those in the private rented sector.

It is not clear how this will work in practice, as currently landlords who fail to comply with these requirements are not entitled to recover their property using a section 21 notice. In the new regime, will landlords who fail to comply with these requirements never be entitled to recover their property, even if they can prove a Schedule 2 ground? This point needs clarifying.

Possible exemptions from the new proposals

The consultation paper asks whether exemptions are needed from the new proposals in a number of cases, including the following:

Student accommodation: the consultation states that institutional providers should continue to be exempt from the Housing Act 1988, reflecting their specialist role in providing short-term accommodation for a specific need (which often covers the first year of a student’s course). Subject to consultees’ views, the intention is to create parity across all groups of tenants as far as possible. Landlords and tenants will still be able to agree a fixed-term contract of a length that suits their particular circumstances, providing tenants with the flexibility of leaving at the end of the academic year. Whilst the existing ground 4 can be used for gaining possession of student accommodation, this could be widened to give all landlords who let to students additional flexibility to gain possession in circumstances where a course has ended, so that the property can be used by new students.

Short term lets: should lettings below a certain length of time be exempted from the new tenancy framework? This might include holiday lets, second homes for work purposes and transitional lets for people moving between houses.

Build to rent: is there a need for a specific ground to enable recovery of affordable rented homes from tenants who are no longer eligible to occupy them?

Other circumstances: are there are any other circumstances where the existing or proposed grounds for possession would not be an appropriate substitute for the existing section 21 procedure?

Comment

The consultation rightly observes that these changes, if carried through, would result in a ‘generational change’ to the law.

Prior to the Housing Act 1988, most tenancies were ‘protected’ and allowed tenants (and even their successor children and relatives) to remain in rented properties indefinitely. Consequently, it was extremely difficult for landlords to regain possession unless tenants left voluntarily. Not surprisingly landlords became increasingly reluctant to let their properties. Combined with the right for council tenants to buy their homes, fewer houses were available for renting. ASTs were introduced to encourage private landlords to start letting again.

This approach was very successful, with the private rented sector now being the second largest housing tenure in England. The obvious concern is that the end of ASTs will mean residential property investment becomes less attractive and will result in fewer properties being made available for renting, with the risk of a resultant increase in rents. This will particularly be the case for smaller landlords, who may own one or two properties as an investment. The government has already amended the tax regime to try to reduce the attraction of buy-to-let properties, and is encouraging institutional investors into the residential letting market. For larger investors, whose priority is certainty of income flow, these changes may not present so much of an issue.

Overall the consultation has the feeling of having been prepared in haste. Two key issues are what evidence landlords will need to produce before being allowed to obtain possession if they want to sell the property, and how the requirements to provide EPCs, gas safety certificates and other key documentation to tenants will be policed. No solutions are offered to answer either of these questions.

Another unanswered question is how this change may affect social housing providers. They have become accustomed to using ‘starter tenancies’ (12 month ASTs used for a probationary period before granting a longer term) and ‘demoted’ tenancies (assured tenancies reduced to ASTs due to anti-social behavior), but these will no longer be available. Alternative solutions will need to be found.

Further information

Consultation document: A new Deal for renting: resetting the balance of rights and responsibilities between landlords and tenants

The last date for responding to the consultation is Saturday 12 October 2019.