Jacqui Bourke, managing associate and Robert Counsell, associate, at solicitors TLT LLP, gave a comprehensive overview of the wide-ranging reforms under consideration for English residential tenancies, including the abolition of Section 21.
 
 
Current Position

• Residential premises are usually let via assured shorthold tenancies (ASTs). These run for a fixed term with a minimum of six months, converting then to statutory periodic tenancy.
• ASTs are brought to an end after the end of the fixed term via a Section 21 notice or at any time via Section 8:
  • s21 is a “no fault” eviction.
  • With s8, a landlord has to rely on certain grounds, some mandatory (i.e. a court has to grant an eviction order if the grounds are proved) and some discretionary.
• s21 notices attract criticism as tenants under a periodic tenancy are always within two months of being required to vacate their home.
• Abolition of s21 was first proposed by Theresa May in April 2019 and followed up with a government white paper in June 2022. This resulted in the Renters (Reform) Bill, introduced to Parliament 17 May 2023

Key Proposals

• Abolition of s21 notices
• Amendments to existing grounds and the introduction of new grounds; s8 strengthened, giving landlords new options: amendments to Ground 1 and a new Ground 1A
• Tenancy Deposit Scheme (TDS) requirements now apply to s8 notices
• The abolition of ASTs, with all new and existing tenancies, move to periodic tenancies and remove the initial 6 month fixed term, with maximum rent periods of up to 28 days or one month
• Requirement for a written statement of terms for tenancies
• Changes to rent increases
• Changes to the rights of landlords and tenants in respect of pets.
• The creation of a new ombudsman and property portal
• A new enforcement and sanctions regime for rogue landlords

Abolition of s21 and bolstering s8

• s21 notices allow a landlord to obtain possession of a property at the end of the fixed term of an AST
• Possession is mandatory and, provided that the landlord has complied with its statutory requirements, possession is assured
• Pre-requisites include compliance with relevant licensing obligations, provision of prescribed information, any deposit is held in a TDS and provision of gas safety certificates
• Tenant has no ability to object to a s21 notice and there does not need to have been a breach for the landlord to serve one
• So that landlord’s rights are rebalanced, s8 is being reformed, most notably under Ground 1 and via a new Ground 1A

Ground 1

• Existing mandatory ground for possession if the landlord or a member of their family requires the property to move into themselves
• Generally only be relied on if included in the terms of the tenancy agreement to which the parties contracted in the first place
• The Bill proposes to liberalise this ground to enable all residential landlords to rely on it regardless of notice having been given in the terms of the agreement

Ground 1A

• New mandatory ground for possession if a landlord desires to sell the property
• Give notice to the tenant once the first six months of the tenancy have passed
• Critical for receivers, particularly where selling with a tenant in situ is likely to result in a significant discount to being able to sell with vacant possession
• No evidence of the intention to sell is required although it would not be unrealistic to expect the draft law to evolve
• Criminal offence for a landlord to lie or to be reckless as to whether or not they are entitled to rely on the ground they are using
• Property cannot be relet within three months

Will Ground 1A become a de facto replacement for s21 notices?

• Where a tenant is in arrears but the fixed term of the tenancy has expired, a landlord can either take steps under s8 to obtain possession due to rent arrears or go down the s21 route
• The requirements for a s8 claim are easier to meet than for a s21, although to be mandatory to have placed the deposit into a TDS. These can always be sidestepped by repaying the deposit
• If you are appointed over a property you don’t have the history of, a Ground 1A claim for possession will be easy to satisfy and an intention to sell is likely to be easy to prove
• With s8, there is the risk of a counterclaim arising
• Unintended consequence of the reforms that diligent landlords who have complied with all their obligations will be disadvantaged by not having s21 and instead have to go through s8 which allows counterclaims. A landlord who hasn’t complied will instead have an easier route of using Ground 1A

Specific Markets

• Student lets are proposed to be exempted from the above rules but more clarity on how this will work in practice is awaited.
• As fixed terms of seven years or more will be possible and will not be assured, shared ownership is also set to change and forfeiture will likely be the only basis upon which to evict for a breach

Timeline

• Ahead of the Bill’s second reading on 23 October Michael Gove told Conservative MP’s that the abolition of these no-fault evictions cannot be enacted before a series of improvements are made in the court system, which is a major project that currently has no timeframe
• The Bill was carried over into the Parliamentary session which began on 7 November which saw the Bill pass through the committee stage and is now waiting to enter the report stage where it will be debated further
• The Bill is not expected to become law until 2024 but, with a general election on the immediate horizon, it may be further delayed

Other Changes to s8

• Ground 2 - sale by mortgage. Currently the relevant mortgage must have been in place at the start of the tenancy. This is no longer a requirement
• Ground 7A - serious anti-social behaviour. Currently 4 weeks’ notice is to be given but the Bill proposes that there is no such length of notice although a possession order cannot be given within 14 days of the notice
• Ground 8 - rent arrears. The notice period where there are two months’ rent unpaid is being increased from two weeks to four weeks. There is also an addition to this ground where rent missed because of a wait for a UC payment at the end of the monthly assessment period is to be discounted for calculating the level of arrears

Written statement of terms of the tenancy

• Duty on landlords to provide the tenant with a statement of terms on or before the start of the tenancy and it must contain reference to the notice- based grounds
• If a tenancy is currently in writing no statement of terms will be required but information will still be required as to the proposed changes by the Bill
• Receivers will need to be on their guard in relation to this where appointed over a property with existing tenancies as they may not be able to prove that a written statement was provided

Tenant’s notice to terminate

• Tenants will be able to provide two months’ notice which expires at the end of a tenancy period but it can be served at any point in the tenancy
• The parties will be able to agree shorter notice periods but will only be able to withdraw notices with each party’s written agreement
• The tenant’s notice must still be in writing but any attempt by the landlord to specify the form of writing required will be void

Rent increases

• Housing Act 1988, s13 will be the only way by which landlords can increase the rent and that can be done not more than yearly
• The landlord will need to give two months’ notice
• Tenants will be able to challenge the rent in the first six months of the tenancy or after a section 13 notice
• This will be governed by the First Tier Tribunal (FTT) and it will be looking at the open market rent
• The FTT will be able to increase the rent higher than in the notice

 
Pets

• Implied term in all private tenancies that the tenant can keep a pet unless the landlord reasonably refuses to consent
• Not clear in the legislation if this is one singular pet only or multiple pets
• The court will have power to order specific performance of the obligation not to unreasonably refuse the tenant’s request
• Insurance can be required by the landlord and if the landlord takes out insurance to cover any damage caused by the pet, the cost of doing so will be recoverable from the tenant. This is something receivers will need to review to ensure their current insurance conditions include pet damage
• Not clear how much power a landlord has on specifying type and limits of indemnity on any insurance to be placed

Ombudsman and Property Database

• There will be a new ombudsman of which membership is mandatory in order to ‘put things right for tenants’
• It will have vast powers including compelling landlords to issue an apology, provide information, take remedial action, pay compensation and reimburse rent where the service or standard of the property falls below the mark
• Landlords will be required to have a property registered on the database to rent it out.

Notable omissions

• no lifetime deposits
• no decent homes standards
• no prohibition on blanket bans for children and tenants on benefits
• no end-to-end digitisation of court process;
• no apparent changes to the court process (eg prioritisation of antisocial behaviour)
• council’s investigative powers and reporting still need to be strengthened.

Sanctions
 
At the lowest level, a landlord can be fined £5,000 for the following:

• breaching duty to give statement of terms
• purporting to let for fixed term;
• purporting to end tenancy by notice to quit
• serving a non-compliant s8 notice;
• serving a s8 notice purporting to rely on a ground which the Landlord is not entitled and as a result the tenant surrenders the tenancy
• serving a s8 notice relying on grounds requiring a statement of such grounds to be given prior to a tenancy and no statement was given
• serving a s8 notice which specifies grounds 1, 1A or 6 (redevelopment) and specifies a date earlier than six months after the beginning of the tenancy as the earliest date on which proceedings could be brought.
• Re-letting/remarketing property within three months of date specified in s8 notice when Ground 1 and 1A relied upon and the tenant surrendered possession without a court order for possession being made.

Criminal Liability

• landlord serves a s8 notice specifying a ground ‘knowing that they are not entitled to rely on it or are reckless to their entitlement to rely on it’; and the tenant surrenders their tenancy as a result.
• landlord relies on Grounds 1, 1A and 6, knowing or being reckless as to knowing that the date relied on in the s8 notice is earlier than six months after the commencement.
• landlord relets or remarkets a property within three months of date specified in s8 notice when ground 1 and 1A relied upon and the tenant surrendered possession without a court order for possession being made;
• landlord is given a financial penalty but continues the underlying conduct after 28 days later;
• landlord has two financial penalties imposed in a five year period. Inst
• landlord may reach agreement with the local authority that they will be liable for a £30,000 penalty instead of criminal liability
• In respect of other penalties:

• £5k for marketing a property without being a member of the scheme
• £5k for marketing a property without being on the database
• £5k for advertising the dwelling without identifying the landlord and property
• £5k for failing to keep an active database entry for the landlord and dwelling
• £30k for knowingly or recklessly providing misleading information to the database
• £30k for continuing in a database breach 28 days after a financial penalty
• £30k for breaches of database within 5 years;

• You will need to ensure that your property managers are aware of these requirements and on top of them as soon as possible after appointment.

Implementation and transition arrangements

• Implemented in two stages
• Six months from the first implementation date all new tenancies will be periodic and are governed by the new rules. The date of this would be dependent on when Royal Assent is received and when the court system is ready to implement the new system
• All existing tenancies will transition to the new system on a second implementation date which will be at least 12 months after the first date
• Currently we do not know what implemental provisions will be put in place for the ombudsman, database, unlawful eviction penalties and enforcement authority

In summary – implications for Receivers

• While the loss of s21 is at first glance a blow, given the compliance requirements it hasn’t always been the easiest route to possession in any event. The new Ground 1A is potentially very valuable, even if there are future requirements to show intent.
• Care will need to be taken to ensure that a property is properly registered, particularly if a tenancy will be continuing.