In June 2022 the Department for Levelling Up, Housing and Communities published its white paper: "A fairer private rented sector" (White Paper). The White Paper forms part of, and builds on, the government's wider plans for levelling up. The intention is to "fundamentally reform the private rented sector and level up housing quality in this country".

In this alert we summarise the government's 12-point plan of action as set out in the White Paper and consider some of the key issues for commercial landlords operating in the private rented sector (PRS).

1. Introduce a PRS Decent Homes Standard (DHS)

The aim is to halve the number of non-decent rented homes by 2030. To achieve this the government intends to legislate to require the PRS to comply with a DHS for the first time (at the present time there is a DHS, but it only applies to social rented housing). The White Paper suggests this would (among other things) require PRS properties to be free from the most serious health and safety hazards, such as fall risks, fire risks, or carbon monoxide poisoning and for landlords to be obliged to ensure that PRS homes do not fall into disrepair.

Any new legislative duty on landlords to ensure that the PRS meets the DHS will inevitably help to raise standards but could well have ongoing cost implications for landlords. This may be more of an issue for older PRS stock requiring, for example, energy efficiency improvements or updated facilities. However, commercial landlords competing within the PRS are already subject to market and reputational pressures to ensure that they maintain decent housing stock so the hope is that the DHS will not add significant burden but will help to differentiate the "good" landlords from the "bad" by setting a clear minimum standard.

2. Quality improvements

The goal is to accelerate quality improvements in PRS housing stock in areas that are identified as being in need of it most. The government proposes to do this through a pilot scheme with a selection of local councils to explore different ways of enforcing standards, with the aim of working with landlords to accelerate the adoption of the DHS in the PRS.

What is not clear from the White Paper is how a landlord will be able to carry out improvements to housing where those works require possession of the property given the plans to abolish "no fault" evictions (see below). While there are no plans to abolish ground 6 of the current legislation (allowing a landlord to recover possession to carry out development), this ground is not available to landlords purchasing buildings during the term of a tenancy. This could prove unduly restrictive for good investment landlords willing to buy properties to improve and then let.

3. Abolition of section 21 "no fault" evictions and introduction of a simpler tenancy structure

The government intends to abolish section 21 "no fault" evictions and move away from the current tenancy structure (in which, typically, a fixed-term tenancy is granted which then runs into a periodic tenancy once the fixed term has ended) to a simpler structure of purely periodic tenancies (which a tenant would be able to terminate on two months' notice at any time). The White Paper states that this notice period should ensure that "landlords recoup the costs of finding a tenant and avoid lengthy void periods". The intention is to give more flexibility to tenants (who will not be tied into any fixed term) and empower them to challenge poor practice (by removing the threat of a "no fault" eviction) thereby incentivising landlords to engage and resolve issues.

The new system is to be implemented in two stages:

The White Paper confirms that purpose-built student accommodation will be exempt from these proposed changes and tenancies in that sector will instead continue to be governed by the Protection from Eviction Act 1977 so long as the provider is registered for a government-approved code.

Landlords will need to pay attention to these changes particularly as they will affect existing tenancies once the second implementation date has passed. While the abolition of section 21 "no fault" evictions may be the most headline grabbing point, it may not be the one that proves most disruptive to commercial landlords operating in the PRS (who are unlikely to want to evict paying tenants given their operating models). Instead, it is the change to the tenancy structure that will require more detailed planning. Once that change is fully in force, landlords will no longer be able to tie tenants into fixed contractual terms and will need to plan instead for the possibility of any unit becoming vacant at any point on two months' notice. Among other things, that will require financial planning and an agile marketing strategy to ensure that no long-term voids emerge.

4. Reform of grounds for possession

Ultimately, a tenancy under the new regime will only end if the tenant ends it or the landlord has a valid ground for possession. To compensate landlords for the loss of section 21 "no fault" evictions, the government wants to ensure that landlords have effective means to gain possession of their properties when necessary. As part of this the government intends to introduce the following new grounds for possession:

However, the notice period for the existing rent arrears eviction ground will be increased to four weeks and the mandatory threshold will remain at two months arrears at the time of serving notice and hearing (there may be further leniency where arrears have arisen due to delays in the tenant receiving relevant benefit payments). In cases of criminal behaviour or serious antisocial behaviour, the government proposes to lower the notice period for the existing mandatory eviction ground and explore whether further guidance would help landlords and tenants to resolve issues at an earlier stage.

So going forwards landlords will need to be mindful that they will always have to evidence a valid ground for possession. If a landlord has a disruptive tenant in situ, or one that is consistently behind with the rent, it will be vital to the successful management of the landlord's wider PRS portfolio that evictions are properly dealt with. Failure to do so could impact the landlord's other clients (i.e. tenants in the same block, or in the vicinity) who will now have the option of walking away from a poorly managed property on just two months' notice and also the landlord's reputation in the market.

5. Limitations on rent review

The following are being proposed:

Any restrictions on rent reviews will be of concern to all landlords operating in the PRS especially if, under the new scheme, landlords will be unable to terminate a tenancy without valid grounds (at the moment, it is not a valid ground that the landlord does not feel it is getting enough rent). It is difficult to comment further on these proposals at this stage given the lack of detail. However, the good news for landlords is that the government is not proposing any rental cap on the amount that can be charged on the grant of a new letting. This will result in a careful balancing exercise: setting the initial rent at the right level to attract tenants, while ensuring that the rent will remain viable throughout the possible term of the tenancy.

6. Introduction of new ombudsman

The government proposes to introduce a new single government-approved ombudsman that all private landlords (who rent out property in England) must join. Local councils will be empowered to take enforcement action against landlords who fail to join the ombudsman.

The rationale is to provide fair, impartial and binding resolutions for many issues with the intention that this will be quicker, cheaper, less adversarial and more proportionate than the court system. The new ombudsman will allow tenants to seek redress for free, where they have a complaint about their tenancy but it is unclear how the ombudsman will be funded. The ombudsman "will have powers to put things right for tenants, including compelling landlords to issue an apology, provide information, take remedial action, and/or pay compensation of up to 25,000".

Commercial landlords in the PRS will need to be aware of these proposals and ensure membership as and when the ombudsman is set up.

7. Providing a more efficient court process

The government proposes to target areas where there are "unacceptable delays" in court proceedings, strengthen mediation and alternative dispute resolution with the aim of enabling landlords and tenants to work together to reduce the risk of issues escalating.

In introducing these new measures, the government hopes that this will allow the more serious issues to progress through the court process much more quickly. By offering support for early engagement between landlord and tenant, the government hopes this will sustain tenancies and avoid costly and time-consuming court possession proceedings for both parties and prevent avoidable evictions. Landlords will no doubt welcome any improvements.

8. Introducing a new digital Property Portal

The proposed Property Portal would provide a single "front door" to help landlords understand and demonstrate compliance with their legal requirements. Landlords would be required to register their properties on the portal; registration will be mandatory. Tenants will then be able to access information about their landlords compliance record through the portal (together with guidance on renting in the PRS) and local councils will have access to more data in order to "crack down" on criminal landlords. Subject to consultation with the Information Commissioners Office, the government proposes to incorporate some of the functionality of the Database of Rogue Landlords, mandating the entry of all eligible landlord offences and making them publicly visible.

The introduction of a new Property Portal is intended to support the reforms to ensure they are understood and effectively enforced and in doing so, landlords will need to demonstrate compliance with their legal requirements. This should be seen as a positive step. The portal will enable good landlords to stand out and by doing so, steer tenants away from rogue landlords.

9. Strengthening enforcement powers for local councils

The government intends to strengthen local councils enforcement powers and their ability to crack down on criminal landlords by seeking to increase investigative powers and strengthening the fine regime for serious offences. The government is also exploring a requirement for local councils to report on their housing enforcement activity.

These changes will not trouble legitimate landlords.

10. No blanket bans

The government will legislate to make it illegal for landlords or agents to have blanket bans on renting to families with children or those in receipt of benefits and explore if similar action is needed for other vulnerable groups, such as prison leavers. The government proposes to improve support to landlords who let to people on benefits.

11. Pets and decoration

The government proposes to legislate to ensure landlords do not unreasonably withhold consent when a tenant requests to have a pet in their home (with the tenant able to challenge a decision) and amend the Tenant Fees Act 2019 to include pet insurance as a permitted payment (to cover any resultant damage to the property).

Landlords are also to be encouraged to allow reasonable requests by tenants to redecorate, hang pictures or change appliances provided they return the property in its original state when they leave.

12. Passporting deposits

The government proposes to monitor the development of innovative, market-led solutions to help passport deposits with the intention of allowing tenants who struggle to raise a second deposit to move around the PRS more easily and support tenants to save for home ownership.

Conclusion

Changes to the regulation of the PRS have been a long time coming and form part of a much wider government strategy to level up and to increase fairness across the housing market. The White Paper sets out a comprehensive plan of reform which is to be implemented via the Renters Reform Bill which the government hopes to introduce in this parliamentary session. While legitimate and conscientious PRS landlords will need to adapt, they do not need to worry. The bulk of these changes are aimed at pushing out unscrupulous landlords and unfair practices, something we should all welcome.

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An overview of the White Paper: A fairer private rented sector - Lexology