Looking at the new rules for rent increases and what landlords should do to protect their position.

Fulfilling a manifesto commitment

One of the manifesto commitments the Labour Party made was to give tenants the power to challenge ‘unreasonable rent increases’.

The procedure they are using for this is as follows:

• The only way that rent can be increased will be the statutory notice procedure under s13 of the Housing Act 1988.
• Rent increase clauses in tenancy agreements will be banned, and
• Increase by agreement will only be permitted after the section 13 notice has been served
• The notice period (currently one month) will be increased to two months

Challenging rent and rent increases

The rules for this in the new legislation will be as follows:

• As is the case now for ASTs, tenants will be able to refer their initial rent during the first six months from the beginning of their tenancy to the First Tier Tribunal for review
• Tenants will also be able to challenge s13 rent increase notices in the same way
• However, the Tribunal will only be able to leave the proposed rent as it is or reduce it. They cannot (as they can now) increase it
• The rent the tribunal awards will be based on their determination of the ‘open market rent’
• The new rent will not take effect until after the tribunal has made their decision or,
• If they consider this will cause hardship, on a date the tribunal directs

The method for working out the ‘open market rent’ is set out in section 14 of the Housing Act 1988.  It is based on what the rent would be for a similar property in the same area.

So what does all this mean?

It means that although landlords can set the initial rent for a property and service notices of increase for the rent that they want – this is subject to the First Tiers Tribunal’s view of what the ‘open market rent’ should be.

The Tribunal panel that will make this decision will normally include a valuer who will be experienced in valuing properties and rents in the area.  They will base their decision on the rents for other properties in the area, so far as they are aware of them.

They will probably treat rents set out in property adverts with caution,  as the new legislation will also provide that landlords cannot charge a higher rent than that given in their advertisement. So these will tend to be higher in many cases, than the rent actually agreed.

It is suggested that the new property portal will include rents for property, in which case this will probably be used by the Tribunal as an aid to determining the market rent.

The prospect of a downward drift in market rents

As all rents will ultimately be subject to the Tribunal’s view of what the ‘open market rent’ should be, there is a possibility that this may result in rents overall falling.

This will be good from the tenant’s point of view as it will make their property more affordable.

However, landlords need sufficient rent to cover outgoings and make a reasonable profit. If the rents drift down too far, as happened under the Rent Act 1977 rules, it could make renting unaffordable for landlords.

Particuarly bearing in mind the new standards being introduced under the Decent Homes rules and the requirement to upgrade properties to an energy level C by 2030.

Under the Rent Act 1977 landlords were forced to continue renting to their tenants as it was very difficult to evict them under the then rules.

This is not the case now, as landlords will be able to evict tenants if they decide to sell. If rents drift down too far, this is probably what will happen.

If landlords sell up

If rented properties are sold, as was pointed out in the bill’s second reading debate, the property will not disappear. It will still exist and be there for someone to live in.  But it will no longer be available, for example, for families unable to buy.

The likely options for properties sold by landlords are:

• It will be sold to another landlord
• It will  be sold to an owner-occupier,
• It will be used for short-term or holiday accommodation
• It will be demolished or converted to some other use

It is likely, overall though, that if a large number of landlords sell, the private rented sector will contract.

If the Private Rented Sector contracts

This is a real possibility. Bear in mind that in the last century, the number of households living in rented accommodation shrank from approximately 80% of the population before the 1914-1918 war to around 8% in the 1980s.  This was largely down to the effect of the Rent Act 1977 (I discuss this in my history article here).

However, it is important for the economy that there is a Private Rented Sector. Not everyone wants or is able to buy their own home. Social housing has shrunk due to the ‘right to buy’ and is now in very short supply.

Private rented housing is needed in particular for;

• Students, who are unlikely to want or be able to afford to buy
• Young people who want the freedom to move that renting gives
• People having to move for their job, needing somewhere to live before they buy
• People who are unable to afford or who do not want (for other reasons) to buy
• Immigrant families

If people are unable to move, for example, for their job, this causes problems. There are already issues with low-income workers being unable to live close to their work in London and other expensive cities. Students are increasingly finding it hard to find accommodation, and some are forced to live far away from their college or university.

If this continues it will cause problems for our economy. The government should take this into account in the development of this legislation.

What can landlords do if the legislation is passed as drafted?

It will be up to landlords and letting agents collectively to ensure that the level of rent is not allowed to drop too far.

So landlords should ALWAYS serve a notice of rent increase regularly every 12 months. This will allow rent increases to be modest – which will be more affordable for tenants, less likely to be challenged, and, if challenged, less likely to be reduced by the Tribunal.

At the moment, many landlords fail to increase rent for several years and then make one big increase to bring the rent up. This is NOT a good idea. Large rents are far more likely to be challenged and reduced.  It also supports the legend of the ‘greedy landlord’.

It is up to landlords collectively to ensure that the level of rent is not allowed to drop. This means that all landlords should ensure that their rent is at a proper market level and increased regularly by small increments to keep up with inflation.

Otherwise, this will prejudice other rent increases made by other landlords.

The post The Renters Rights Bill – new rules increasing rent and their consequences appeared first on The Landlord Law Blog.

Welcome to Landlord Law’s weekly Newsround bringing you all the latest housing news.

Rent tribunal system will not cope

Once the Renters Rights Bill becomes law there is concern that the English tribunal system will not cope with the number of fair market rent appeals.

The number of open cases in March this year was more than 8000 giving a 144% rise since 2019.

Fear that once the Renters Rights Bill is in place, this will add more pressure as tenants will be able to challenge a rent rise once served with a Section 13 notice through the tribunal system. Each claim takes time with property visits alone increasing costs to the proceedings.

Steve Richmond of Reapit a Proptech company said

The Renters’ Rights Bill brings significant changes but adds more pressure to an already strained system. We’re also concerned the government hasn’t fully considered the added costs to courts and tribunals, as no impact assessment has been published.

He added

We need the government to address the court and tribunal backlog because lengthy delays will burden both landlords and tenants with months of uncertainty.

The government has stated that they will not wait until the courts improve before they reform the private rented sector.

A London council clamps down on unlicensed HMO’s

Kensington and Chelsea Council have just fined an HMO landlord £5000 for not having the correct HMO license.   They say that this is just the start of their crackdown and investigative work since bringing in an additional licensing scheme last June.

This fine was the first one that they have issued since the scheme came into force, but they say that they have issued a further three penalties to landlords and are investigating further properties that are non-compliant.

They have issued a total of 555 licences since the scheme began but 216 properties have had to do improvement works as part of the condition of the license. Properties are still being located that have not yet been licensed, this is part of their ‘targeted action‘.

HMO landlords must make sure what schemes are in place within the boroughs of their properties. Failure to license is no excuse! Councils are constantly introducing new schemes and consultations.

Here at Landlord Law we have our own Local Authority Directory that lists each borough along with their licensing requirements.

Inventories favour tenants

A new survey out claims that in 90% of cases, landlords are having to pay for property damage that has been caused by their tenant. This is happening where an initial inventory is carried out, but not at the end of tenancy. This highlights the need for landlords to carry out detailed inventories at both ends of the tenancy.

Only 19% of tenants say they have had an issue come up that was not recorded on the initial inventory.  Without an end of tenancy inspection, landlords have little or no comeback to the tenant. 56% of tenancies do not have an end of tenancy inventory check.

Inventory Base who carried out the survey, says

A good inventory practice is central to the successful management. It’s a landlord’s strongest defence against damage and poor tenant behaviour.

We have lots of information on inventories for our members on our Landlord Law website here.

Landlords keen to work on EPC ratings

29% of landlords say the targets set by the government for EPC rating of a ‘C’ by 2030 is only achievable with help from the government. 16% of landlords said they would struggle to afford the costs, while 25% said they will sell their properties that require upgrading.

The promising news is that some landlords, 22%, have already started the work to upgrade their properties, but these are mainly larger portfolio landlords. 54% of landlords have made some sort of energy efficiency upgrade work.

However, the message is very clear that landlords will need financial support from the government in order to achieve their ratings by 2030, 12% of the private rented sector is currently and EPC ‘E’ to ‘G’.

Emma Cox from Real Estate at Shawbrook said

Having a quality, energy-efficient, professional private rented sector is critical, particularly at a time when home-ownership and access to affordable housing remains challenging. But this must be achieved with the support from government and industry.

Snippets

Most former rental properties not bought by first time buyers
Chancellor urged to consider stamp duty reforms amid EPC costs for landlords
Landlord bashing council slammed over its own property failings
Pet friendly homes, not rent rises are tenants biggest concern

See also our Quick News Updates on Landlord Law

Newsround will be back again next week

The post Landlord Law Newsround #361 appeared first on The Landlord Law Blog.