Renters Rights Bill – Time to ‘raise’ the roof on rent control

The Renters Rights Bill (Bill) is making its way through the Parliamentary process. When it becomes law, it will significantly affect the private rented sector, which accounts for 18.8% of all homes in the UK(1).

Notably, the proposed changes to rent and rental increases will affect a large proportion of landlords and tenants, albeit for different reasons.

In anticipation of the Bill becoming law, Martha Alsop Wood and Sarah Barratt from our real estate dispute resolution team explore the imminent changes to rent and rental increases as a result of the Bill, and the implications of these changes on both landlords and tenants.

Background and the current position 

Tenants can currently occupy a property under an Assured Shorthold Tenancy (AST), which can either be for a:

• Fixed term with a fixed end date.
• A periodic tenancy whereby the tenancy ‘rolls’ from week to week or month to month.
• A hybrid of the two where there is a fixed term that then becomes periodic after the end date expires, and neither party takes action to end the tenancy.

The type of tenancy the tenant occupies the property pursuant to affects the ways in which the landlord can increase the rent.

Fixed term with a fixed end date

Where the tenant occupies the property pursuant to a fixed-term tenancy (i.e. the tenancy runs for a set period), the landlord can only increase the rent if the tenant agrees or by way of a rent review mechanism in the tenancy (but note that not all tenancies contain a rent review mechanism).

If there is no rent review mechanism in the tenancy and the tenant doesn’t agree to a rent increase, the landlord must wait until the fixed term expires to increase the rent.

It would, therefore appear that under a fixed-term tenancy, the tenant has some controls over rental increases during the term of the tenancy, subject to what the tenancy says; however, where a tenant refuses to agree to a rent increase, the landlord may choose to serve a section 21 notice to bring the tenancy to an end at the end of the term.

The tenant could then be evicted from the property, allowing the landlord to rent the property to a new tenant at a new increased rent.

Do note, however, that under the Bill section 21 notices will also be abolished. 

A periodic tenancy

Under a periodic tenancy, however, the landlord can only increase the rent by way of serving a section 13 notice pursuant to the Housing Act 1988 (unless there is a mechanism in the tenancy for increasing the rent).

A section 13 notice can only be served on the tenant once a year and therefore limits rental increases the landlord can impose.

A periodic tenancy can be ended by the tenant after giving four weeks’ notice ending on the last day of a tenancy period if they wish to vacate the property. This gives the tenant more flexibility to leave the property and end the tenancy if they are unhappy with the property or the proposed terms for any reason.

If a landlord serves a section 13 notice, they must give the right notice period before the rent is increased, and the proposed rent increase must take effect at the start of a new period of the tenancy. The notice periods are as follows:

• Rent due weekly or monthly requires one month’s notice
• Rent due quarterly requires 2 months’ notice
• Rent due yearly requires 6 months’ notice

As a result, rental increases are limited to once a year.

What changes will the Bill bring to rent and rent increases? 

The position set out in the Bill is that all tenancies, including current tenancies, will become periodic tenancies. The proposal for dealing with rent increases is that rent can only be increased using the s13 procedure as outlined above.

Further to limiting rental increases to a maximum of once a year, landlords will only be able to raise rent in line with market rates.

This aims to ensure greater protection for tenants by prohibiting landlords from charging excessive rent or pushing tenants out of occupation by increasing the rent substantially.

Tenants will have the opportunity to challenge proposed rent increases by making an application to the First-Tier Tribunal, which will then decide on the market rent.

As well as the abolition of fixed-term tenancies and the effect that this will have on controlling rent increases, the Bill will also abolish rental bidding in an attempt to ‘crack down on those who exploit the housing crisis’(2).

This means that landlords and letting agents will no longer be allowed to ask for, encourage or accept bids above the price published for the property.

This includes asking, accepting or encouraging an upfront payment of several months' worth of rent or increasing deposits beyond one month’s worth of rent.

Conclusion

Whilst we do not yet have a definitive date for when the Bill will become law, it is important that landlords and tenants alike are aware of their obligations and rights under the proposed legislation.

Whilst the changes aim to provide more stability and fairness for tenants, the proposed legislation should still allow landlords to adjust rents in line with market conditions.

For more information, please contact Sarah Barratt using [email protected] or 0191 211 7923.

References:

1) gov.uk

2) gov.uk