Renters’ Rights Bill: Impact on the Build to Rent Sector

The new Labour Government has presented the Renters’ Rights Bill (“the Bill”) to Parliament. We consider the potential impact of the Bill on the Build to Rent sector ahead of the second reading in the House of Commons on 9 October 2024.

For more information about a specific issue in the Bill which could affect PBSA providers, please read our insight: Renters’ Rights Bill: The abolition of the fixed term tenancy and its impact on PBSAs. 

Abolishing fixed term tenancies and no-fault evictions

The Bill will abolish fixed term Assured Shorthold Tenancies (“ASTs”) and prevent landlords from terminating tenancies on a “no-fault” basis. Tenants will occupy residential premises under a periodic tenancy from month to month and can give two months’ notice at any time (subject to a minimum initial term) to terminate the tenancy. Landlords will need to serve notice relying on one or more statutory grounds of possession, including breaches of the tenancy or other specific grounds of possession.  

The Bill contains a number of new or widened grounds for possession. Currently, the most widely used grounds for possession relate to arrears and a Court must make an order for possession if at the date of service of the relevant Notice and the date of the possession hearing there are at least two months’ rent outstanding. The Bill increases the threshold before this ground is established from two months’ rent arrears to three months’ rent arrears. In addition, the relevant notice period has been increased from two weeks to four weeks.

Nuisance may become a ground which is increasingly relied upon with the removal of no-fault eviction notices. However, the Government has not bolstered the existing ground concerning anti-social behaviour which could make it difficult to prove. In addition, this is a discretionary ground where the Court can decide whether or not to make an order for possession even if the ground is established.  

Taking back possession

If the tenant fails to vacate at the expiry of the Notice, the landlord must bring possession proceedings and establish one or more grounds for possession. Accelerated possession proceedings (an administrative procedure where no hearing in required) will be abolished. 

The need for a hearing and for evidence to be produced by a landlord is likely to significantly increase the time taken to conclude a possession claim. This will exacerbate County Court backlogs with possession claims.  

Unfortunately, there is no indication within the Bill or elsewhere that the Government intends to alter the Court process for obtaining possession orders or to increase funding for the Courts or the County Court bailiffs to deal with possession claims and the enforcement of possession orders.  

Rent increases

Another significant issue for Build to Rent providers is the procedure for increasing the rent. Currently, any rent increases can be agreed when tenants start a new fixed term tenancy. However, with the monthly periodic tenancies introduced by the Bill, landlords will need to serve statutory notices of increase of rent to initiate the procedure for a rent increase. 

The statutory procedure allows tenants to challenge increases of rent at the First-Tier Tribunal (Property Chamber) meaning providers may incur additional costs and experience unexpected delays in receiving an increased rent. In addition, tenants will have the general right to challenge the rent within the first 6 months of the tenancy, if it is above market rent.  

Advertising rental properties

There are a number of new features of the Bill which may restrict profitability in higher yield rental areas. For example, landlords cannot accept a rent higher than that a which a property is advertised to let. For popular properties, landlords will be unable to accept a higher bid for rent.  In addition, there is a ban on any practices which could amount to discrimination against tenants with children or tenants who receive benefits.  Any such conduct will breach the legislation and financial penalties can be imposed by the local housing authority.  

Decent Homes Standard

The Bill will introduce a Decent Homes Standard for the private rented sector. This is unlikely to impact Build to Rent providers where the model is based on good quality accommodation and amenities. The Government wants this measure to drive up standards of accommodation across the private rented sector.

Private rented sector database

The Bill will require Build to Rent providers to be active on a new private rented sector database. There will be a fee payable for registration. Secondary legislation will contain details of the information which must be stored on the database and what documentation and information landlords must provide. For those providers with large portfolios, this is likely to be a fairly significant additional cost and administrative requirement to be factored in to ensure an active listing can be maintained.

It is also possible that the current obligations relating to service of a gas safety certificate and energy performance certificate at the outset of the tenancy together with the prescribed form Government “How to Rent” guide could be imposed as a requirement for an active listing on the private rented sector database. However, clarification is awaited in the secondary legislation.

Right to keep pets

The Bill will give tenants the right to keep a pet and landlords cannot unreasonably refuse this request. Balancing an individual tenant’s request to keep a pet against the management of multi-family properties is likely to be a challenge which will require careful consideration. It is also important to note that there are limits on deposits landlords can require from tenants to cover any damage to the property caused by pets although it has been proposed that tenants should be required to maintain insurance to cover potential pet damage or to compensate the landlord for the reasonable costs of obtaining such insurance. 

Commencement

The Bill will come into force on a commencement date once it receives Royal Assent.  That commencement date is to be determined by the Government but could be 6 or 12 months after the Bill becomes law. On this date all existing ASTs will convert to monthly period assured tenancies. There will be some transitional provisions where accelerated possession proceedings have been issued to allow those proceedings to conclude and if, on the commencement date, a no-fault eviction notice has been served but proceedings not issued, the landlord will have up to 3 months from the commencement date to issue proceedings. 

We are tracking developments on our Essential Residential Hub and our timeline: Evolution of the private rented sector. This insight has been prepared as a general guide only and does not constitute advice on any specific circumstances. Please seek advice on your specific circumstances.

Please do not hesitate to contact Laura Bushaway, Lauren Fraser or your usual Charles Russell Speechlys contact if you have any queries.