AUTHOR: TOM FARRELL
The Build to Rent (BTR) sector remains a key area of growth in the real estate arena and continues to attract developers, investors and lenders. The Renters' Rights Bill, which is expected to come into force as legislation this summer, will introduce important changes to the law relating to privately rented homes. Burges Salmon have recently published a booklet collating a number of articles looking in detail at the changes proposed by the Bill, The Renters Rights Bill - What you need to know. We consider below the key aspects of the proposed reforms that are likely to impact the BTR sector in particular.
- Abolition of Assured Shorthold Tenancies (ASTs)
With the abolition of ASTs, all residential tenancies will become Assured Tenancies on a periodic basis, with tenants able to give two months' notice at any time to terminate the tenancy. This could lead to a higher turnover of tenants in a BTR scheme, which are typically based on longer term tenancy arrangements. Unlike under an AST, there will no longer be a set period from the outset of a tenancy during which a tenant is unable to terminate.
The removal of a landlord's ability to serve notice to terminate a tenancy without giving a reason (known as a "section 21 notice") is a significant change. A landlord will now have to rely on certain prescribed statutory grounds to bring a tenancy to an end. If a landlord can evidence certain mandatory grounds (such as rent arrears of three months, a sale of the property or an intention to move into the property themselves), then a court will grant a possession order. The Bill also proposes certain grounds on which a court will have discretion as to whether to give an order for possession (e.g. a breach of tenancy terms or rent arrears for fewer than three months, antisocial or nuisance behaviour). The ability of a landlord to bring a tenancy to an end and remove a tenant will therefore be significantly curtailed. A tenant may also challenge the landlord's claim, which would result in considerable time and expense in dealing with such a process.
Whilst the Bill does not introduce rent controls, any rent increases are limited to one per year and must be in line with the open market rent. The First Tier Tribunal will determine the level of rent if a rent review is not agreed between a landlord and tenant. A landlord of a BTR portfolio will therefore need to ensure they have the necessary processes in place to ensure that the formal rent review process is carried out annually. With the abolition of no fault evictions, BTR landlords may find themselves faced with an increased number of challenges to rent increases brought by tenants who feel they no longer have anything to lose by doing so.
- New Ombudsman and registration regime
It is intended that a new Private Rented Sector Ombudsman is introduced, with a mandatory obligation on all landlords to join the Ombudsman service. In additional, all landlords will be required to register on a new Private Rented Sector Database (and will not be able to obtain a possession order without being registered). Each of these regimes will require a small fee to be paid by a landlord. Tenants will be able to escalate complaints to the Ombudsman and there will be substantial civil penalties for landlords who do not comply with the new rules. Given the number of tenants in a typical BTR portfolio, these new requirements are likely to introduce a substantial administrative burden for BTR landlords (although they are arguably better placed than other PRS landlords to deal with such requirements). It remains to be seen whether these additional requirements will lead indirectly to higher overall rents across the sector.
The Decent Homes Standard which currently applies specifically to social housing will now apply across the PRS sector as a whole. This will bring in much higher minimum standards that rental properties must comply with. Given that properties in the BTR sector are generally newer and of a high quality, this is an area where BTR landlords are likely to be well placed to comply with the changes.
The reforms introduced by the Bill represent the largest change to the laws around the private rental sector since the 1980s and developers, operators and funders of BTR schemes will all be impacted by these changes. However, with BTR operators generally benefiting from professional internal processes and dedicated resources, the BTR sector is well placed to adjust to the new Renters' Rights Bill requirements and may even indirectly benefit if, as expected, the changes lead to an increase in private landlords exiting the rental market. We will continue to keep a close eye on developments in this area and will be watching the market with interest over the coming year.