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The End of No Fault Evictions: Good or Bad?

  • Government intends to end section 21 “no fault” evictions in England
  • Landlord’s will need a “concrete, evidenced reason already specified in law” to gain possession

Are you a landlord and worried about the plans of the government (announced 15th April 2019) to end the right of landlords to evict a tenant at the end of their tenancy without having to give a reason?

Are you a tenant thinking the changes are unqualified good news for you?

As ever, the picture is not black and white

This blog considers the proposed changes and looks at their possible impact on the private rented sector. It deals with:

1. The changes signalled by the government

2. The prospect of additional changes going forward

3. What the changes may mean for landlords

4. What the changes may mean for tenants

5. The future for private sector landlords and tenants in the light of the planned changes and possible additional changes.

1. The changes signalled by the government

Current section 21 procedure

Under existing legislation, a landlord has the right to get their property back at the end of a tenancy subject to giving 2 months’ notice to the tenant.  This is commonly known as “the section 21 procedure”.

The notice is known as a “section 21 notice”.  In most cases the tenant will leave by the date specified in the notice.

If the tenant fails to leave, the tenant is protected from forcible eviction and the landlord must obtain a possession order from the court to be able to lawfully evict the tenant.

If the tenant still does not leave after a possession order, the landlord must obtain a bailiff’s warrant, which will enable bailiffs to evict the tenant lawfully. 

This procedure is known as “no fault” possession since, to gain possession, the landlord can simply rely on the fact that the term of the tenancy agreed with the tenant has come to an end.

There is no need to show “fault” on the part of the tenant – such as rent arrears, damage to the property or anti-social behaviour.

A landlord will typically rely on the section 21 procedure where the only thing they are seeking at the end of the tenancy is possession.

The availability of the procedure gives flexibility to landlords. At the end of a tenancy they can choose to allow the tenant to remain or ask them to leave. 

The procedure for gaining possession is relatively quick, simple and inexpensive.

Current section 8 procedure

The other procedure currently available to landlords is “the section 8 procedure”, involving the service of a “section 8 notice”.

This is the “fault” procedure and is typically used where there is “fault” by the tenant such as rent arrears, anti-social behaviour or damage to the property.

In the section 8 notice, the landlord must give a reason or statutory ground for wanting possession. There are currently 17 statutory grounds that can be relied upon.

If ground 1 to 8 is established, the court must give the landlord possession. If ground 9-17 is established the court has a discretion whether or not to give possession.

Changes signalled

The changes signalled by the government, and which seem likely to come into effect next year, will mean landlords will no longer be able to gain possession under the section 21 “no fault” route. 

It has been reported that landlords will have to show a “concrete, evidenced reason already specified in law” to gain possession of their property.

In other words, they will probably have to show one of the 17 grounds currently required to gain possession under the section 8 procedure

Broadly, they will need to establish some form of fault by the tenant or a good reason on their part for wanting possession.

It is likely that obtaining possession will therefore be more difficult, slower and more expensive for landlords.

On the other hand, tenants will have greater security of tenure and will have the chance to stay on at a property once the contractual term of their tenancy has ended.

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2. The prospect of additional changes going forward

There is every indication that the proposed change to “no fault” eviction could be followed by even more changes – especially if there is a change of government.

Shadow Housing Secretary John Healey is reported on ITV.com as saying:

“Any promise of new help for renters is good news, but this latest pledge won’t work if landlords can still force tenants out by hiking the rent.”

“For nine years, the Tories have failed to tackle problems facing private renters. Tenants need new rights and protections across the board to end costly rent increases and sub-standard homes as well as to stop unfair evictions.”

“Labour is committed to giving renters the rights they deserve, including control on rents, indefinite tenancies and new legal minimum standards.”

On the 9th April 2019 the government released two guidance documents on its website gov.uk:

– One for local authorities relating to “rogue landlord enforcement”

– One for landlords and tenants relating to “landlord and tenant rights and responsibilities in the private rented sector”.

Tenant’s rights and housing seem likely to be near the top of the party manifestos in the next General Election, and there is every indication that the parties seem to be competing as to who can appear more “tenant friendly”. 

Both main parties have raised the possibility of minimum length tenancies – with 3 years being mooted by the Conservatives and Labour talking about indefinite tenancies. 

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3. What the changes may mean for landlords

The end to no fault possession is likely to make it much harder for landlords to obtain possession.

Tenancies could continue indefinitely unless the landlord has a legal ground for gaining possession. 

That would restrict the options of landlords, making buy-to-let a less flexible investment.

The details of the government’s proposals are not yet known but, presumably, landlords will be able to get possession if they intend to sell their property with vacant possession.

If a landlord wanting or needing to sell has to do so with the tenant still in occupation, that could depress the sale price. 

Buy-to-let landlords seem likely to desert the sector in large numbers if the disposal of their properties is restricted and impacts negatively on property values.

With non-problematic tenants, landlords are likely to have few quarrels with the changes – but there are clearly going to be issues and challenges in relation to problematic tenants.

It will no doubt take landlords longer to get rid of bad tenants and it may be more costly to do so if lawyers have to be retained and court proceedings taken.

Landlords may seek to cherry-pick the “best” tenants, making it harder for tenants as a whole to be accepted by landlords.  Some tenants will not be able to pass the “quality checks” some landlords and agents may be minded to impose. 

The obvious flaw with the proposed legislation is that landlords may be obliged to take costly court proceedings to gain possession and that may make buy-to-let unappealing to landlords and lenders alike.

If lenders lose their appetite for the private rented sector, investment into the sector could reduce, making it less likely that the government will reach its annual target for new homes (300,000 per year).

A possible unintended consequence is that the changes may cause landlords to take on the best tenants only, excluding tenants with poor or borderline references or histories.

That could make it even less likely that vulnerable people will be able to secure housing, especially those on benefits.

Some supporters of the government’s proposals see it as a way to reduce homelessness. In fact it could increase it.

If a large number of landlords exit the market, the number of rental units could fall and rents could rise. 

The actual impact of the planned changes will  of course depend on the precise wording of the legislation which comes into force.

The proposed changes will be subject to the usual consultation with interested parties and groups before draft legislation is put before Parliament.

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4. What the changes may mean for tenants

The changes seem likely to give tenants the opportunity to remain in their rented home for as long as they like – subject to good conduct and not falling into rent arrears, and the landlord not having a legal ground for insisting on possession.

The changes will be good news for tenants, giving them greater certainty and security in their accommodation – enabling them to plan their lives and raise their families with greater stability.

Many tenants will not be obliged to move as frequently as before; saving money in terms of removal costs and other costs of moving.

Tenants with children will be able to provide them with more settled, and probably more successful, schooling.

Tenants who choose their accommodation with their job in mind will face less worries about losing their accommodation and having to travel further and more expensively to work.

In the words of PM May the changes should enable tenants “to feel secure in their home, settled in their community and able to plan for the future with confidence”.

On the downside, the government’s changes could reduce the number of private rented units if landlords were to withdraw from the BTL sector in significant numbers.

That could make it harder for tenants to find housing as well as put up rents.

Rent control would not necessarily be a solution. If rent control puts pressure on the income of landlords, more of them could exit the market, putting further upward pressure on rents. 

Common sense suggests the best way to bring down rents is not to impose artificial controls but to increase the supply of housing.

Another possible problem for tenants is that landlords may become less likely to accept tenants who look like they could present challenges going forward.

That could be bad news for tenants on a low income, welfare benefits or housing benefits. 5TopTips_Feature.jpg

5. The future for private sector landlords and tenants in the light of the planned changes and possible additional changes.

When considering the likely impact of the planned changes it is important to stress that they are just that – planned changes.

The eventual changes will be subject to the outcome of the usual consultations with interested groups and the legislation which is placed before and passed by Parliament.

However, with both Labour and the Conservatives enthusiastic for reforms, the landlord and tenant landscape is clearly set to see fundamental changes.

There seems to be a clear intention by both main parties to:

  • Make it harder for landlords to evict “blameless tenants”
  • Strengthen tenant’s rights
  • Give tenant’s longer tenancies

While these changes will probably be accepted as fair and reasonable by most landlords, the clear risk is that the changes will make buy-to-let less attractive and cause a significant percentage of landlords to exit the market, exacerbating, not helping, the housing shortage –  and possibly increasing rents.

Further, Labour is committed to the idea of rent control and that has already caused some landlords to shake in their boots.

Other landlords are complacent, thinking it will not happen. But it is clearly sensible for landlords to plan their affairs on the basis that it could happen.

Wise landlords will want to target rental units with the highest yields and will shun low yields which could quickly fall into negative territory in the event of rent control or other adverse events such as economic crisis or a rise in interest rates.

Rent control is a controversial matter. Not everyone agrees it is a good thing.

Tenants will clearly benefit financially if rents are reduced or kept low by rent control. Rent control can moderate “market excesses”.

However, if rents are set too low, it will not be viable for landlords to rent out their property, and they are likely to sell up, lowering the supply of property to rent.

The quality of accommodation available on controlled rents may end up being of a lower standard, notwithstanding legal measures to raise or maintain standards.

If minimum term tenancies come into effect, that could be both a positive and negative for landlords.

Positives include:

  • Less voids
  • Reduced maintenance costs
  • Lower letting costs.

Negatives include:

  • Less flexibility in terms of disposals
  • Longer period of problems if difficulties or issues with the tenant.

Longer tenancies will be a win-win for tenants. It seems likely that the government will enable tenants to leave early for a good reason, without being obliged to pay rent to the end of the contractual term.

Longer tenancies should not prove a problem overall since data from Hometrack, reported in the Financial Times in May 2018, suggests that the average private tenancy lasts over four years in any event. 

Conclusion

The plan to remove no fault eviction is one of a large list of changes, past and impending, which are likely to make the private rented sector a place of change and uncertainty for landlords and tenants alike.

The latest planned changes present a serious danger to BTL landlords at several levels – including the operational and the financial.

The changes seem very likely to drive out more amateur landlords, “weak players” and “cowboys”.  That is likely to be good for tenants and good for good landlords.

Landlords exiting the market will present buying opportunities for landlords remaining in the market.

However the obvious fly in the ointment is the threat of rent control.

That – coming on top of the reduction in mortgage interest relief (as a result of Section 24 of the Finance Act (No. 2) 2015) –  could be one hurdle too many for the average private landlord.

If you are a landlord, when developing or reviewing your property plans or strategies, it is vital to factor in the possibility of a buy to let landscape where no fault eviction is not allowed, tenancies need to be at least 3 years in length and there is some form of rent control.

If you are a tenant, you should not think everything is going to be easy street for tenants.

Rent control, if it ever comes in, seems likely to be restricted to our big cities.

If government imposition on private landlords becomes excessive, they will simply exit the market – with no certainty that the public sector will be able to fill the gap.

If the government’s changes do not strike the right balance between the interests of private landlords and the interests of private tenants, the future could be well and truly horrible for landlords and tenants alike.

Enjoyed this blog? Please share it with friends by clicking on the LinkedIn, Twitter, Facebook or Instagram icon on this page. 

How do you feel about the possible changes in the law?  Do the changes seem good or bad to you? Can you foresee any unintended consequences?

You may also find the following blogs useful:

Shops are the new pubs 
The Brexit house price bounce
Is a house price boom coming soon?
The scary future for tenants.

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Dalton Barrett
Rebel Property Coach

Please follow me on Twitter @Dalton1London
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My website is: www.rebelpropertycoach.com

 


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4 replies »

  1. The private rented sector certainly needs a shake up as to reflect modern living. Although as you skilfully point out policies which sound enticing on the surface e.g rent control, can in actuality work to the detriment of the people they are trying to help.

    • I think a revolution is coming in the private rental sector. The current government initiatives are simply the start of things to come. If there is a change of government I’m sure there will be plenty of work for the lawyers.

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