A new era, or a return to the past for the Private Rented Sector?
Section 21 of the Housing Act 1988 is to be abolished. As anticipated, in the Queen’s Speech today the government has set out plans for a Renters Reform Bill which will do away with Section 21. More rights to landlords to gain possession and improvement of the court process are also promised, together with the introduction of a lifetime deposit.
What does all this mean for landlords?
This is a policy designed to help tenants, but will it switch the balance too far away from landlords’ interests? Will it send us spinning back in time to Rent Act days when things were so heavily weighted in favour of tenants that it wasn’t financially viable to be a private landlord?
A potted history of housing law and policy is useful to understand this significant change.
The primary Act of Parliament governing the private rented sector (PRS) is the Housing Act 1988 (the Housing Act). Before the Housing Act tenants enjoyed significant protections in terms of rents, succession, and security of tenure. Great for tenants, but landlords often found it very difficult to gain possession of their properties or charge financially viable rents. The availability of rental property was reduced further by Mrs Thatcher’s Right to Buy council houses.
The Housing Act brought in the concept of “no-fault evictions” via Section 21 notices. For the first time, landlords did not need a reason to gain possession, if they timed and served their notice correctly. This made becoming a PRS landlord far more attractive and the PRS currently provides a substantial proportion of housing in the UK. The ONS reports that the number of households in the private rented sector in the UK increased from 2.8 million in 2007 to 4.5 million in 2017, an increase of 1.7 million (63%) households. In London, 30% of housing is provided by the PRS, and 19% in the rest of the UK (English Housing Survey 2016-17).
The feeling now appears to be that things are weighted too heavily in favour of landlords and that tenants are suffering because Section 21 means they have no certainty as to how long they might be able to stay in their rented property. Even where they have been good tenants, after the first four months their landlord can go through the due process of serving the Section 21, getting the possession order, warrant of possession, without needing any reason. Housing groups have long been campaigning for change, and political parties on both sides have supported this.
Many landlords would probably disagree that the weighting currently favours tenants. They can use Section 21, but it could take around six months from service of the notice to eviction, during which time they may not be receiving any rent, they will incur heavy legal costs to go through the possession process (which they will probably never recover), and their property may be left in a poor condition which the deposit will not be enough to remedy. Another problem generally with housing policy is that it tends to be designed to address problems in London and the South East, where the housing market is very different to the rest of the UK.
Section 21 has been around for over 30 years, but the last 10 years or so have seen more and more restrictions on the use of Section 21, so this may have been inevitable.
Landlord bodies were resistant but now appear to have reluctantly accepted the policy shift and that Section 21 would go. However, they lobbied for this to be implemented carefully, with alternatives for landlords that are fit for purpose.
The alternative for landlords is the Section 8 notice and court process, which they can use if, for example, rent is not being paid. However, the current process is slow, expensive and difficult for landlords. It can take 6-7 months or longer, depending on how busy the local court is. For Section 8 possessions there are few mandatory grounds, meaning that landlords often go through the pain of the process with no certainty of a favourable result. The courts are under-resourced and slow to process claims and list hearings and evictions. The difficulties with Section 8 are the reason why many landlords opt to use Section 21, even though that often involves them effectively writing-off rent arrears. I have experienced the timescales and the frustrations of reputable landlords many times when helping them through the process. Usually, they have not been paid and/or their property has been damaged. When they eventually get possession they are substantially out of pocket. I’ve found myself frustrated on their behalf and apologising for the system.
Landlord bodies would like to see the Section 8 process improved, with extra mandatory grounds, and quicker processes. The Renters Reform Bill suggests the government has listened to them, but as always the devil is in the detail, and it remains to be seen whether the reforms will deliver.
From a wider policy perspective, the risk is that landlords will leave the PRS. From an even wider perspective, this could worsen the housing crisis if the PRS is shrinking but not replaced with anything. If social housing is not increasing, and buying is unaffordable (or not the preference for some), what will fill the gap?