Developers and landlords need to read this - The death of assured shorthold tenancies

The Government has published a consultation paper on changes to the law relating to Assured Shorthold Tenancies.  Essentially these are to be abolished, with the repeal of section 21 of the Housing Act 1988, under which landlords have an automatic right of termination on giving notice in the approved form provided a minimum period of six months has expired. Provided the landlord has met a number of compliance obligations, this right allows terminations to take place whether or not the tenant is at fault and whether or not the landlord has any alternative plans for use of the property.  

Adverse publicity around certain rogue landlords has highlighted that this gives landlords the right to terminate a tenancy either to replace the tenant with a more “acceptable tenant” or as an act of revenge against tenants who have raised complaints about poor conditions or disrepair  or to use the threat of termination to impose increases in rent which may be higher than the prevailing market rents, on the basis that the disruption to a tenant’s domestic and family  arrangements (eg travel to work or access to local schools) of being forced to move, means they will often have no alternative but to accept the higher rent.  

The key proposal to remove no-fault termination rights has significant implications for landlords.  If the change in law comes into force, landlords seeking to terminate a tenancy will have to prove one or more of the statutory grounds for possession set out in the legislation, most of which rely upon proving some degree of fault on the part of the tenant, either because of non-payment of rent or other misconduct at the property.  This threatens to make the process more uncertain, costly and time consuming.

The Government has offered to review the grounds for possession and to help streamline the possession process. This may marginally expand the circumstances in which possession can be obtained but it is a sea-change in approach to residential tenancies which may prove disruptive to the market. In the future there may be no absolute guarantee of being able to recover possession and the costs and time involved in doing so may be substantially longer than it currently takes using the Assured Shorthold Tenancy notices.  For Buy to Let landlords, this represents a further concern on top of the recent adverse tax changes.

For developers, planning or building out developments where a substantial proportion of demand for their units has in recent years come from buy to let investors, there is the  question of working out how much these proposed changes will alter the pattern of demand for rented accommodation.  If a proportion of the buy to let landlord market is deterred from making further investments as a result of the changes in rules for obtaining possession, this can have a knock on effect on the overall demand for new properties generally. Developers may hope that any such reduction will be outweighed by increased demand for purchases by owner-occupiers but will have to review carefully what sort of accommodation they want to build in particular locations in order to meet such demand without having to trim their prices.

The consultation paper, “A New Deal for Renting: Resetting the Balance of Rights and Responsibilities between Landlords and Tenants”, can be found here

The particular questions which are raised within the consultation include: 

• seeking opinions on how significant the impact of abolishing ASTs might be
• asking when should a landlord be able to obtain possession if the tenant is not at fault
• asking whether the changes to possession rules should apply to social landlords as well as private landlords 
• seeking input on what detailed changes should be made to the grounds for possession currently set out in the Housing Act 1988
• asking what steps can be taken to improve and streamline the procedure for obtaining possession orders.

The consultation period closes on 12 October 2019 and those interested in the rented property sector should study the consultation paper and make representations, given the significance of the proposed changes.