Written evidence submitted by Mr Dorian Hardacre [RRS 114]

Author: Dorian S R Hardacre, BEng, MSc

Committee representative: Association of Local Landlords (Wessex)

Panel Member: West Of England Landlord Panel (Bristol City Council, South Gloucestershire Council, North Somerset Council, Bath & NE Somerset Council)

Landlord and owner of Stirling Student Properties, 23 years' direct experience in the student and professional lettings market

Abstract

The proposed Rent Reform Bill contains a series of major measures which, it is claimed, will improve the security of tenure and terms of rental of tenants for the benefit of tenants.  Furthermore, government public statements proclaim that ‘landlords have nothing to fear’ from these so-called reforms.

The reality is very different (in fact the polar opposite), if implemented, landlords will suffer from reduced security of income, dramatic loss of ability to evict anti-social and non-paying tenants, increased threat of property damage from tenant pets and potential financial instability arising from reduced ability to set rent levels appropriate to meet landlord’s own commitments. An outstanding detriment lies in the key sector of student lets, arising from the elimination of section 21 notices.  This means that a student tenancy cannot be predetermined to a period of one year, thus preventing either student tenant or landlord from arranging their accommodation at the right time.  It cannot be stressed too strongly that this inappropriate measure is an existential threat to this vital sector.  The impact of this one measure alone creates an impossible situation for both tenants and landlords.

Tenants will suffer major detriment from this Bill, if it goes ahead unamended. The present steady rate of departure of landlords, who are now selling up, will accelerate.  Major cities like Bristol have many thousands of homeless people to accommodate and rely critically on the private rented sector (PRS) to make good the shortage of public accommodation.  The reduction in private supply and consequent increase in rent levels will hit both tenants and civic authorities extremely hard.

In summary, the RRB has just not been thought through.  Its authors display a lamentable lack of understanding of the actual market.  If implemented it will have a devastating impact on the availability and cost of private accommodation for tenants in England and Wales.  It has been suggested that landlords would have access to the courts to deal with problem tenants.  But this cuts very little ice for seasoned landlords who have been continually denied access to the courts to obtain evictions under section 8.  Delays typically in excess of one year exhibit the truth of the aphorism ‘justice delayed is justice denied’. 

The RRB contains the following measures:

1. Removal of fixed term tenancies

Fixed term tenancies are currently used to give security to both tenant and landlord such that both parties know that for a 6 or 12 month period the property will be provided for their exclusive use.  The tenant knows that the landlord cannot evict during that period and the landlord gains security that the tenant will stay.  The latest English Housing Survey found that private renters had lived in their home for 4.3 years on average, so it is clear that the system is already working well for those who wish to stay where they are and are behaving in a tenantlike fashion. 

Removing fixed term tenancies will:

- make landlord income streams less secure by making initial tenancy lengths much more unpredictable

- destroy the student market where fixed term tenancies are essential

- cause big problems in mortgage markets; existing contracts require minimum tenancy terms in order to provide loan security

- cause big problems in insurance markets; existing contracts require minimum tenancy terms as high turnover of tenants and increased likelihood of voids/unoccupation increases insurance risk

This will lead to:

- investment in the PRS, either by existing landlords in improving existing stock or buying new stock, or by new entrants, dramatically decreasing due to the lack of security, resulting in a contraction in the sector and a decrease in the quality of existing accommodation.

- mortgage and insurance companies reducing their product ranges and increasing costs.  This measure reduces the security of the asset, meaning it is less attractive to mortgage and more difficult to insure.  These extra costs will further contract the sector and will be passed on to tenants in the form of higher rents.

2. Removal of the ability to serve section 21 notices

Section 21 notices do not require the reason to regain possession to be stated.  They cannot be used during a fixed term and require 2 months' notice from the landlord.  They are inaccurately labelled "no fault" evictions in the press but this is an incorrect description.  The vast majority of landlords use Section 21 to remove troublesome tenants whilst avoiding having to go to court to do so.  The courts are currently clogged up beyond breaking point, with waiting times commonly exceeding 12 months to get a hearing, and 18 months+ to get a resolution.  Such applications are costly and easily manipulated by the wily tenant with many opportunities to work the system, introduce extra delay and avoid their responsibilities.  There are much trumpeted stories in the media of landlords evicting tenants for no good reason.  However this is simply not the case.  No sane landlord evicts a well behaved, rent paying tenant, only to be faced with high re-letting fees, possibility of voids and difficulties in finding a new reliable tenant.  The law has already been changed to make it illegal for landlords to evict tenants in retaliation for maintenance requests, so this valid concern has already been fully addressed.  The reality is that the vast majority of "no fault" evictions are in fact where the tenant is at fault, most commonly for rent arrears, property damage or antisocial behaviour.

How many households are actually affected by section 21 procedures? 

The whole basis of the proposed legislation is seemingly predicated on assumptions that a significant proportion of fault-free tenants are being dispossessed of their homes at the whim of landlords.  We need to critically examine these assumptions.

There are 4.4 million households in the PRS, and so, with an average tenancy of 4.3 years, this averages to 1.02 million tenancies ending per year.  The National Audit Office recently released a report on the most vulnerable category, stating that during 2020-21, 27,000 households were at risk of being made homeless following a "no fault" eviction.  The conclusions of this report are currently being challenged as it appears (directly contrary to the established issues summarised in the previous paragraph) that they have just assumed that all households issued with a section 21 notice are not at fault.   Even if that assumption were not strongly challenged, it is important to state that the NAO figure is a mere 2.6% of the total annual tenancy terminations.  The government is separately claiming that 8% of renters annually are asked to leave by the landlord.  The basis of this figure is not clear, but presumably includes the NAO 2.6% and possibly any section 8 evictions and other terminations resulting from mutual agreement between landlord and tenant. The disparity between these two figures is noticeable.   It should also be noted that landlords have very legitimate reasons for negotiating a termination, such as large-scale property repair/redecoration, property sale or repossession for personal use.  Without a specific detailed breakdown of the Government figures, it cannot possibly be asserted that anything like 8% of tenants are being unjustifiably being deprived of their homes by virtue of section 21.  In fact, in the light of the facts presented here, it would be quite surprising if the number of section 21 dispossessed fault-free tenants exceeded a very low few percent of the total terminations, the very large remainder already being at the behest of the tenant.

In conclusion it is questionable as to whether the proposed bill, with its major erosion of landlord rights and the distortion of the social contract between landlord and tenant, can conceivably be justified by the statistics. 

Removing Section 21 will mean:

- every possession will have to go to court

- every possession will require weighty evidence, the collection of which is easy for the tenant to circumvent

- student landlords will not be able to let their houses for the forthcoming academic year until they see the current occupants have left, disrupting the current system where students settle where they are going to live for the next year beginning July-September in the previous November-February

This will lead to:

- a further contraction of the PRS with removal of security causing more landlords to sell up

- those that remain in the sector will need to become much choosier as to who they let to, which will disproportionately hit the poor and disadvantaged

- further clogging of the courts which are already so far from being fit for purpose as to render the entire system useless

- the wholesale destruction the student sector.  At present, landlords only let out properties for the next academic year on the basis that they are reasonably confident that they will regain possession at the end of the current academic year.  Without this safeguard, landlords will not be able to offer accommodation to incoming tenants.  The availability of housing in key university cities such as Bristol, York, Nottingham and Brighton is already in desperately short supply, and this measure will result in the implosion of the sector.  The government clearly recognises this issue as it has exempted purpose-built accommodation (PBSA), but bizarrely not the rest of the student-servicing PRS, the majority of which comprises houses in multiple occupation (HMOs).  This is anomalous given there is a clear definition of who is a student for Council Tax purposes in the 1972 Local Government Finance Act which would make exemption for the rest of the sector easy to enact.  These measures will particularly adversely affect second year students, the vast majority of whom expect to leave PBSA and enter the HMO sector.  Their PBSA contracts will still expire in the normal manner, but they will find themselves unable to secure HMO accommodation due to the above reasons.  If it is the government's intention to shift the balance from HMOs to PBSA then again the tenant will be severely adversely affected, as rents in PBSAs are typically 20-25% more expensive than HMOs. In cities such as Bristol this amounts to a price difference of £76 on average per week.  Evidence from Scotland, where this was enacted in 2017, shows that the system isn't working and large numbers of student landlords have exited.  The result will be ruinous for students who have enough to worry about without adding the question of where on earth they will live in their second and final years to the list.

3. Enabling tenants to keep pets

Currently it is at the discretion of the landlord as to whether to allow pets.  Landlords may have entirely valid reasons for not allowing pets such as:

- concerns over damage to carpets and furnishings

- concerns over allergens introduced to the fabric of a building that may cause a future tenant severe problems

- concerns over the invalidation of buildings and/or contents insurance

- pets can be a serious impediment for the landlord and his contractors accessing the property for maintenance etc.

The white paper suggests that pet insurance will be an allowed payment under the Tenant Fees Act.  However it fails to identify the difference between pet liability insurance and insurance against vets' bills.  It also leaves the provision of the insurance in the hands of the tenant, leaving the landlord exposed in the event that the tenant fails to maintain payments, makes false statements, breaches the policy's terms, fails to disclose material matters or even cancels the policy.  If a claim is successful, the payout will be to the tenant not the landlord, and the payout will likely be months after the tenant has left.  Claims may also be refused if the tenant does not notify in time.  Insurance is unlikely to cover fumigation.  This has simply not been thought through.

4. Rent Controls by the back door

By removing fixed tenancies and the ability to close a tenancy, if landlords wish to raise the rent (for example because their costs have increased) they will be restricted as to by how much they can raise it, with the decision resting with an external tribunal.  This is rent controls by another name.  The landlord will no longer be in charge of setting the rent level for his property, and any raise will be subject to challenge by the tenant and being overruled by the tribunal.  This legislation is clearly aimed at restricting rent rises to inflation only, which takes no account of the landlord's individual circumstances.  It is expected that mortgage rates will rise considerably in the coming years, and that compounded with all of the other pressures caused by increasing regulation and taxation, will likely mean that landlord costs will increase sharply and there will be very little he can do to recoup costs by raising rents as a result of this measure.  It is widely recognised that interference in the market by way of rent controls of this nature does not work.  Every jurisdiction that has tried this has found that the market contracts and quality of accommodation decreases markedly.

The RRB as part of the broader context

Landlords in the UK have been subjected to what can only be described as a war of attrition in the last 10 years, with numerous measures designed to increase the tax burden, regulation and costs.  This includes:

- section 24 mortgage interest disallowance

- removal of wear and tear allowance

- ever increasingly stringent energy performance requirements

- HMO licensing

- tenant fees act

- increase in CGT burden

- imposition of right-to-rent checks

- deposit protection schemes with excessive penalties and arbitration skewed to the tenant

This has meant that a large proportion of landlords have already left the sector and many more will now follow suit.  Hamptons report 204,000 landlord sales in the last year, compared with 158,000 purchases in the same period.  A recent NRLA survey reported 23% of landlords planned to reduce the number of properties let over next 12 months.  Many of those exiting are now popping up in the holiday lets sector, which has ballooned of late as a direct result of punitive conditions in the buy-to-let sector, causing additional problems for local communities already complaining about the numbers of second homes present and being priced out of the market.  The government is now trying to react to this problem, but the effect is like pressing on air bubbles underneath the wallpaper - the problem just pops up elsewhere.  Some have painted all this as a good thing with previously rented properties being sold to first time buyers and families.  However such transactions result in a reduction in density, with fewer occupants in a family or starter home compared to an HMO occupying the same building.  This further significantly exacerbates the supply problems in the housing market as a whole.  The result of a decade of tax and regulatory burden that disincentivises investment is landlords selling up in large numbers.  The private rental market is already under huge strain with renters outstripping available properties and these further measures will only serve to make matters much worse.

Conclusions

This paper examines the impact of proposed provisions within the RRB on the realities of the private rental market in England and Wales.  It examines the questions of whether the proposals are reasonable, whether they are justified and whether they are fair to both tenants and landlords in a balanced way.  But above all, the new provisions must be judged in terms of the operational realities of the market.

We have tried to draw out the problems which will arise if the Bill is enacted, as currently formulated.  The paper finds major difficulties which will appear if the legislation is cast in the terms proposed.

The abolition of section 21 will be deeply unfair to landlords, because it will vastly increase the difficulty of evicting badly behaving tenants.  Landlords in the private rented sector market have currently been unable to gain rapid and effective access to the Courts, under grounds of section 8 to deal with tenants who are antisocial or refuse to pay rent.  This highlights the misnomer that sections 21 is a ‘no fault’ eviction process: it very definitely is not.  It is the only recourse that landlords have to deal with problematic tenants and that is a major issue. 

Even more worrying is the impact of abolition of section 21 and the removal of fixed term tenancies on the student lets market.  The paper makes clear that the new provisions are truly an existential threat to the existence of the whole student sector.

Government has not made a credible case for introducing indefinite tenancies, which only allow the landlord to give notice of termination except in limited specific circumstances.  A false image is being created which portrays the landlord evicting innocent tenants either at a whim or otherwise unjustifiably.  This flies in the face of commercial reality, in which it is not at all in the landlord’s interest to evict a good tenant.  If that happened, it would in most cases result in void rents and all the costs of recruiting fresh tenants.  Statistics support the arguments presented in this paper.  At present, well in excess of 90% tenancy terminations are at the request of the tenant.  Depending upon the data accessed, it appears that a large number if not the majority of the remainder of terminations, not requested by the tenant, are likely to have a component of tenant fault.  This is contrary to the assertions made in some quarters.

Enforcing the rights of tenants to keep pets sounds quite reasonable, until the implications for damage and financial loss are considered.  The realities are that there is a history of practical issues in the real market.  These include damage to furniture and fittings from pets which can be left alone by tenants for periods.  There have been instances in which incoming tenants display allergic reaction to pet residues from departing tenants.  This whole matter should be left entirely to the discretion of individual landlords and tenants.

Finally, the landlord is being invited to lose control of the occupancy of his property and, in addition, now being asked to accept that his remuneration is also potentially out of his control in return for providing the important service of a home for another party.  This is irrespective of the balance of his personal financial circumstances.  We find those demands to be unbalanced in the social contract between the tenant and the landlord.

The contents of this proposed legislation create the irresistible impression of both not having been thought through and also being based upon a very significant lack of knowledge of the realities of the market.  If it is approved unmodified, the ‘unexpected consequences’ are likely to be widespread and severe not only for tenants themselves, but also for local authorities seeking accommodation for homeless people.  The present stream of landlords leaving the sector is likely to increase markedly, resulting in rental scarcity and higher rents.  

August 2022