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As we close in on the end of 2024, we take a natural pause to reflect on the year and think forward to 2025.  Many businesses run their financial year alongside the calendar year, meaning they review the business performance and start thinking about investment plans for the next year.  This no doubt looks like plans for refurbishments, re-financing, and consolidation or growth.  But what about your plans to make you fit for the impending legal framework?

Since the general election, there has been much talk about the Renter’s Rights Bill (‘RRB’) and the implications for the ever-more pressured landlords.  Aside from tax changes, the RRB will change how landlords operate and manage their housing stock.  Landlords feel like the ‘squeezed middle’ when it comes to residential lettings, for sure!

Now, we can wallow in self-pity and start discussing the ‘good old days’ but, other than being mildly therapeutic, it adds little value.  Instead, its time to make sure you are fighting fit.

Landlord Support are specialist solicitors acting in residential lettings for landlords only.  So, we have put some thoughts down that might help you become more ‘fit for purpose’ as we transition into the new way of doing things:

Tenancy Agreements

This is the crux of the matter from our perspective, although it is amazing how many tenancy agreements have clauses that don’t stand up in law or go as far as they can!

When the RRB is enacted into law, all residential tenancy agreements will automatically become periodic, regardless of how far through the fixed term you may be.  However, these ‘legacy’ tenancy agreements will be written around the law as it is today, not when the RRB is enacted.  Key terms linked to ending the tenancy, fixed terms, and rent increases may no longer be lawfully valid as these mechanisms are changing as part of the RRB.  It would therefore be highly recommended to update your agreements to ensure they reflect the new law and its legal mechanisms when the RRB is enacted.  Equally, if you are starting a new tenancy now, why not future proof it?  You don’t want to be in a position whereby you have no contractual right to exercise a part of law and vice versa.

Another example is the ability to claim back full legal costs.  It is amazing how many tenancy agreements we see that do not have this as a clause, meaning the landlord will get the court determined ‘fixed costs’, if anything at all.  These ‘fixed’ costs are a fraction or the real cost.  Indeed, with all eviction procedures having to go through a hearing due following the abolition of the section 21 notice by the RRB, the cost will undoubtedly increase, so don’t be left out of pocket!

It is also worth considering rent to rent agreements.  Many landlords enter into these agreements with the promise of fixed returns for a 3- or 5-year period.  They are not residential tenancies themselves but are written around the managing agent being able to exercise existing legal mechanisms in the residential tenancy.  For example, a typical rent to rent will require the managing agent to give ‘vacant possession’ back to the landlord upon the landlord serving notice to quit on the managing agent.  How will this be possible with the removal of section 21 notices?  It probably won’t!

Persistent bad payers

Unfortunately, it looks like the additional ground originally proposed by the previous government whereby persistent bad payers would fall under a new mandatory ground in the modified section 8 will not be taken forward in the RRB.

In our experience, 50% of landlords serving a section 21 do so because they want to sell the property or take it back for themselves.  20% serve one because they want to modify or work on the property, and it is too much hassle to do it with the tenant in situ.  The remaining 30% use it to deal with persistent issues that don’t ever fall into the mandatory grounds of a section 8, such as regularly not paying on time.  The previous ‘persistent bad payers’ ground was a glimmer of hope for landlords that there would be a mechanism to still deal with these situations, but it this will not be taken forward in the RRB.  This means one simple thing: there is an ever-closing window of time to deal with difficult tenants that fall outside the use of any mandatory ground on section 8 and still seek mandatory possession of your property under section 21.  Use it, before you lose it!

Rent increases

Another very important part of the RRB is the change to how rent increases can be carried out.  When enacted, rent increases must be done via a section 13 notice.  This may not be too different from what landlords do now, but how does this match your tenancy agreement?

In addition, whilst tenants can currently dispute a rent increase under section 13 via an application to the Tribunal, the delay results in a backdating of the new rent meaning that most do not do so. However, under the RRB, a tenant will be effectively encouraged to dispute the rent increase as any increased rent will not be backdated. Also, currently, the tribunal will make a rent decision equal to, above or below the rent requested by the landlord but, under the RRB, the Tribunal will not be able to put the rent above that stated in the section 13 notice, even if market rate is higher.

A cynical view is that it is now in the tenant’s interest to dispute the rent increase purely because it buys them an extra 3 to 6 months at their current rent.  For landlords below market rent right now, it might be worth looking at increases before this new mechanism becomes law.

Rent arrears

Another major change will be a modification to the mandatory ground 8 of a section 8 notice.  Currently, if a tenant is in two months of rent arrears or greater, a section 8 notice can be served on mandatory grounds.  This can be taken to court two weeks after service of the notice. The RRB will change this ground to requiring three months of rent arrears and four weeks’ notice period. These seemingly small changes will mean that the tenant could be in almost four months of rent arrears before any claim to court can be filed, whereas this is currently around the 2.5 months’ marker!

The simple solution to this will be to provide for a larger contingency on your portfolio, which of course means this cost will only get passed on to tenants.  However, crunching these numbers now means that you can set your rents prior to the enactment of the RRB to ensure you are covered for the extra risk.

Closing Thoughts

So, there are a lot of changes coming and, unfortunately, it seems like more risk is being burdened by the landlord.  However, the sector has proven itself resilient and adaptable time and time again.  With a bit of pre thought and preplanning, you can steer yourself away from any unintended or unwanted pitfalls and maintain a successful business notwithstanding the RRB becoming law.

Finally, if any of the above have struck a chord, then its important to know that you have time to be proactive and get yourself ready.  However, whilst we initially thought the RRB would be enacted around late summer 2025, it has been travelling through parliament at speed (not surprising with Labour’s huge majority!)  Therefore, plan for the worst whilst hoping for the best, which could mean the RRB becomes law as early as April 2025.

 

About the Author:

Rebecca Chadwick is the Founder and Head of Legal at Landlord Support Legal Solutions, the official legal partner of The HMO Roadmap. With over 14 years’ experience in landlord law, her firm specialises in supporting landlords, property managers, and letting agents with residential lettings. Learn more about Rebecca here.