Renters’ Reform White Paper: Our Response
by Patrick Garratt - 16th September 2022
The Rental Reform white paper published by the government last month will have serious consequences for landlords and tenants, particularly in the student market.
The main issue is the removal of Section 21 Notices, and an end to fixed terms tenancies. We’ve written more about the changes to section 8 in this blog.
You can the full Rental Reform White Paper here.
The White Paper has been drafted based on the consultation carried out by the government in 2019, but there is still time to influence the government before it progresses to legislation.
I have written to my local MP and the recently appointed Secretary of State for Levelling Up, Housing and Communities, you can see my response below which sets out my concerns, I urge all landlords to do the same.
The NRLA have put together some useful tools to help you put together a letter to your own MP.
Dear Mr Clarke,
I am writing to express my concerns about aspects of the Government’s Rental Reform White Paper which I should be grateful if you could consider.
I own and run a student property company located in your constituency and represent through my that company over 500 landlords and 4,000 tenants.
I have put great thought into this letter and provide what I think is a workable solution to the problem regarding student accommodation which could easily be adopted by the government in section 2.4.
1. Anti-Social Tenants
The proposed plans leave us and our landlord clients powerless to tackle anti-social tenants. There are provisions in existing legislation to evict tenants for breaching their tenancy agreement, however, to provide sufficient evidence to a court for a judge to evict tenants for anti-social behaviour is almost impossible. The section 21 notice provides a back stop so landlords and agents know that they will be able to remove anti-social tenants from their properties. Where this is not available, these type of tenants will not be incentivised in any way to curb their behaviour and will continue to cause problems for their neighbours.
Will you please provide more substance than is set out in the vague commitments outlined in the White Paper. Efforts should be made to ensure local authorities and the police have the necessary powers to act promptly and effectively against anti-social tenants.
2.1 Student Tenancies
The vast majority of tenancies we manage are for student properties. I first set up my company whilst I was a student at the University of Birmingham and have over 15 years’ experience in the market.
The White Paper identifies that the differences in the student market will cause problems under these regulations so makes an exemption for the PBSA market, the student HMO market is no different, the exemption must also be implemented in the student HMO market.
This is an extract from the bill:
“Section 21 and Assured Shorthold Tenancies are used by a range of housing sectors. Most students will continue to move property at the end of the academic year. However, for certain students, this is not appropriate, for example because they have local ties or a family to support. It is important that students have the same opportunity to live in a secure home and challenge poor standards as others in the PRS. Therefore, students renting in the general private rental market will be included within the reforms, maintaining consistency across the PRS. We recognise, however, that Purpose-Built Student Accommodation cannot typically be let to non-students, and we will exempt these properties – with tenancies instead governed by the Protection from Eviction Act 1977 – so long as the provider is registered for a government approved code.”
2.1.1 “Most students will continue to move property at the end of the academic year”: This is correct, and in the over 20,000 student tenancies I have set up and managed not one set of students have decided to stay on in their property after the end of their academic studies. Quite simply because the students live in HMOs and have moved from all over the country to study. When their studies are complete it is very unlikely that all in the property need/want to be in the same place.
If they wish to stay on in their properties, they still have the option to ask the landlord to extend their tenancy, which, of course they would, but for a further fixed period within the academic cycle.
2.1.2 “We recognise, however, that Purpose-Built Student Accommodation cannot typically be let to non-students, and we will exempt these properties”: It is correct that many PBSAs have planning orders restricting them to only be let to students.
The practical reality for most student HMOs is exactly the same. The HMOs which have been developed around Universities have been made for students. They are in areas which students want to live, often families do not want to live in these areas (or types of properties) of high student population, and similarly, many young professionals prefer to live in other areas. What’s more, many local authorities such as Birmingham City Council, have introduced Article 4 areas, which means if a landlord lets a property with C4 Use Class to a family the Use Class automatically changes to C3 without a possibility for it to change back to C4; Birmingham City Council have confirmed to me that they will reject ALL planning applications for a property to be given C4 status.
So, effectively, landlords of student HMOs can only let to students.
2.1.3 “…so long as the provider is registered for a government approved code”: Most landlords of HMOs must already register with local authorities under national mandatory HMO regulations, and the remainder are already or will soon be included under Additional or Selective licencing. It would therefore easily be possible to provide the same protections as the government assumes are provided by the ‘approved codes’ for the PBSAs to HMOs.
The argument that all tenants within the PRS must have the same rights and protections, just because they are in the PRS had no logical basis. Why should a student have different rights if they live in a PBSA or HMO?
2.2 How the student market currently works
Ordinarily, student tenants rent for twelve months from summer to summer, most rent either 1st July to 30th June or 1st September to 31st August. It is acknowledged that most tenants don’t occupy their properties for the whole 12-month period, but, landlords are expected to keep the properties available for them so rent for the whole year is paid. There are of course some variations in each locality.
In October/November Landlords and agents ask tenants if they wish to extend their tenancy for another academic year, approximately 50% will be finishing their degrees, so they will confirm they don’t wish to stay. About half of those who will still be studying will want to change property, normally because they wish to rent with different people as their friendship circles have developed. This means there is an approximate turnover of about 75% in student HMOs each year. In a city like Birmingham, this is about 3,000 households and 15,000 tenants.
Those students who want to relocate, in addition to those first year students who are moving out of halls, tend to start looking for their next accommodation between November and February; agents and landlords know when the existing tenancies end and their existing tenants have confirmed they do not wish to extend their tenancies, so they are confident in advertising tenancies to start after the current tenancies end.
Landlords issue section 21 notices to those tenants who have not stated they wish to stay on in their properties so they are confident they will be able to provide vacant possession to those students who have signed tenancies to start after the current tenants’ tenancies end.
This results in a smooth transition from one year to the next and students have the choice to either continue in their current properties, or to move to alternative properties.
There are no problems with how this current system no students are currently disadvantaged.
2.3 The impact of the bill on the student market
If the government makes the proposed changes and does not make an exemption for student accommodation in the PRS the following situation will occur:
Last minute dash to agree accommodation
Landlords and agents will not be able to start advertising properties until tenants provide their one-month notice. Inevitably, this will be just before other students require their accommodation. Landlords and agents will have to cram a process which normally spans six months into just one month which will inevitably lead to poor service provided to tenants, who may end up renting properties without viewing them because agents will not have the capacity to arrange viewings for so many properties in just a short window.
Students will not have the time to carry out the checks they should on the landlord and property to make sure it is the right fit for them.
Many empty properties over the summer, leading to higher rents
Without a fixed term tenancy, many students will decide to move out of their properties in April/May rather than June/July, and then not start new tenancies until October and landlords will not be able to plan for this, as the tenants will only be required to give their landlord 30 days’ notice. The result will be that landlords prepare financially to only receive rent for 9-10 months of the year, so will try to increase monthly rents by 20% to cover this reduced occupancy. This will be fine for the most part as the total rent will remain the same, but, those students who want to rent for 12 months (many stay in accommodation over the summer to work/study), will end up paying 20% more rent overall.Empty properties, mid-way through the academic year
If student tenants can give one months’ notice at any point, they could decide to end their tenancy mid-way through the academic year.
Finding other students to move into that property during the academic year is almost impossible as there is just not the demand as per 2.1.2 above.
Whilst this is not something which will happen often, the consequences of it happing to an individual landlord would be financially significant. For landlords with larger portfolios, they could probably easily cope, but a six-month period without tenants for a landlord with a small portfolio would be very damaging.
2.4 The result
Landlords will have to try to increase rents to alleviate unknow void periods each summer, deal with a mad panic to try and fill their properties, and have the looming possibility of having their properties vacant for 3-9 months of the year if tenants move out mid academic year.
Mortgage companies will also understand the potential impact and risks for properties let to students and may well refuse to lend against properties let to students.
This, in addition to the additional costs of regulation, excessive HMO fees, increasing interest rates and the new tax landscape will be enough to push vast numbers of landlords out of the market reducing supply, and increasing rents.
2.5. The alternative
a. Allow all landlords to register their properties on the HMO register if they so wish. This gives protections to the tenants that the property will be well managed and maintained.
b. Allow landlords whose properties are registered HMOs to let to students on fixed term tenancies (if the landlord wishes to), provided that all tenants are registered students, or will be on the start date of the tenancy.
c. The tenancy will have to include a mandatory clause setting out the rights of the tenants regarding the end of the tenancy.
d. Tenants can have an automatic right to extend the tenancy for a further 12 months (landlord and tenant can mutually agree a reduced amount of time), tenants must provide a minimum of three months’ notice to the landlord. This means the landlord/agent will have a minimum of three months to advertise the property for the next academic year if they decide not to stay in the property.
e. Landlords will only be able to issue a section 21 notice (or a new equivalent), with a minimum of two months’ notice, provided they have evidence of the registration of the property as an HMO and proof of the student status of the tenants.
This provides,
- the additional assurance about the management and maintenance of the properties,
- gives the tenants a right to remain at their property,
- provides enough time for landlords/agents to help students find new properties during the notice period, and
- gives landlords security of income.
3. Anti-private landlord rhetoric
The language which has been directed at landlord by Michal Gove, amongst others creates lack of confidence in responsible landlords who are key to maintaining good quality housing supply.
The narrative that landlords are all greedy and don’t look after their properties will make good landlords exit the market and put off potential good landlords from entering the market.
4. What’s missing
More fundamental issues such as the shortage of rented property in England and the tax and regulatory environment which is currently discouraging good landlords from staying or entering the market need to be urgently addressed.
5. Summary
I feel very strongly that many of the proposals are not practical and will cause chaos in the PRS. I urge you to support responsible landlords who are providing good quality accommodation to tenants.
I would be grateful if you could raise my concerns with the Housing Secretary, Marcus Jones.
I look forward to receiving a positive response.
Yours sincerely
Patrick Garratt