In the last edition of Inside Residential we looked at grounds for possession under the new Bill. This article will focus on how the Bill affects rent. By way of a recap, the provisions in the Renters' Rights Bill will, broadly, only apply to tenancies of residential properties granted to tenants who are individuals (i.e. not companies) occupying the property as their only or main home and paying rent of between £1,000 (or £250 outside London) and £100,000 a year. These are known as assured tenancies.
Open market rents
Under the Renters' Rights Bill rents will be limited to an open market rent. When listing the property to let, only the advertised rent (or lower) may be charged as rent under the tenancy agreement. Landlords will not be permitted to accept an offer from any person to pay rent that exceeds the advertised rent. The idea is to prevent bidding wars between tenants who are desperate to secure a property. This means that setting the rent at the right level on marketing is going to be important as competition can no longer be used to raise the starting rent.
No more rent in advance
The Bill requires all assured tenancies to be granted as periodic tenancies with maximum rent periods of one month. Rent cannot be demanded in advance and so can only be recovered monthly either at the beginning, during or after any rent period. A lump sum pre-payment of rent (ie six months in advance) will be prohibited, even if the parties are happy to agree it. Although it will still be possible to collect a deposit, the amount of any deposit has already been limited (by way of the Tenant Fees Act 2019) to a maximum of five or six weeks' rent, depending on whether the annual rent is less or more than £50,000pa respectively.
These constraints will make it particularly important to vet tenants carefully, ensuring that they can and will pay the rent for whatever period they may occupy the property.
Rent review process
Existing legislation affecting assured tenancies already contains rent review provisions. However, most tenancy agreements include contractual rent review clauses, giving the landlord certainty about the level of rent recoverable during the term. Once the Bill is in force, any contractual rent review provisions will cease to have effect and the only way to increase the rent will be to follow the statutory procedure.
Rent reviews under the statutory procedure may take place no more often than annually (provided that the tenant has been given at least two months' notice) and the highest rent which can be demanded will be a market rent. This could, of course, be a higher rent than might have been arrived at by following a contractual review clause.
Challenging rent increases
Tenants can challenge the level of rent by an application to the first-tier tribunal (FTT) within the first six months of a new tenancy or following receipt of a rent review notice from the landlord. The existing rent will continue to be paid until either the FTT has made its decision or until the start date for the new rent specified in the landlord's rent review notice, whichever is later.
Where there is a backlog at the FTT this could result in a delay in payment of the increased rent. With no provision for the tenant to make up the difference in rent payments during that delay, then depending on any other financial consequences for the tenant of making the application to the FTT, if the FTT is overwhelmed with rent review applications, tenants may see this as a good tactic to delay rent reviews taking effect.
It will be important when serving rent review notices to gather and keep evidence for the proposed new rent, to reduce the cost and effort required to defend the level of rent should tenants make the tribunal application.
Non-payment of rent
It will be more difficult for a landlord to obtain an order for possession where the tenant is in serious rent arrears. The amount of arrears required before an application for possession can be made will be increased from eight weeks to 13 weeks for weekly tenancies, and for monthly tenancies from two months to three months. As is currently the case, the tenant must be in arrears both at the date of service of the notice for possession and at the date of the hearing if the court is to grant the possession order. Where arrears are smaller, or persistent (for example, if the tenant always pays up once the possession notice is served), the court has discretion as to whether to order possession. In all cases the period of notice that the landlord must give to the tenant before starting proceedings will be increased from two weeks to four weeks.
It's not all one-way
The tweaks to existing legislation will certainly mean that landlords will have to think even more carefully about the financial status of any new tenant. Tenants with a poor credit history or those without guarantors may be disadvantaged. Landlords may be reluctant to take them as tenants for what will be an indeterminate term where the ability to put in place suitable security, or obtain possession, has been reduced.
The reforms to the rent review process may affect landlords and tenants in equal measure. Knowing that rent can be increased by a set amount at set periods could be essential for the landlord's cash flow, and being left at the mercy of the market and the tenant's willingness to apply for review could leave some out of pocket. However, in a buoyant market, it could be tenants who are left smarting.
The Bill continues to progress through the House of Lords and the list of proposed amendments is growing longer. Will it be passed before the summer? We will wait to see.