Flagship government bill risks ‘rent control through the back door’
Labour’s flagship Renters’ Rights Bill introduces new rules on rent reviews which risk alienating landlords and causing a sell-up in the sector, experts say.
The bill will allow tenants to challenge the agreed tenancy rent in the first six months of a tenancy or any new rent proposed by a landlord.
There’s “no risk to the tenant” of going to a tribunal to challenge a rent increase, says Greg Tsuman, managing director of Lettings at Martyn Gerrard. “In the worst case scenario, they delay the rent increase. In the best case scenario, they reduce the rent that becomes due.”
“In the short term, it will create a sort of [rent] ceiling… in the long term, if landlords start getting scared that every tenant will be challenging, they will continue selling properties.
“It is… rent control through the back door,” he said.
Chris Norris, chief policy officer at the National Residential Landlords Association, said that the agency was “seriously concerned” that the Tribunal “does not have the resources, or capacity, to properly consider and decide upon cases in anything like a reasonable time frame”.
“Ministers must ensure the Tribunal is properly resourced… if they fail to do so, the system risks drifting into de facto rent controls – something the Government has repeatedly claimed to oppose.”
In addition to the Tribunal, a landlord will now need to give tenants a minimum of two months notice for a rent increase, and hikes in the first 52 weeks of a tenancy will be banned.
“As the law currently stands, landlords can raise rents in accordance with the lease terms,” Daniel Smith, senior associate at law firm Gardner Leader, said.
“Landlords will no longer be able to rely upon [these] provisions,” he added.
Uncertainty is the ‘biggest risk’
One of the issues in the bill, Tsuman says, is the ambiguity of the Tribunal. It could be argued that if the tenant accepts a new contract “without compulsion” there is no Tribunal case.
“Every tenant will be able to say that there is such a shortage of properties in the market that ‘I was pressured into making an offer to secure my new home’.
“Now the question is, will the tribunal see it that way, or will they say, no, that doesn’t apply? And we’re never going to know this until the first cases start coming through.
Smith argued that while it “remains to be seen how the tribunal exercises [its] broader powers”, landlords will still be able to increase rents in line with market rates.
“What is likely to be more problematic for landlords is ensuring the notices served on the tenants are valid so that the rent increase can take effect,” he said.
Half of landlords surveyed by JLL say ongoing uncertainty surrounding the Renters’ Rights Bill discourages them from expanding their portfolios, while two in five say they have been out off from investing due to high maintenance costs, according to JLL’s landlords survey
“The Renter’s Rights Bill aims to create a more inclusive rental sector – and rightly so – but without clear safeguards for landlords… we risk creating uncertainty and conflict on both sides,” Sián Hemming-Metcalfe, operations director at Inventory Base, said.
Fears grow of landlord exodus
Industry experts have offered varying opinions on what the overall effect of the upcoming Renters’ Rights Bill will be, with some arguing that it’s an essential tool to rebalance the relationship between tenants and landlords and others convinced it will cause investment to dry up.
Lords blasted the bill during its third reading at the start of July, arguing that it risked doing damage to tenants by pushing landlords out of the sector and towards short-term lets.
New data from Simply Buisness shows that more than a third of landlords – 39 per cent – are considering leaving the rental market completely within the next year in light of the Renter’s Rights Bill.
Private landlords account for about 84 per cent of all tenancies in the UK, while just under a fifth of UK homes are privately rented.
Julie Fisher, UK CEO of Simply Business, said there’s a “sense of trepidation” amongst the nation’s landlords.
“The long-awaited Renters’ Rights Bill is set to drastically change the rental market in the next 12 months.
“But many landlords… fear the new regulations won’t increase standards in the market the way the government hopes,” she added.