If you're a landlord or property investor, you'll be interested in the new Section 21 legislation that the Government recently announced. This legislation is expected to significantly impact the long-term lettings market, so we wanted to take this opportunity to explain what it means for landlords, tenants, and the potentially now more lucrative short-let market Houst operates within. In this article, we'll discuss the key changes that will be made to Section 21, and we'll also look at how this will affect the rental market overall.
The Government White Paper, "A Fairer Private Rented Sector," has now been published (June 2022), confirming the elimination of Section 21 and begins to sketch out the future of evictions – all with significant impact on landlords.
In normal circumstances, when extended notice periods are not in place, landlords can evict their tenants under a 'Section 21' of the Housing Act 1988 by giving two months’ notice. Section 21 is – or was – the notice that a landlord must give their tenant before they can start eviction proceedings to recover possession once an assured shorthold tenancy (ASTs) has expired or terminated, or contracts with no fixed term date known as periodic.
Under Section 21, landlords aren’t required to provide tenants with a reason for this eviction, hence the term “no-fault” eviction. The other form of eviction comes under a 'Section 8' notice used when the tenant has broken the terms of the tenancy agreement – and the landlord must evidence this.
As part of the Renters' Reform Bill, the Government is proposing to scrap Section 21 altogether. This effectively puts an end to so-called “no-fault evictions”, and transitions all tenancies to periodic.
Other changes as part of the rent reform will make it illegal for landlords or agents to have blanket bans on renting to families with children or those in receipt of benefits. It's a similar case with pets, where having a pet is a right the landlord must consider and cannot unreasonably refuse.
The removal of Section 21 will make it much more difficult for landlords to evict tenants on ASTs. The new system will require landlords to give a "valid reason" for eviction, such as breach of contract, and go through a more complicated court process.
The key point is that once the ruling comes into play, landlords must provide a reason for ending a tenancy, such as wishing to sell the property or move back in.
Previously, landlords have been able to use Section 21 because attempting to get statements from co-tenants and neighbours has been time-consuming and unsuccessful.
The new rules will give tenants more stability and protection from being summarily evicted with little notice. In the past, landlords have been able to evict tenants at the end of their contract with little justification, but the new rules will help stop this.
The changes offer tenants greater security as part of a plan to create longer tenancies. But implementing more mandatory grounds of possession under Section 8 (if your tenants have broken the terms of the tenancy) should also strike a chord with tenants, demonstrating that rent arrears and criminal and anti-social behaviour will not be tolerated.
ARLA Propertymark claims that 230,000 UK landlords are likely to switch to short-term lets - so we're forecasting a large increase in supply. It seems many landlords are at the point where their income has been minimised, and regulations are becoming more and more time-consuming and restrictive to follow. So with the short-term lettings market offering more attractive returns as lockdowns have ended and people are travelling more than ever.
Recent comment from Paul Shamplina on LandlordZONE described the news as disappointing citing difficulties with tenants who fall into rent arrears and forecasting an evictions spike.
"I think it is disappointing that the notice period for the existing arrears eviction ground will be increased from two to four weeks, but I welcome the new mandatory ground for repeated serious arrears to prevent tenants paying off a small amount of arrears to stay below the eviction threshold."
"With concerns surrounding the cost of living, rising interest rates and impending changes to EPCs, I do think it is likely we will see an initial spike of landlords using Section 21 before the changes come in, of which the unintended consequence will be that perfectly good tenants will be evicted."
Of course, many landlords in the Buy-To-Let market with good tenants will be unaffected with no desire to take any action. There are, however, some - while trying to act with good intention - feeling forced to use Section 21 before it's too late, citing the new legislation as the "last straw".
Assist Inventories conducted one of the most recent studies in early 2022, with results from more than 10,000 letting agents and landlords for their Sectors Snapshot report.
According to a survey, 73% of property agents anticipate the removal of Section 21 will result in landlords leaving the industry.
The study also revealed that 75% of landlords are likely to become more selective when selecting tenants, while 45% of landlords will only offer short-term.
Additionally, 90% of landlords and 70% of lettings agents want clear and comprehensive grounds outlined for possession when required, with 60% of lettings agents believing that further reforms of Section 8 are needed.
More than half – 58% – of landlords think that more financial support is required for tenants at risk of rent arrears, while 48% of landlords believe that the abolition of Section 21 will balance rights, but just 33% of agents agreed.
Raj Dosanjh, founder of Rentround, commented:
"The abolishment of Section 21 is clearly a worry area for agents and landlords, with many disagreeing with the move. Due to the additional risk the abolishment will bring to landlords, it's obvious that many will move to shorter tenancies and more stringent tenant background checks. This will make it harder for tenants with blemishes on their record, or those looking to get long term residencies to rent in the future."
Please note: This article is intended as a guide only and does not constitute legal advice. For more information, visit gov.uk.
Read more about the report on Gov.uk
To get an estimate of what you could earn on the short-term lettings market, visit houst.com
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