The Renters Rights Act received Royal Assent in October last year, and duly passed into law. This year it will start to come into effect, with most of the changes taking force from May.
Billed as “the biggest shake up to the private rented sector in 30 years”, this law was a long time coming. Nor was it delayed by party-political wrangling – it started life under the Conservatives as the Renters Reform Bill, as MPs on all sides agreed that tenants needed greater security.
But it is already changing things.
Around 11 million people in England and Wales rent privately, and while politicians don’t agree on much, they all concurred that the balance of the landlord-tenant relationship needed changing. There is no question the Act does that. It prohibits landlords from discriminating against tenants, or accepting rent offers above the asking rate. It also ends fixed-term tenancies, making all contracts rolling instead. Tenants can give two months' notice, while landlords must give four – and can only do so after the first year, for a set number of specific reasons (such as selling the property or moving in themselves). Finally, it limits the ability to increase rents. Landlords can only do so once a year, in line with market rates, with tenants having free right of appeal to First Tier Tribunals.
There are other provisions that will increase landlords’ duties, such as the application of the Decent Homes Standard to the sector, the introduction of “Awaab’s Law”, making it mandatory to make hazardous homes safe, and the new private sector database. These measures will mostly be welcomed by all – few people would dispute that tenants should have the right to live in safe properties, to be treated fairly, and to have certainty on how long they have a home. But it is important to recognise that many, if not all, of the measures will increase costs.
It is too early to say what effect this will have on the sector as a whole. It seems somewhat optimistic for tenants to hope it will reverse the rapid increases we have seen in rents; more likely we will simply see market rates rebalance – not least as there is a deepening supply shortage. Moreover, if landlords are limited in their ability to raise rents, it is probable they will want to front-load any increases. But one thing we can probably say – with a certain amount of confidence – is that this will tilt the market as a whole in favour of professional landlords and investors.
Why? Well, for one thing they can take advantage of both economies of scale and of institutional expertise. Whether considering retrofitting, administration, or portfolio management, professional landlords will be better able to absorb the new costs, risks, and duties. Larger portfolios can withstand some void periods, and those with centralised administration and facilities management will find the new requirements less onerous. They are also in a good place to take advantage of disposal opportunities – seemingly inevitable as casual landlords increasingly choose to exit the market, whether to realise capital gains or move to more profitable assets.
But what does this mean for business? Hopefully it will ultimately be good news; there are going to be deals to be done. Notwithstanding current threats presented by events in the Middle East, we are still seeing interest rates broadly settle on a pathway to reduction. Lenders, meanwhile, are responding by becoming more innovative. At the same time, the new standards, as well as the new energy efficiency regulations, will mean retrofitting, all of which needs financing! This should be good news for lenders and intermediaries alike.
We will have to wait to see if the Act achieves its primary aim of helping tenants, although they should also see benefits from being able to deal with professional landlords. But contrary to some of the gloomy prognostications we heard when it was first mooted, there is no reason it shouldn’t be a good thing, overall, for the sector as a whole. However, it will take a certain amount of planning on all sides. To borrow an old proverb; if the best time to talk to your financial advisers about the Renters Rights Act was six months ago, the second best time is now.
