We’re just over three weeks after the proposals were announced to ban section 21 notices at some time in the future and it’s time for reflection.
This discussion applies to both England and Wales bu some legislation referenced only applies to England at this time.
Only a few months ago, such a proposal would have been considered unthinkable – especially from a conservative government – so, how did we get here?
In our view, the big starting point was the Unfair Terms in Consumer Contracts Regulations 1999 which are now absorbed into the Consumer Rights Act 2015. This was the starting point of changing policy from “landlord and tenant” to “landlord and consumer”. Much of what has followed since the 1999 regulations have been “consumer” led with the tenant being regarded in policy as a consumer and not necessarily as a tenant. Examples include the tenancy deposit legislation and the upcoming tenant fees ban.
In addition to this consumer-led principle, the government seems to be most interested in larger “portfolio” landlords including companies. This explains the recent tax changes which have caused massive troubles for landlords.
These tax changes don’t affect a larger less geared landlord as much as a smaller higher geared landlord. We guess the idea is that smaller landlords buying up one or two properties on interest-only mortgages (for example) represents a large enough proportion of house purchases. These houses typically purchased this way removes those properties for first-time buyers and makes it even more difficult as prices go higher. If the government can somehow limit the demand for certain properties, this may slow house price rises and assist first time buyers. Whether this works or not will have to be seen in a few years.
On the other hand, larger portfolio landlords might buy larger properties with multiple units and perhaps mixed with commercial. These will often have a slightly better return but they can be harder to borrow against so more cash is often needed.
What’s significantly changed though is the threat by landlords to “sell up” is possibly something government will be quite content to absorb if it happened – the theory being that this would mean more houses available for buyers, reducing the strain on the market and providing a cushion for house building which doesn’t appear to be happening as fast as was hoped.
We certainly saw this threat to sell up being carried out when tenancy deposit legislation was announced and brought in. We saw a number of our long term larger portfolio landlords selling up. This was predicted by many. However, what wasn’t predicted was the next generation landlord purchasing this surplus of property and in reality, this is what happened. This next generation would substantially modernise the property and to them, having to have a licence or protect deposits was nothing but the norm. They knew no other way (and actually thought it was strange it wasn’t the case many years before).
If we take our subscription base as a general view of how many landlords there are, yes, a few were lost around tenancy deposit schemes but the subscription base has increased massively since then by new subscribers and we’ve never been growing faster.
Fair enough, this is not a useful indicator – we’ve made significant improvements to our services and website over the years as we always continue to try and do but still, it does show that whatever is thrown at landlords, they will generally adapt and the next generation doesn’t seem as concerned with all the new legislation.
The new tenant fee ban from June doesn’t seem to be bothering landlords too much as this will mostly affect agents (although presumably, landlords will ultimately pay). Funny enough, the Fitness for Human Habitation legislation has probably created more questions than the tenant fees ban despite for most subscribers that won’t affect them at all (this legislation should only affect very poor accommodation which has no place in the market anyway).
So back to the proposed removal of the section 21 notice. Is that the same as tenancy deposit schemes, tenant fee bans, unfair terms regulations and the like?
No! It really isn’t! It is arguable that the ability to serve a section 21 is one of the main reasons (if not the main) as to why so many landlords are willing to risk their valuable asset with a stranger and why the lettings market exists as it does.
Will we all sell up? Will the market collapse? What will happen? These are all unknown questions and as I grow older, I learn not to even try to predict!
What is a fact is that when there was no easy ability to obtain possession, the market was virtually non-existent during the Rent Act 1977 days. Only when the Housing Act 1988 was launched did the market turn for the better and millions of homes provided for people.
But, are these different times we live in? Back then, general property prices were more affordable (in relation to wages) and there was rent control. The reality of rent control is that the standard of property declines because it’s not possible to keep up a routine of ongoing improvements (we know, we still have a couple of Rent Act tenancies and they cost more to maintain than the rent received).
Talking of rent control, we should have in mind this is a greater threat than the section 21 notice proposals. Labour has pledged this and the legislation has been written into the Tenant Fees Act 2019. All that’s needed to introduce rent control is a statutory instrument by the Secretary of State (and a draft approved by a resolution of each House)!
Section 3(2) – (5) Tenant Fees Act 2019
(2) The Secretary of State may by regulations made by statutory instrument amend Schedule 1 by adding, modifying or removing a reference to a permitted payment.
(3) The power in subsection (2) does not extend to removing rent from the categories of payment which are permitted payments under this Act.
(4) Regulations under this section—
(a) may make different provision for different purposes;
(b) may make supplemental, incidental, consequential, transitional, transitory or saving provision.
(5) Subject to subsection (6), a statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
The only thing that can’t be amended is the removal of the reference to rent being payable. There’s nothing to prevent how much rent can be charged and anything over would be a prohibited payment (just like deposits for example). Thanks to David at Training for Professionals for pointing this out.
Getting back to the section 21 notice proposals again, the first thing we need to know before trying to make predictions is what is planned in respect of the changes.
The press release indicates new grounds will be added for selling or moving into the property:
And to ensure responsible landlords have confidence they will be able to end tenancies where they have legitimate reason to do so, ministers will amend the Section 8 eviction process, so property owners are able to regain their home should they wish to sell it or move into it.
We would also like to see a ground for a change of use (for example from residential to holiday lettings or commercial) and for substantial refurbishment.
Assuming these changes are made and perhaps improvements can be made to the enforcement procedure after a court order (in particular the delays by bailiffs) then will it be all bad?
We’ve been pondering and looking at our portfolio and thinking about how many times we have served a section 21 notice in the last 10 years. There’s only about 3 that we can think of and these were served because of anti-social behaviour and/or rent arrears. If it were pure rent arrears, we would generally use a section 8 notice as it’s a bit quicker for that purpose.
The anti-social behaviour issues leading to notice were complaints from neighbours and we would usually need several complaints from different sources before resorting to a section 21 notice. However, even with this, we would never be confident in serving a section 8 for that purpose. The ground is discretionary (meaning even if proven, possession doesn’t have to be ordered) and there’s no way the complainants would have attended court to give evidence. The case would, therefore, have been entirely based upon hearsay.
This is where the big problem lies with the removal of section 21. What will we tell the neighbours? Simply put, if the provisions come in, the neighbours will have to contact the local authority and they will have to sort it because, in reality, it will be exceptionally difficult for a landlord to evict over noise for example (unless changes to the ground are made).
If we’ve only served 3 section 21 notices in the last 10 years, that represents a negligible percentage of our tenancies (less than 0.2%).
That being said, we perhaps tolerate more than some would be willing to. Our agreements say no pets without consent but we think about 30% of residential have some form of pet (which of course they’re just looking after for their parents whilst away)! But, we don’t go around serving notice for this breach because it would cost more in time and re-letting costs.
As we always say, landlords are not in the business of evicting people. Our job is letting property. It’s the beginning part of a letting which is always the hardest. If there’s a good tenant paying without need for too much repair things run very smoothly and for us, the longer they remain the better.
There is also the reality that currently, serving a section 21 is much more difficult to get through the courts than before. Some courts don’t appear to be understanding the changes since 2015 and again in 2018. For example one of our members last week had a section 21 thrown out for not giving a how to rent guide. The tenancy was granted in 2014 and the notice was served September 2018 (so how to rent guide was not relevant).
As such, will removing section 21 also remove all these complexities? The wizard we use is made up of many if and then statements and the flow chart leading to an ability to serve a section 21 is extremely complex in particular for tenancies since October 2015.
View of section 21 wizard back-end calculations
With this huge complexity and what appears to be a lack of understanding by many courts, is a section 21 the way to go nowadays anyway? If the tenant is in rent arrears by 2 months or more, section 8 is now an easier and more reliable method in our view.
If mandatory grounds are added for selling, moving in or change of use, will it really be such a disaster that section 21 goes? Especially given how complex serving a section 21 is now?
We are reminded though of a very important point which we always go back to. That is the perception of legislation by landlords rather than reality. Will landlords simply believe they can NEVER get their properties back even though actually, there may be grounds added making it not much different to now?
My mother-in-law and her husband purchased and lived in a property in Spain for a few years. After a few years, they returned but this was at the time of the big financial crisis about 10 years ago. They tried to sell but in particular, in Spain, the market had literally crashed (far more than here). One option available was to rent the property. However, it was their understanding and perception that if they rented and someone stayed for over 12/24 months they would become secure tenants for life and the property could never be sought back. Now, we have no idea if this is true or not (never looked at Spanish renting legislation) but it’s not the point. This was their perception of the position whether it was true or not. As a result, the property sat empty for many years because that was a preference to having a secure tenant with no prospect of recovery.
We’re already getting enquiries from subscribers who believe section 21 has ended altogether now or they’re in a panic and want to serve notice now for fear any new legislation will take effect immediately even on current tenancies. This is the problem with perception, it doesn’t always meet reality.
For now, our advice is don’t panic just yet. Let’s see what the proposals are and then let’s see how the government responds to the consultation (proposed for summer).
For larger portfolio landlords it possibly won’t matter that much but it could matter greatly for landlords with just one property perhaps that they inherited and have plans to sell at some point. Even then, these may not be affected if a new ground for selling is added to section 8. It will also be a problem if like us you have one or two tenants who are tolerable but only because there’s an ability to serve section 21 if the situation gets worse. We have a few tenants like this (a bit anti-social but not all the time) and if section 21 were to be scrapped, we might have to consider serving notice on these few tenants for fear the situation worsens after any ban or transitional period.