In June and July, lawyers from our property disputes team hosted three roundtable events for landlords, letting agents and other stakeholders in the private rented sector. These sessions were an interactive deep dive into the key provisions of the Renters’ Rights Bill, which will be called the Renters’ Rights Act when it receives Royal Assent, and the practical considerations that arise.
In this article we examine the potential pitfalls identified during our roundtable events and the steps that landlords and agents might take to avoid them.
On commencement of the Renters’ Rights Act, all existing fixed-term assured shorthold tenancy agreements will automatically convert into monthly periodic assured tenancies and it will no longer be possible to grant a new fixed-term tenancy. The monthly period will need to mirror the rental period – e.g. if rent is paid on the first of the month, then the rental period will run from the first to the last day of the month. Any clauses providing for a fixed-term or a rental period longer than a month will be invalid.
The draft legislation also states that a 'relevant person' must not 'purport to let a dwelling house on a fixed term'. A 'relevant person' is defined to include a landlord and a person acting on behalf of the landlord (other than a legal representative) i.e. letting agent. The word 'purport' gives the prohibition far greater reach beyond situations where a new tenancy agreement is expressly granted on a fixed-term and could include anything that a relevant person might say or do which implies the grant of a fixed-term agreement – e.g. the standard question in a letting agent’s questionnaire which asks prospective tenants how long they intend to stay in the property, or whether they require a six or 12 month fixed-term may be caught by this provision.
Any relevant person who is found to have breached this provision is liable to a financial penalty of up to £7,000 levied by the local housing authority. As discussed during the roundtable events, the local housing authorities will keep the monies they collect by way of fines under this new legislation and therefore we anticipate that there will be rigorous policing and enforcement. Although it remains to be seen whether the existing local authority budgets will stretch to allow instant action on implementation of the Renters’ Rights Act.
What should landlords/agents do to prepare for this change?
We’ve highlighted that rent periods under the new tenancy regime cannot be longer than one month. As such, any clauses in existing and new tenancy agreements which provide for termly, quarterly or yearly rental periods after commencement of the Renters’ Rights Act will be invalid.
With regards to pre-tenancy payments, a new 'prohibited pre-tenancy payment of rent' will be added to the list of prohibited payments under the Tenant Fees Act 2019. A pre-tenancy payment of rent is prohibited if paid before the tenancy is entered into.
Discussions with our guests at the roundtables indicate that there is a great deal of confusion and concern about what is meant by 'entered into' and when all of the different types of pre-tenancy payments (holding deposit, deposit and initial rent) can be paid by the tenant without triggering a financial penalty.
With this in mind, we have created a flowchart which hopefully provides a clear visual guide as to when the prohibited and permitted pre-tenancy periods start and end and what payments can be made. See below. To view a larger version of the flowchart, you can download it here.
As referenced in the paragraph above, the Renters’ Right Act will amend the Housing Act 1988 to create a new assured tenancy. The new regime will apply to these types of tenancies or leases and so one question we are being asked is whether landlords and agents can grant licences to occupy instead of leases to avoid the imminent and onerous changes.
The short answer to this question is yes, but this is heavily caveated with the warning that it must be a genuine licence to occupy with both parties intending to grant such an agreement and that the rights and obligations under the agreement reflect all the hallmarks of a licence. There is substantial existing case law which has already confirmed that it's not enough to call an agreement a 'licence' if it's essentially a lease in disguise, for example the case of Street v Mountford.
What is the difference between a lease and a licence? The critical difference is that the occupier (tenant) under a lease as opposed to a licence has exclusive possession of the property. In practice, exclusive possession means that the tenant is in control of the property and 'can keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him by the tenancy agreement to enter and view and repair'. A licensee, however, has no such rights. Their occupation is a mere permission and the licensor retains full control over the property. In practice, this means that the licensor can enter the property at will, move the licensee from one part to another, e.g. if the licensee is a hotel guest or a lodger, and even ask the licensee to leave with little or no notice. Often the licensor will provide housekeeping services such as laundry or cleaning which is another indication of the absence of exclusive possession.
If a landlord purports to grant a licence to occupy but the terms of the contract and/or the nature of the occupation indicates a tenancy, then that agreement may be deemed to be a sham licence and put the landlord/agent at risk of incurring large civil penalties. As previously highlighted, local authorities will be incentivised to investigate any potential breach of the new legislation including attempts to evade the regime altogether via sham licences. They will have powers to enter certain premises without a warrant and to require production or allow seizure of documents, which will enable them to establish whether there genuinely is an absence of exclusive possession on the part of the occupier.
Our advice to any landlord thinking about granting licences to occupy in place of tenancies is that this needs to be carefully considered in conjunction with professional advice, to ensure that they are intended to be genuine licences and that they will work in practice without any risk of being deemed sham agreements.
The new legislation will introduce an implied right in every assured tenancy for tenants to request a pet. Landlords must give the request due and prompt consideration and can only withhold consent on reasonable grounds.
We understand that the government will issue guidance as to what could constitute a reasonable refusal but each case will need to be considered on its own merits and there is no 'one size fits all' advice.
The factors that could be taken into consideration for each request might include any of the following:
The Renters’ Rights Bill previously contained a draft provision for landlords to require tenants to take out pet insurance to protect against any damage. This has now been shelved and a Conservative Party amendment has been approved to allow landlords to charge up to three weeks’ rent as a refundable pet deposit. However, this is expected to be overturned during the final passage of the bill which will now take place when parliament return from the summer recess.
How does this new implied right affect landlords/agents?
Under the new legislation, landlords/agents will be prohibited from discriminating against prospective tenants based on the fact that they have children and/or are in receipt of benefits.
The practical implications of this are that landlords/agents must review their procedures and ensure that any overt practices such as 'no children'/'couples only'/'no DSS' adverts and policies are stamped out.
Landlords/agents will continue to have the final say on who they let their properties to and can carry out referencing checks to make sure tenancies are sustainable for all parties. They will be able to do this based on affordability, but not on the basis the prospective tenant has children and/or is in receipt of benefits.
The Renters’ Rights Act is set to fundamentally change the landscape of the private rented sector. With commencement now expected in the autumn, time is of the essence and our advice to landlords and agents is to act now and carry out the necessary reviews and updates to ensure that their businesses are 'Renters’ Rights Ready'.
For further information or advice, please contact our property disputes team.
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