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Keeping the PRS Free Market v Khan: The Blueprint for a Battle with London Landlords

In the same month as the Government issued the consultation concerning the scrapping of section 21, the Mayor of London has published a document which has the potential to significantly further add to the woes of any PRS landlord who owns properties in London.

Going beyond a mere reiteration of his support for the repeal of section 21, in his document “Reforming Private Renting: The Mayor of London’s Blueprint,” Sadiq Khan expressly his wish to bring about wholesale change of the London rental market. It is a document that will raise the blood pressure of any London landlord.

The Blueprint, and supporting technical paper, is littered with measures that will be unpopular with landlords. Mr Khan supports outlawing break clauses in residential tenancies. He proposes a 4 month notice period in cases where landlords are seeking possession on grounds where tenants are not at fault, and seems to signal support for the idea of extending the notice for fault-based grounds to 28 days. He believes that, when landlords are seeking possession on a no-fault ground (such as where a landlord wishes to sell, or requires the property back for occupation by the landlord of their immediate family) landlords should pay tenants a ‘relocation payment’ equivalent to 1 months’ rent upon eviction. Space does not permit a detailed response to these points, but the areas of opposition are apparent.

However, it is what the Mayor describes as being “key” to his plans that will be the most controversial aspect of the Blueprint - rent restrictions. Mr Khan’s proposal is to establish a London Private Rent Commission, who would manage a register which details all landlords operating across the capital, to include details of rent charged for properties. Once such a register is established, the plan is then for the Commission to start to set limits on both new rentals and limit rent increases in existing tenancies and upon tenancy renewals. The establishment of such a register will take time and so the Blueprint alarmingly then goes on to propose the introduction of “interim rent caps.” Without first gathering data from the Commission, the threat of immediate, interim measures being taken has to be of serious concern to landlords.   

At a time when Brexit uncertainty is bringing the potential of rising interest rates and rising costs generally, and a time when landlords may be facing significant costs of carrying out works to ensure properties are fit for human habitation (following the introduction of the Homes (Fitness for Human Habitation) Act), any steps that will limit rents could well have adverse financial effects on PRS landlords.  For small-scale private landlords, reliant upon achieving a reasonable rental return to pay their bills, any decrease in rental income will be unwelcome. Arguably, the larger, institutional BTR investors who have entered the market over recent years, may be better able to cope with rent restrictions  - and, in the Blueprint, the Mayor expresses his eagerness for those investors to remain in London, buy suggesting incentives such as rent control exemptions for “a defined period” ; but these BRS investors have also expressed concern about how the Blueprint proposals will impact. Perhaps naively, the solution proposed in the Blueprint is that “many of the concerns investors and developers have may be alleviated by properly communicating the terms of the Model.”

The idea of rent restriction is not new: this was a key aspect of the Rent Act 1977. Landlords argued that such restrictions fettered their control over their assets – and so the Thatcher-led Government introduced a new approach with the assured tenancy.

The fact that a Mayor from the left side of the political divide has proposed rent restriction is, perhaps, not surprising. With the Mayoral election just 10 months away, and given housing in London is high on the agenda, such proposals will be popular with the electorate Mr Khan is targeting. But even he acknowledges his proposals could have “unintended consequences.” Presumably this is a euphemism for PRS landlords large and small deserting London and choosing to invest elsewhere in England, and the ensuing chaos that would cause.

I am not an economist, but surely it cannot be sensible to try to tackle the housing crisis in London by attacking the basic premises of the free market economy, and fighting the economics of supply and demand? There is no easy answer as to how to fix the London market; but basing any plan on rent restriction will not be the solution.  

For any more information please contact Joanne Young from our Property Litigation Team on j.young@ashfords.co.uk

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