Tenants could be given minimum three-year letting agreements to increase security for those who rent a home.
Three year tenancy terms
The Government is proposing to allow people who rent in the private sector to opt for three-year tenancy terms as this would give them more stability and enable them to put down roots.
The proposal is being put out for consultation until August 26. As part of the consultation, ministers are seeking views from landlords, tenants and related organisations about the most effective ways to tackle obstacles to introducing longer tenancies.
If government proceeds with mandatory longer tenancies, primary legislation will be required. Following the results of the consultation, the government will consider next steps with legal professionals.
Both landlords and tenants to have a six-month break clause
Also within this proposal, both landlords and tenants would have a six-month break clause, enabling either party to back out of the agreement.
The Housing Secretary, James Brokenshire, quoted: “It is deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract. Being able to call your rental property your home is vital to putting down roots and building stronger communities.”
Fear of challenging poor property standards
Government figures show that the average tenant remains in the same property for four years. Despite this, 81% of tenancy agreements are for just six or twelve months.
The Government is concerned that short tenancy agreements could lead to tenants feeling unwilling to challenge poor property standards for fear their tenancy agreement would be terminated.
However, it is likely there will be exceptions made for certain types of tenants, such as students.
Risk for Landlords?
The move could lead to smaller scale landlords, for example those with just one rental property, exiting the buy-to-let sector.
This in turn could mean increased housing stock available for prospective homeowners (or the property could be snapped up by larger scale landlords).
Large-scale landlords are likely to welcome the move due to the greater financial security it could offer.
The consultation will consider whether there should be any exemptions – such as for student accommodation or holiday lets.
Tougher controls on private rented sector
The proposal is the latest in a series of measures from the Government to help improve the private rental sector by introducing tougher regulation.
Landlords have been hit hard by a series of tax hikes in recent years, including the 3% stamp duty surcharge, a tapering in the amount mortgage interest tax relief that could be claimed and an end to the ‘wear & tear’ allowance and protection for deposit payments. A ban is also due to come into force in 2019 preventing letting agents from charging fees to tenants to cover costs such as credit checks when they sign up for a property.
Sarah Nineham, Dispute Resolution Associate, comments “As a result of these changes, many investors have stopped expanding their portfolios or exited the sector altogether. Introducing these minimum three-year tenancy terms could accelerate this process. Whilst it improves the status quo for the tenants it could mean that the rental market contracts a little, offering tenants less choice."
Sarah also points out that a repercussion of this lengthened minimum period would mean that the method of evicting tenants, known as a section 21 Notice, would need to change. She says “Essentially, the Section 21 Notice is a procedure for a landlord to gain possession of a property and it can currently be used during the initial 6 month - 3 year period of a tenancy. We will keep abreast of the consultation and any changes that are brought in. Meanwhile, we are happy to advise landlords on their current options for recovering properties under the current regime and always aim to minimise the time and financial disruption caused at all times.”
Our Dispute Resolution Team are happy to discuss any issues that this raises for you and we offer a free initial meeting or chat on the phone.
If you have any questions, you only have to ask us at Frettens. Please call 01202 499255 or 01425 610100 and Sarah or a member of the team, will be happy to chat about your situation and your particular requirements.