NLA response to the consultation overcoming the barriers to longer tenancies in the private rented sector
Response to consultation questions
Q4-Q9 – questions for tenants and questions for landlords
Questions for all
Q10: Do you think that the protection for tenants from retaliatory eviction introduced in the Deregulation Act 2015 has been successful? Please explain.
The NLA objected to the introduction of Section 33 of the Deregulation Act on the basis that there was insufficient evidence of a significant abuse of the system by landlords. Since the provisions came into force we have seen little evidence of enforcement and are unaware of any central data collection on use of the powers by local authorities. Consequently it is difficult to ascertain what impact the Act has had, although in the absence of data we have seen little attributable change in behaviours.
Q11a: What do you consider to be the main benefits of a longer tenancy for landlords? (Assign a score out of 10 for the importance of that factor with 10 being the most important).
Question 11a and 11b appear to be leading questions and therefore we have not assigned a score for the most important factors. However, we recognise that there may be some benefits for both landlords and tenants of the option of longer tenancies, and explore these below.
While the proposed model suggests that tenants would be able to give two months’ notice to landlords after the first six months, compared to the current one month on the tenant’s side, this will have a limited benefit to landlords in avoiding void periods, as there is not a significant increase in time to find new tenants.
Additionally, the ability of tenants to give notice at any time after the first six months means it is unclear whether tenants’ behaviour would change with the proposed model, since they are in effect not committed for the full three years.
The only potential tangible benefit for the landlord is, arguably, greater security of income. However, this is undermined by the tenant’s unilateral ability to bring the tenancy to an end.
Landlords can benefit from longer tenancies, but we would argue there are very limited benefits of the proposals suggested in the consultation document.
Q11b: What do you consider to be the main benefits of a longer tenancy for tenants? (Assign a score out of 10 for the importance of that factor with 10 being the most important).
We recognise that there is value in additional security for some groups of tenants eg families with children.
It is unclear in the consultation document what the conditions would be under a periodic tenancy following an initial three-year term, and it is uncertain how behaviour would change in response to this – tenants may be unwilling to enter a periodic tenancy if they can get a new three year tenancy elsewhere, which in effect may make periodic tenancies obsolete.
The Deregulation Act protects tenants from retaliatory eviction, enabling them to challenge poor practice. Three year tenancies would not provide an additional protection.
Q12: Do you consider that there are any further benefits of longer tenancies that are not covered in question 11? Please explain.
Q13: What do you consider to be the main barriers to landlords offering longer term tenancies?
- Tenants do not want them
- Landlords do not want to offer them
- Time taken to gain possession of property
- Mortgage conditions
- Landlords feel that they will be unable to remove tenants who are in breach of their tenancy terms eg antisocial behaviour, damage to property, rent arrears. Current Section 8 process can be time-consuming and costly, and therefore ineffective.
- Landlords already ‘roll over’ tenants into periodic tenancies for extended periods and so do not see the benefit of offering longer fixed term tenancies.
A New Framework
Our suggested longer term tenancy model is a three year tenancy with a six month break clause. The main components would be:
A three year tenancy but with an opportunity for landlord and tenant to leave the agreement after the initial six months if dissatisfied. If both landlord and tenant are happy, the tenancy would continue for a further two and a half years.
Following the six month break clause, the tenant would be able to leave the tenancy by providing a minimum of two months’ notice in writing.
Landlords can recover their property during the fixed term if they have reasonable grounds. These grounds would be in accordance with the existing grounds in Schedule 2 of the Housing Act 1988 and would include antisocial behaviour and the tenant not paying the rent. Landlords must give the tenant notice (which would follow the notice set out in section 8 of the Housing Act 1988 for the ground or grounds used). Additionally, there would be grounds which covered landlords selling the property, as is possible in the current model tenancy agreement, or moving into it themselves. These grounds would require the landlord to provide at least two months or 8 weeks’ notice in writing.
Rents can only increase once per year at whatever rate the landlord and tenant agree but the landlord must be absolutely clear about how rents will increase when advertising the property. Any agreement on rent should be detailed in the tenancy agreement.
Exemptions could be put in place for tenancies which could not realistically last for three years, for example, accommodation let to students or holiday lets.
Q14: Do you think that a three year tenancy with a six month break clause as described above is workable? Please explain.
Landlords are not currently able to make effective use of Section 8. If there are not changes to the Section 8 process, or the court processes more broadly, it will make the removal of tenants under ‘reasonable grounds’ unreasonably difficult in many cases. Landlords may be unwilling to offer properties for rent at all as the risk of not being able to remove a tenant who may be damaging the property or causing disturbance in the neighbourhood may be too high to undertake.
Many landlords, particularly outside of London, currently in effect offer longer term tenancies through the periodic tenancy. The average length of a tenancy in the sector is 3.9 years (English Housing Survey (EHS) 2018).
Tenants are not a single homogenous block of stakeholders – they have very different needs and more flexibility is required in tenancy options offered to cater for these needs. For example (EHS 2018):
Across the whole PRS, the main reasons cited for moving in the last three years were: job-related reasons (16 per cent), wanting a larger property (13 per cent), wanting to move to a better neighbourhood (11 per cent), and being asked to leave/given notice by the landlord (10 per cent).
However, within this there were large variations between different demographic cohorts. For example, for private renters with dependent children: 21 per cent moved for a larger home, 11 per cent moved for job related reasons, 10 per cent moved for a better neighbourhood, 8 per cent moved for family/personal reasons. 13 per cent moved because the landlord gave notice.
Similarly, we have heard from our members that certain cohorts of tenants are looking for short term solutions, for instance young professionals in training on short term rotations (eg doctors in training); postgraduate research students; those who are saving to buy their own property, or who have sold their property but are unable for to buy or move into a new owner-occupied property due to short term circumstances; international and high net worth individuals who are looking for short term accommodation.
Our tenants’ panel research in June 2017 found that, of the tenants surveyed:
- 81% were happy with the length of their initial tenancy (average 11 months)
- 53% have always been happy with the tenancies offered, and therefore have never asked for a longer tenancy
- 70% of those who have asked for a longer tenancy from a landlord have had this agreed
- 69% would not prefer to have an indefinite contract.
Each tenant’s circumstances would therefore influence the nature of the tenancy they would seek and the best approach for them. We would be supportive of incentivising a form of longer term tenancy, to enable landlords and tenants to come to best mutually agreeable solution. However, a standard longer term tenancy model to be used for all private rented tenancies would not be suitable for all tenants and would place disproportionate risk on the landlord, with no associated commitment from the tenant.
Landlords will naturally seek to minimise the risk associated with letting their property. If mandatory three year tenancies were introduced, landlords would seek to let only to those tenants whom they would be most sure would be likely to maintain the property appropriately and who are highly unlikely to fall into rent arrears. Riskier tenants – who are often more vulnerable – would therefore be disadvantaged by this model as the landlord could reasonably assess that the risk over the course of three years is too high, compared to other prospective tenants in the market.
This situation is compounded by the Tenant Fees Bill, currently being debated in Parliament, which would limit the level of fees and security deposit which a landlord could charge a tenant. The security deposit is used to mitigate risk, and where landlords currently have the flexibility to request a higher deposit for higher risk tenants, this will be limited by the planned six-week cap. With the addition of a three year fixed tenancy, landlords would therefore be much more unlikely to let to such tenants, reducing access to the housing market.
The additional risk with this is that rogue landlords, who operate outside of the law, would be able take advantage of these vulnerable tenants because they will not be able to access legitimate properties within the private rented sector, and may also be unable to access social housing.
Q15: If you are a landlord would you be willing to offer the model of longer tenancy described above? If you are a tenant would the model of longer tenancy described above be attractive to you?
Q16: How long do you think an initial fixed term tenancy agreement should last (not considering any break clauses or notice periods)? Please explain.
There should be flexibility to fix the appropriate time for a tenancy agreement, according to the needs of both tenants and landlords, as per our response to question 14 above.
Q17: What do you think is an appropriate length of time for a break clause?
Question 17 is a leading question, as it assumes that there is agreement that a break clause is necessary.
There is the risk that the introduction of a single break clause will lead to landlords choosing the end tenancies at this point rather than taking on the additional risk of a longer tenancy. With the current system of ASTs, the landlord is taking on a managed risk at the end of the fixed term of the AST, with a rolling periodic tenancy. With the proposals, the risk is magnified – instead of a two month notice period, a landlord would potentially be unable to serve notice for two and a half years.
Overall, we believe there should be flexibility in potential tenancy lengths, so that any agreement is appropriate for both tenants and landlords. This means that any break clause which is agreed must be appropriate for the length of the tenancy.
Currently, most ASTs are fixed for either six or 12 months. Reducing the break clause to six months only as suggested in the consultation document may not be appropriate for some landlords who are willing to take on the greater risk of a longer fixed period.
Retaining the flexibility of an appropriate break clause for both parties will allow the appropriate amount of time to be agreed.
However, a minimum of six months would allow a landlord time to assess the relationship with the tenant and if this would be a tenant whom they would be willing to continue letting to. It is in line with the current minimum fixed term of the AST. A shorter period may not enable landlords to make this assessment, and leaving landlords at risk around any further fixed term, particularly without stronger ability to regain possession from tenants in breach of their tenancy agreement.
Q18: How much notice should landlords be required to give to tenants when they want to recover their property to sell or move into?
We believe an alternative option to support tenants’ security in tenure, whilst ensuring landlords do not take on unreasonable risk, would be to create a tiered approach to notice periods from the landlord’s side. For example, two months’ notice after less than two years’ occupancy, three months after two years, four months after three years, five months after four years, and six months after five years onwards. This would be applicable regardless of the type of tenancy – fixed term or periodic – and be dependent on the tenant having remained in possession of the property over an unbroken period.
This would be an appropriate approach because good tenants will build up trust with their landlords and be given associated benefits for taking care of the property and abiding by the terms of the tenancy. There will therefore be an incentive for tenants as well as for landlords, with the risk minimised of the longer notice periods with known tenants.
Q19: How much notice should tenants be required to give to their landlords when they want to leave their tenancy?
Under ASTs, tenants currently need to give only one month’s notice after the fixed term. Landlords take on the risk of this in terms of potential void periods.
If a longer fixed term is agreed, this should be balanced out by a longer period of notice from tenants to landlords. This will provide landlords with some level of protection from tenants who might take up a long tenancy without the intention of seeing it through.
Two months will provide additional time for the landlord, but is not a significant concession from tenants with regard to flexibility. We would argue that this does not balance out the proposed three year fixed term on behalf of landlords, and is not seen as a significant benefit for landlords of the proposals.
However, we also recognise it is important for tenants to be able to seek a home suitable for their needs, and that long notice periods are unlikely to be workable. Two months is therefore an acceptable period to expect tenants to provide in notice to landlords.
Q20: Do you think that the grounds for a landlord recovering their property during the fixed term under any longer term tenancy agreement should mirror those in Schedule 2 of the Housing Act 1988, with the addition of the right for the landlord to recover their property when they wish to move in or sell it?
We disagree with the removal of the no fault process.
The court processes for regaining possession are not fit for purpose and we would urge that these are reviewed and resolved prior to any potential changes in lengths of tenancies. Landlords feel there is a higher risk with longer tenancies, and this may deter some from offering properties to rent at all, or alternatively could encourage landlords to enact their rights under the break clause as a way to mitigate any potential risk from committing to a longer tenancy.
While the reasons set out in the Housing Act outline breaches of tenancy agreements which would provide cause for landlords to repossess a property, it is time-consuming and costly to enforce these. If a tenant does not leave within a notice period, the landlord has to go to court to regain possession. Some tenants and their solicitors are able to extend the court process through procedural methods, which increase the length of the process, during which the landlord may not be receiving any rent for the property, or the property may be being materially damaged, or other tenants and/or neighbours may be disturbed by antisocial or criminal behaviour.
The addition of a ground specifically for landlords wishing to sell a property is welcome, but could be difficult to use in practice given the nature of the home buying process in England. We urge reform of the Section 8 grounds and process to ensure these are fit for purpose and to enable landlords to make legitimate business decisions to recover their property, whilst giving their tenants reasonable notice.
Q21: Do you think that there should be any restrictions on how often and by what level the rent should be increased in a longer tenancy agreement? And if so what is the maximum that these restrictions should be? (Tick up to two)
Rent increases are already limited to no more than once a year, unless otherwise agreed.
Likewise tenants can already take unreasonable rent increases to tribunal, although this is rarely used in practice.
Many landlords currently do not increase rents on periodic tenancies, where they feel they have good tenants who they want to keep in the properties. These landlords are often willing to charge below the market rent in order to keep good tenants and avoid void periods.
Should a limit be enforced, an annual increase would be reasonable. It is reasonable to expect landlords to manage their businesses well, and therefore to be able to set rents for the coming year, anticipating any changes in the costs or the market over this time. A longer period would be harder to forecast and therefore landlords are likely to charge higher rents overall to mitigate this risk.
The landlord’s costs will be affected not just by inflation, but also local market conditions and interest rates – particularly if they hold a mortgage. These could change dramatically over a three year period, depending on economic conditions. Therefore, any limit in the level of increase needs to take into account all these variables.
Without an appropriate mechanism for rent increases, which enable landlords to account for prevailing conditions, there would be an increased risk of landlords exiting the market should there be significant increases in the costs of providing a home. This would provide further insecurity for tenants.
Q22: What do you think is the best way to ensure that landlords offer longer term tenancies to those that want them or need them? Please explain.
Longer term tenancies should be encouraged and incentivised; one way of doing this could be through tax relief. If there is a business benefit to providing a longer tenancy, landlords are more likely to be willing to offer them. This is dependent, however, on there being appropriate and usable court processes in place, which would enable landlords to regain possession should they have reasonable cause ie breach of tenancy (please see the response to question 14 above).
Over recent years there have been a vast number of changes to the regulatory and financial environment in which landlords are operating. Change has been ill-focused and it is unclear from a landlord’s perspective what the overarching strategy or end point will be. The pace of change and its unpredictability has produced an uncertain business environment for landlords and inhibits long term business planning. This in turn reduces the likelihood that landlords will be able to support longer term tenancies, since the goalposts around the business costs change so frequently. As with any business, landlords need a strong and stable environment to feel able to invest. Government commitment to a predictable and strategic fiscal and regulatory policy – across departments – will provide the circumstances in which landlords are able to manage greater potential risks.
Landlords association could play a significant role in supporting landlords to understand the different business strategies available to them, including the relative merits of longer tenancies. However, such support and development requires a degree of regulatory certainty and commitment from government.
Q23: Which types of tenancy should be exempted from the proposed system?
There should be flexibility to offer the appropriate tenancy for the tenant’s circumstances, as outlined in question 14. This should not be solely attached to a particular tenant characteristic or locality.
Q24: What do you think would be the benefits and disadvantages of changing the law to require all landlords to offer the longer term tenancy model?
There are limited benefits for landlords of being required to offer a longer term tenancy, and the particular model outlined in the consultation paper does not present significant benefits for landlords, given the large additional risk they would take on. However, they could benefit from:
- potential to avoid void periods
- rent increases becoming a more acceptable and expected annual occurrence.
- The disadvantages of the model significantly outweigh the benefits for landlords.
- Risk of not being able to regain possession due to ineffective court processes.
- Risk of taking on tenants who subsequently become problematic, especially if their behaviour changes after any break clause expires.
- Risk that agreed rent increases do not take into account shocks to the economy.
- Risk that tenants will be able to build up significant arrears, and difficulty in recovering this, particularly with lengthy court processes during which the landlord cannot regain possession.
- Mortgage lenders are currently unwilling to lend for longer tenancies, because they want to be able to regain possession if necessary.
- Less opportunity for landlords to undertake maintenance and improvements if tenants refuse access.
- Down valuation of tenanted property due to a greater likelihood of sitting tenants and fewer landlords likely to invest.
Q25: What, if any, financial incentive could encourage longer tenancies? Please explain
Tax relief for those landlords who agree longer tenancies would be appropriate, through either income tax or corporation tax.
We would also encourage exemption from council tax when properties are vacant, to enable landlords to seek suitable long term tenants without making an unrecoverable loss during this period. This would help to mitigate some of the additional risk landlords will take on through agreeing longer tenancies with new tenants.
Q26: If there were a financial incentive to offering longer tenancies, what conditions should a landlord have to comply with to be eligible? (Tick all that apply)
Landlords should always act within the law and observe the requirements and regulations set out in statute. Gas safety checks and tenancy deposit protection are basic requirements which all landlords should be expected to comply with, along with other legal requirements. If financial incentives for longer tenancies are linked to proving that landlords have met legal requirements and minimum property standards, this may create a second tier of de facto licensing, without the necessary due process being undertaken.
If financial incentives are to be successful, they need to apply to the specific demand for longer tenancies, and incentivise compliance with the standards set out for these rather than standards which apply across the private rented sector.
Q27: What other options to promote longer tenancies should be considered?
Landlords will feel more able to offer longer tenancies when they feel that they will have effective recourse to remove a tenant who breaches their tenancy agreement. Currently, Section 8 is an ineffective tool, which does not protect landlords sufficiently in so far as court processes can be extended to enable tenants to remain in possession, with no consideration about whether or not the landlord’s claim is legitimate. This means that good landlords will often need to use Section 21 no fault evictions to remove tenants, even though they should reasonably expect to follow the Section 8 procedure.
There does not appear to be any indication in the consultation documents of how this situation would be improved, so that landlords are able to act where necessary. While a six month – or similar – break clause may provide some protection, there remains up to two and a half years during which circumstances may change, and the landlord is at risk unless they choose to sell the property altogether.
While the Government has announced its intention to launch a call for evidence on court processes in the autumn, it is vital that this review is considered alongside any changes in lengths of tenancies and that changes to tenancies are not brought in without associated improvements in the court process, which would leave landlords at significant risk.
Q28: Do you consider that any of the above would impact on people who share a protected characteristic, as defined under the Equalities Act 2010, differently from people who do not share it? If yes, please provide details.
Q29: Do you have any other comments that have not been captured elsewhere in this consultation?
We recognise that the current use of ASTs may discourage tenants from feeling that they have secure possession of their home and that for some groups, such as families with children, it is important that tenants are able to establish a home in which they feel they can put down roots.
However, the approach outlined in the consultation documents significantly shifts the relationship between the landlord and tenant, and by making this model mandatory, landlords are at significant risk, both because tenants can give notice at any time after the break clause – effectively taking away any commitment they have made in signing the tenancy – and due to the additional risk landlords will take on through agreeing a three year tenancy with a new tenant. Should a tenancy become unsustainable, the landlord would have no recourse beyond a formal court process – which is currently not fit for purpose.
We would support incentivising longer tenancies through benefits for those landlords who agree them, and also exploring the introduction of a tiered approach to notice from the landlord’s side (as outlined in question 18) – to ensure that the longer the tenant has been in possession of the property, the more time they must be given as a notice period, up to a maximum of six months. This would ensure those tenants who have established roots and have proven themselves to be responsible and trustworthy are met with trust in kind – in the form of a longer notice period. This approach is more reciprocal and would promote good relations between landlords and tenants, rather than further embed an adversarial approach.
Additionally, consideration should be given to financial implications of longer tenancies for tenants. If the value over the course of the length of the tenancy is over the stamp duty threshold of £125,000, tenants will be liable to pay stamp duty. This means that tenancies with monthly rent of over £3,472 per month would automatically be subject to stamp duty. In high value areas such as London and the South East, this would cover not just luxury properties, but also family houses – committing tenants to an additional financial burden.
 Results based on 366 UK respondents renting from a private landlord interviewed in June 2017.