With the Renters Rights Bill on the horizon, George Sell, editor of Urban Living News, looks at how the law could affect landlords, tenants and the wider BTR market in his new Build to Rent column in Show House magazine.
The Renters Rights Bill, which goes before the Lords this month and could become law as early as the summer, has significant implications for the BTR sector, both multi-family and single-family.
Designed to provide greater security and fairness for tenants, the bill will affect operational models, legal frameworks and lease structures.
The Bill will remove fixed-term assured tenancies. Instead, all tenancies will be periodic, with tenants able to stay in their home until they decide to end the tenancy by giving two months’ notice. The government says this will “end the injustice of tenants being trapped paying rent for substandard properties and offer more flexibility to both parties to respond to changing circumstances”. It also presents BTR operators with a potential scenario where turnover in tenants could be much higher, so ensuring an excellent level of customer service is going to be more important than ever. BTR operators may need to develop more sophisticated tenant retention strategies, including offering flexible lease options and tailored services to meet the evolving needs of their residents.
Another significant change is the abolition of Section 21 ‘no-fault’ evictions. This shift fundamentally alters the balance of power between landlords and tenants, providing tenants with greater security of tenure.
On the operational side, proactive maintenance and rapid response to tenant issues will become paramount to maintain satisfaction levels and minimise voids.
The introduction of a new Ombudsman for private landlords will provide tenants with a clear and accessible avenue for resolving disputes. This will necessitate a greater focus on compliance and robust record-keeping for BTR and SFR operators. Clear and transparent communication with tenants will be crucial to avoid disputes and maintain positive relationships. The Ombudsman’s powers to award compensation could also lead to increased costs for landlords who fail to meet their obligations.
The Bill’s focus on eradicating blanket bans on pets and allowing tenants to request permission to keep pets will also impact operational procedures. Operators will need to establish clear guidelines and procedures for managing pets in their properties, including addressing potential issues such as noise and property damage.
The introduction of a database of properties and landlords will increase transparency and provide tenants with access to in-depth information about prospective landlords and properties. This will place greater emphasis on maintaining accurate and up-to-date information, including compliance records and property details. There will also be new opportunities for operators who prioritise tenant satisfaction, professional management, and sustainability. These operators are likely to attract more long-term institutional investment.
But the most challenging aspect of the Bill in its current form, and the element that has got BTR operators and investors worried, is the ability for a tenant to challenge unreasonable rent increases. This is designed to prevent unscrupulous landlords using rent increases as a backdoor means of eviction, while ensuring rents can be increased to reflect market rates.
In future, all rent increases in the private rented sector will be made using the same process. Landlords will be able to increase rents once per year to the market rate. To do this, they will need to serve a Section 13 notice, setting out the new rent and giving at least two months’ notice of it taking effect.
If a tenant believes the proposed rent increase exceeds market rate, they can then challenge this at a tribunal, who will determine what the market rent should be. There is a growing feeling that this could lead to serious problems for the sector, especially if, as is expected, tenants realise they have nothing to lose by challenging rent rises so might as well do it (and encourage all their neighbours to do it too). The tribunal system could get swamped by a backlog of cases and, if it finds in favour of the tenant, the difference in rent due will be backdated to the original appeal. This will make budgeting and forecasting for operators extremely difficult, and could also make investors who are currently pretty bullish about BTR become more circumspect.
One BTR investor I spoke to recently described this element of the bill as “rent control by the back door” and said the industry is unprepared for quite how disruptive it will be.
I believe the intentions of the Renters Rights Bill come from a good place, but in its current form it is quite seriously flawed and the BTR industry is hoping for some significant amendments before the Bill becomes law.
This article was first featured in Show House Magazine. Read more like this and the latest industry insight here.
