Few would disagree that elements of the English rental sector are ripe for a reshape.
The Renters' Rights Bill (the Bill) aims to equip vulnerable tenants paying for substandard accommodation with protection against the threat of retaliatory eviction and off-market rent increases by private landlords. However, the proposals remove a landlord’s control over the two key elements of a lease - its term and its rent – which will fall to be determined by the tenant and the court respectively. For landlords developing high quality large-scale schemes for co-living or multifamily units, the Bill creates a period of uncertainty and greater administrative operational burden. It remains to be seen whether the legislative reforms will have any substantive effect on the way in which the typical occupier in such schemes will rent.
There are three key changes to the existing regime in the Bill which are likely to have the most significant impact on institutional investor landlords:
- The abolition of assured shorthold tenancies (ASTs) and fixed-term assured tenancies;
- The abolition of section 21 no-fault evictions; and
- The removal of the ability of landlords and tenants to provide for a contractual rent review.
These changes give tenants greater control over the term of the tenancy and the First Tier Tribunal the final say on the market rent. For further details on these changes, as well as the other elements of the Bill that institutional investors ought to have on their radar, please contact the individuals below or your usual A&O Shearman contact for our more detailed overview.
Interestingly, in contrast to the previous government’s Renters Reform Bill, the Bill provides for ASTs and fixed-term assured tenancies to be abolished in relation to both existing tenancies and new tenancies at the same time. Moreover, the Government does not intend to implement court reforms before bringing these changes into force. Consequently, Court backlogs may result in long waits for landlords trying to end residential tenancies and obtain possession.
It is also noticeable that the Government proposes to exempt purpose-built student accommodation from the abolition of fixed term tenancies (where the provider is registered for government-approved codes). However, there are currently no provisions tailored to accommodate institutional investors delivering large scale quality schemes in the private rented sector (PRS) space. This is interesting given the importance of such players to the PRS market.
Only time will tell whether the Bill will present an opportunity for the market – attracting more people to rent rather than buy through the offer of greater security of tenure. Alternatively, the increased uncertainty for landlords could drive out investment and discourage some investors from the PRS sector altogether. Valuers will need to steer us to a sensible solution for modelling these assets despite the uncertainty created by the new legal reforms (particularly to ensure that financing can continue).
One thing is clear, for those institutional investors currently active in the PRS market: it will be essential to keep on top of the likely changes and be ready to adapt.
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