More than three years after the Conservative Government published its first White Paper on Rental Reform, the Renters’ Rights Bill looks set to take effect by the autumn. The lion’s share of the Bill is now set in stone, including the removal of Section 21 (‘no-fault’) evictions and the abolition of Assured Shorthold Tenancies (ASTs).
But there are a few important areas where the particulars are yet to be worked out, including the details around rent increases.
Under the new rules, landlords will be permitted to propose a rent increase once a year. They must do this by serving the tenant a Section 13 notice, two months before they intend to put up the rent. In its present form, the Bill states that any proposed increase must be in line with local market rents and evidence provided if required.
If a tenant believes that the proposed increase is unfair or excessive, they can appeal to a ‘First Tier Tribunal’, and no increase can be implemented until the tribunal has made its ruling, which could take months.
If the tribunal rules in favour of the landlord, the tenant only needs to pay the increased rent from the next month onward, rather than making up the shortfall that may have built up over some time since the proposed rent rise.
That in itself seems rather unfair to the landlord. But of more concern is the definition of ‘local market rents’, which will vary enormously depending on not just supply and demand in a local area but the type and quality of properties and the definition of what delineates a ‘local market’.
There is also the issue of undercharging. Research carried out by Pegasus Insight in the first quarter of the year revealed that 80% of landlords were charging less than the going rate for at least one of their rental properties. This tends to happen when a landlord likes a tenant and wants to keep them in situ. Both the logic and the sentiment of this approach are understandable, but the net result is to artificially subdue ‘local market rents’.
So, under the new system, landlords could be forced to charge lower rents to all tenants, rather than those with a proven track record.
Given the time it takes for Government and councils to gather and publish data, there is also a risk that any ‘local market rent’ figures will be out of date by the time they are applied to appealed cases, and rulings could be unfairly based on historic rents.
If the setting of rents in the private sector is no longer to be permitted based on the free market principles of supply and demand, surely it would make more sense to link the maximum permissible increase in annual rents to a less arbitrary figure than ‘local market rent’, such as a set percentage above the rate of inflation?
Such a measure would at least bring clarity to the process, and minimise the need for costly and time-consuming tribunals.
More than half of the UK’s landlords are small business owners, and they are subject to the same cost of living pressures and inflationary strains as everyone else.
No other small business in the country is legally restricted from passing on their cost rises in the form of higher prices to consumers. Relying on possibly outdated and inaccurate ‘local market rents’ risks placing landlords in this invidious position.
Beleaguered landlords already feel the government and the regulator are intent on stacking the odds against them running their businesses successfully, and the Renters Rights Bill may be the last straw for many weighing up the pros and cons of remaining in the market.
Linking permissible rent rises to inflation is no panacea, but such a measure may go some small way to reassuring nervous landlords that they will not be flying completely blind in future when it comes to balancing the books.
Kate Davies is executive director of IMLA
