The Renters (Reform) Bill: What Does It Mean For HMOs?
Introduction
Anticipated to receive Royal Assent in 2024, the Renters (Reform) Bill signifies a pivotal moment for landlords, particularly those overseeing Houses in Multiple Occupation (HMOs). This analysis aims to provide a clear understanding of the legal impact of the Bill on HMOs, focusing on the abolition of Section 21, tenancy changes, and changes to the court and dispute resolution process.
Abolition of Section 21
For many people, the crux of the Renters (Reform) Bill (the Bill) lies in the abolition of Section 21, a fundamental provision for ‘no-fault’ evictions. This is the aspect of the Bill that has led to landlords debating potential changes to tenancy processes.
There are currently two forms of notices seeking property possession in England and Wales: Section 21 and Section 8. Section 21, which the Bill threatens to abolish, is also known as ‘no-fault’ eviction. As the label suggests, landlords can provide their tenant with the notice and expect the property to be vacated within two months, despite providing no grounds. If the tenant does not vacate the property, the landlord may begin possession proceedings against the tenant in court. Section 8 allows the landlord to order their tenant to vacate the property, but grounds must be provided. Depending on the ground(s) relied upon, the notice can provide two months’ notice or two weeks’ notice.
The grounds in a Section 8 notice are split between mandatory and discretionary grounds. Mandatory grounds mean that if the ground is proven in court, the judge must order that the landlord be granted possession of the property. With discretionary grounds, if the ground is proven, the judge then uses their discretion to decide whether it is appropriate to grant possession.
The Bill proposes an additional mandatory ground for repeated rent arrears. This measure would be imposed to facilitate landlord evictions when rent arrears are claimed.
Ground 8 within the Section 8 notice, which relates to arrears of two months or more, may grant landlords increased authority for evictions related to rent arrears. Therefore, with a mandatory ground for rent arrears already present, the proposed mandatory ground change is unlikely to have a significant impact on landlords seeking property possession.
Despite the abolition of Section 21, potential loopholes persist within Section 8. Landlords may seek possession on the grounds of personal use or property sale without legal enforcement ensuring these grounds are genuine. The Labour Party have attempted to add to the Bill provisions for proof requirements for these grounds, accompanied by fines for non-compliance.
Tenancy Changes
The Renters (Reform) Bill introduces a unified system of periodic tenancies, simplifying the tenancy structure. Under this system, tenants are entitled to a two-month notice period for relocation. Notably, rent increases are now limited to once a year, with landlords required to provide a two-month notice period. Landlords are currently obliged to provide a one month notice period to tenants on periodic contracts by issuing a Section 13 notice.
Tenants are likely to gain a safeguard against arbitrary rent increases through the First Tier Tribunal (FTT). The FTT is empowered to assess and adjust rents to market value, with the ability to retroactively enforce such rent adjustments, providing a legal deterrent against disproportional rent hikes.
Enhancing the Dispute Process
Recognising the intricate legal landscape and the conflicting interests involved, the Renters (Reform) Bill provides concessions to landlords by prioritising court process reforms over the abolition of Section 21. It is highly likely that the abolition of Section 21 will only occur once a framework to streamline of the legal eviction process in landlords’ favour has been mapped out. Efforts to expedite evictions will be supported by increasing bailiff recruitment efforts, aimed at reducing processing times.
Additionally, a new property ombudsman will be established. Mandatory membership will be imposed on all landlords under a government-approved redress scheme, regardless of whether an agent is used. This move aims to enhance the efficiency and fairness of dispute resolution processes, as all tenants will have a legal course of action in the event of a dispute. This introduces a stage between disputes and court proceedings, alleviating the pressure on a strained legal system.
Conclusion
As the Renters (Reform) Bill approaches Royal Assent, HMO landlords would be wise to grasp the legal nuances that come with it. The abolition of Section 21, despite the widespread media attention it has received, does not prompt an overhaul of eviction strategies for landlords. It is likely the abolition of Section 21 will be accompanied by concessions facilitating the eviction process where legitimate grounds are involved. The tenancy changes and changes to the dispute resolution process will introduce additional regulations that landlords must become acquainted with and adapt to. The FTT, Property Ombudsman, and bailiff service enhancement are key aspects of the Bill that will provide more structure and regulation to the tenant-landlord relationship. For HMO landlords, adapting to these changes is not only prudent but necessary for ensuring legal compliance and portfolio success.