Renters Reform Bill worse than feared!
It is only a Bill and has just been published but the Renters’ Reform Bill appears at first sight worse than many have feared. All tenancies are to become periodic, meaning landlords will have no security of income and student landlords in particular will find the tenants will not pay for the summer holidays.
One massive change is that currently section 21 notices cannot be served if the tenancy deposit has not been properly protected with an authorised scheme and the prescribed information given unless and until the deposit is returned to the tenant. That rule did not apply to Section 8 notices. Now it is proposed that except in cases of antisocial behaviour: “ the court may make an order for possession … only if the tenancy deposit is being held in accordance with an authorised scheme.”
The tenant must also have been given the Prescribed Information in the required form. So even if the ground for eviction is rent arrears, damage to the property or that the landlord wants the property back to live in himself, he may fail if the deposit paperwork is not in order.
When landlords eventually get to court tenants will be able to ambush them with a technical defence because, for example, the wrong clause number was referred to in the Prescribed Information or there was some other minor error. The safest course will be to return the deposit to the tenant which is really to add insult to injury and it will be a bold landlord who seeks a section 8 eviction without professional help. So much for Mr Gove’s statement today about being able to evict more quickly tenants who are “persistently and deliberately evading their responsibility to pay their rent”.
One firm says it has been seeing landlords panic and sell up over the prospect of what the Renters’ Reform Bill means for them.
The eviction and housing law specialists Landlord Action says April was its busiest month for 23 years. It also says that the serving of section 21 notices has rocketed by 91% since last April 2022.
Landlords started making plans to sell
Paul Shamplina, the founder of Landlord Action, said, “the Renters’ Reform Bill is, as expected, amongst other things abolishing Section 21, and therefore will come as little surprise to landlords, some of whom have already started making plans to sell in anticipation. April was Landlord Action’s busiest month in 23 years, with a 91% year on year increase in the number of step two section 21 notices being served. I have no doubt that as the date for the end of section 21 nears, more landlords will start to panic, which will lead to more good tenants having to leave their homes. The Government has made reference to digitising more of the process for those evictions which do end up in court, by way of speeding up the process. Whilst this is positive, greater reform of the court system will be required if landlords are to have confidence to remain in the market.”
Landlords selling up and leaving the PRS
The growing trend of landlords selling up and leaving the PRS is also underlined by Oli Sherlock, a director at rental market expert Goodlord said, “right now, all the anecdotal evidence points to a rising number of landlords deciding to sell up. This, combined with a chronic lack of new rental homes being built, is creating a supply and demand issue that is driving up rental prices, creating despair for tenants seeking new homes, and resulting in market conditions which this Bill hasn’t been designed to fix. I think there are also valid concerns around whether the courts will be able to cope with the rise in cases this Bill will likely create, even with increased digitisation. The Government should not see the publication of this legislation as a job done. It should be the first step in a longer line of urgent changes that are needed. A healthy rental market requires empowered, protected tenants as well as fair-minded, incentivised landlords in order to function. Any legislation that addresses one without the other won’t make the difference it needs to.”
Landlords deciding to vote with their feet and leave
Laura Southgate, a partner in the property disputes team at Cripps also believes that the Renters’ Reform Bill will see landlords deciding to vote with their feet and leave the PRS. She said, “on the whole, this bill is a positive development as it seeks to tackle the housing crisis – but the uncertainty it has created for landlords must be addressed by the government. Otherwise, it may have the opposite effect: landlords leaving the sector, and consequently, a greater shortage of housing. Landlords are generally receptive to change and can see the benefit in offering tenants a greater degree of security. However, it’s unclear whether the courts can keep up with the changes: there will always be tenants who don’t comply with the tenancy agreement, and landlords want to be sure that, should this happen, they will be able to recover possession.”
Capital Gains Tax warning for landlords quitting sector
A tax expert is advising landlords to avoid failing to register their property sales for Capital Gains Tax within 60 days of completing the disposal.
Rick Schofield of accountancy firm Azetz says, “we have seen cases involving a number of buy to let landlords who have cashed in because they cannot afford to service higher mortgage debt; the rents aren’t covering the increases. They were caught off-guard by the Bank of England. Some less experienced landlords don’t realise they must personally submit information to HMRC upon disposal of a letting property. That particular gateway form and process is not particularly well known amongst landlords. If you don’t submit the form within the 60 days, there is a £100 penalty. If the matter is still outstanding three months after that, it’s £300 or five per cent of the capital gains tax. If you have a string of disposals amounting to £3 million, and the landlords have not submitted the form in time, then that’s £150,000 HMRC can collect.”
The process is not straightforward for landlords to report capital gains - they have to create their own government gateway account, which cannot be done on their behalf by advisors.
Schofield adds, “whilst many buy to let landlords are doing well, there are some, either accidental landlords or ones too highly leveraged, who are selling up in order to avoid financial pain due to the interest rate environment and corrosive inflation. However, some landlords are not selling up for forced reasons but rather to fund retirement – almost two thirds of landlords in England are aged 55 or above. There are around 2.74 million landlords in the UK, so you can understand how important it is for them to understand why the 60-day deadline matters and that it shouldn’t be confused with annual self-assessment tax returns.”