A great deal has been written about the abolition of Section 21 of the Housing Act 1988, which allows a Landlord to obtain possession of their property without demonstrating cause and without the Tenant defaulting in some way.
Abolition will bring a host of potential problems for Landlords seeking possession of their property. One important consideration, and one clearly set to cause further Landlord grievance, is how will a rent be reviewed in the new, post AST, world? In coming up with some of the likely future options it may be worth looking at the existing methods and processes by which rents can be reviewed in order to gain an insight. It seems inevitable that the abolition of section 21 will be the catalyst for rent controls in one form or another.
The Housing Act 1988 opened up the PRS (private rental sector) as it guaranteed Landlords vacant possession, with Tenants paying market rents using the newly created Assured Shorthold Tenancy. The upshot being that banks could now lend against residential property where they had previously been excluded by the Rent Act 1977, as that legislation gave tenants security of tenure for two transmissions on death. If that wasn’t bad enough, the ‘77 Act was renowned for the chaos it caused to the PRS with rents being determined as “fair rents” which were set by the Rent Officer at levels far below those obtained in the open market.
Rent Act tenancies in the new AST world, were and continue to be reviewed subject to the The Rent Act (Maximum Fair Rent) Order 1999. The order determined the amount a fair rent could be increased on the basis of the review being linked to RPI plus a percentage uplift for each re-registration. Adopting the same principle, in a post section 21 world, where there will be thousands of tenancies to review, it seems highly probable that rents will be reviewed based on some alignment to RPI – this is a form of rent control. Compare this to the current situation where Landlords and Tenants freely negotiate a rent on the expiry of a fixed term tenancy.
Be it a Tory government striving to help “generation rent” or a Labour government with their own philosophical ambitions, a prescribed review system for residential tenancies seems likely as the number of tenancies will simply be too great to use the market based valuation approach which currently exists for Assured Tenants (tenancies which provide security of tenure at a market rent, subject to an annual review).
Where there is an Assured Tenancy under the present system, and better known as a Section 13 application, each year the Landlord only need serve Notice on the Tenant of an increase and, if not accepted, the matter is referred to The Rent Assessment committee for their determination. This is an unsatisfactory process for Tenants as the Landlord needs do no more – he doesn’t need to attend the hearing, nor adduce any evidence to support the rent increase. The Tenant is on the back foot and at the discretion of the Rent Assessment Committee who assess the market through their eyes. Due to the obvious delays that follow a process such as this, by the time one annual review is settled a new Notice of Increase is being served.
In reality, very few Assured Tenancies have been created so the Rent Assessment Committee can process the limited number of cases. Multiply the number of tenancies by the number of current ASTs and the system won’t be able to cope. Prescriptive reviews will be the only way to manage the number of tenancies. Not wanting to totally destroy the PRS – but no doubt hugely damaging to it – rents could be reviewed to RPI minus 1% or 2% per annum, compared to the Landlord’s preferred expectation of RPI plus 1% or 2%. This would allow rents to reduce over a number of years helping to limit the number of Landlords who it is claimed will leave the sector following the abolition of section 21.
The Housing Act 1988 has stood the test of time and proven to be a sophisticated and a well-considered letting platform. It hasn’t stopped rogue Landlords (neither did any rent controls) but the act does contain a check on the level of an AST rent – section 22 (1) of the Act. This provision enables the tenant to apply to the Rent Assessment Committee to determine the market rent, in cases where, in Committee’s opinion, the contractual rent is excessive. Whilst I have never heard of any such a cases the legislation provided a process allowing tenants to appeal their rent and potentially have it reduced. Similar to the section 13 application this is a bespoke application and process which just couldn’t cope with the anticipated volume if applied to all ASTs in England and Wales.
Let’s wait and see what happens but a rent control (the removal of the free market) seems the only mechanism by which rents could be reviewed. A rent review in future may be as simple as RPI plus a % or minus a %.