Rental Reform: Periodic tenancies - a deep dive
One of the most surprising announcements in the recent white paper on rental reform was that in the future, most landlords will no longer be able to create fixed term tenancies in England.
Instead, the Government plans to make periodic tenancies the default type of tenancy. Tenants will be able to serve two months’ notice to end the tenancy at any time, while landlords will only be able to end the tenancy using one of the new proposed grounds.
The rationale behind this is that it increases flexibility for tenants, allowing them to leave a property if their circumstances change or the property is unsafe.
However, this is likely to be one of the main sources of concern for landlords as it is likely to lead to increased void periods, reletting costs and could also increase mortgage/insurance costs due to the increased uncertainty around consistent rents.
The Scottish experience
In Scotland periodic tenancies are already the default tenancy arrangement. Since 2017, the private residential tenancy (PRT) has been the default tenancy in Scotland. This tenancy is open-ended, with tenants able to serve just 28 days’ notice to end their agreement and leave the property.
Unsurprisingly, this has had an impact on the sector up in Scotland. The Rent Better research into the PRS found evidence of a shrinking PRS following the introduction of PRTs that particularly impacted on certain niches within the PRS. In particular, groups such as students and low-income tenants that are perceived as ‘riskier’, were more likely to see reduced supply, with landlords either planning to sell up or choosing to let to those perceived to have a higher or more stable income.
Students
The student market is reliant on fixed terms more than any other section of the PRS. Students generally only look to rent properties in time for the start of the academic year and aren’t typically in the market outside of this period. The end result is that both landlords and students need the fixed terms to ensure a consistent supply at the points of the year where it is needed.
Under a periodic tenancy, this certainty will be gone, and landlords will have justifiable concerns about remaining in the student market.
Landlords in areas with Article 4 Directions are likely to face even more difficulties. As these areas restrict landlords from moving between letting an HMO and letting to a family, if tenants leave midway through the academic year, then landlords will face a difficult choice; either leave the property vacant until the next academic year or leave the student market by letting to someone else. If this someone else is a family then it may not be possible to ever let the property to students again, as local authorities are often reluctant to grant permission for the change of use.
The NRLA is extremely concerned about the impact of these proposed changes on the student market and we are calling on the Government to address the risks to supply in this sector before implementing the Renter’s Reform package.
Low-income tenants
Lower income tenants have been hard hit by the reduction in the supply of homes to rent in Scotland. The Rent Better research found an ‘overall sense of increased caution from landlords applying stricter eligibility criteria for tenants, especially those in precarious work.’
In addition, it found that landlords were moving away from renting to tenants in receipt of Universal Credit, citing the increased difficulties compared with the old housing benefit system.
This is likely to be replicated in England too, unless there are substantial improvements to the way Universal Credit works. This in turn will hit the supply of affordable homes and increase competition for properties.
Security for both landlords and tenants
Under the current proposals, tenants will certainly be given increased flexibility about the length of their tenancy. However, the Scottish experience suggests that this will come at the cost of reduced choice when it comes to the property they live in.
To ensure supply is not restricted, the NRLA believes that good landlords should be able to hold their tenants to a reasonable minimum contract length. We are proposing that, provided the landlord is meeting their legal obligations, the tenant cannot serve their two month notice in the first four months of the tenancy. The tenant would then be able to leave at the end of the notice, six months into the tenancy agreement.
This would effectively provide certainty to landlords and lenders around the minimum stay. It would also allow tenants to leave a contract if their landlord is one of the small number of rogues blighting the sector, thus fulfilling the goal set out in the white paper.
