Landlords Legal Political Tenants

Death of the AST!

As the the current housing minister announces a consultation period on three year minimum tenancies, with minimum grounds for eviction, (read here), alongside “Generation Rent ” asking that landlords should not be allowed to sell their properties to FTB’s, (read here), should private landlords be asking themselves whether they are going to get trapped in a market which is moving more towards secured tenancies than assured short hold tenancies, and if they do get trapped, what are the escape routes?

The suggested longer term tenancy model is a three year tenancy with a six month break clause. The main components would be:
Three year tenancy but with an opportunity for landlord and tenant to leave the agreement after the initial six months if dissatisfied. If both landlord and tenant are happy, the tenancy would continue for a further two and a half years.
Following the six month break clause, the tenant would be able to leave the tenancy by providing a minimum of one month’s notice in writing.
Landlords can recover their property during the fixed term if they have reasonable grounds. These grounds would be in accordance with the existing grounds in Schedule 2 of the Housing Act 1988 and include antisocial behaviour and the tenant not paying the rent. Landlords must give the tenant notice (which would follow the notice set out in section 8 of the Housing Act 1988 for the ground or grounds used). Additionally, there would be grounds which covered landlords selling the property, as is currently possible in the model tenancy agreement, or moving into it themselves. These grounds would require the landlord to provide at least two months of eight weeks notice in writing.
Rents can only increase once per year at whatever rate the landlord and tenant agree but the landlord must be absolutely clear about how rents will increase when advertising the property. Any agreement on rent should be detailed in the tenancy agreement.
Exemptions could be put in place for tenancies which could not realistically last for three years, for example, accommodation let to students or holiday lets.

As landords, we are expecting to get the raw end of the deal, let’s face it, we don’t have much public support do we? If we take the current rules of engagement, we can expect that a three year tenancy will restrict the rights of a landlord even further, making it almost impossible to gain access for such things as inspections or to re-let, and it will no doubt increase the landlords responsibilities for maintenance and repairs.

It’s true to say that many landlords may not be against longer term tenancies if they did not detect the smell of being conned, but they do!  Most landlords are only too happy when they have tenants who pay their rent in full and on time, behave in a responsible way and look after the property in a responsible manner.  But these tenants are the exception and not necessary the rule, and it is this which is not understood by our legislators and Generation Rent.

Most landlords will find it difficult to recall a time when they were asked for a tenancy for much longer than 12 months, let alone 36 months so is there really such a large call for three year tenancies? (Labour want 5 years!). Despite the consultation period, we don’t think the Government will listen to landlords and most think it’s a done deal.  It is likely that landlords would have to  offer a three year tenancy as a matter of course, but that the tenant may be allowed to choose not to accept the term, so would that mean that they revert to an AST, and if so, what would be the minimum?  And what would happen to the short-term let sector, where flexibility is of the essence, there has been talk of scrapping six month tenancies, but what about people who want a six month tenancy, or less, this is a huge market for the PRS  and we predict a disaster if this isn’t taken into consideration.

Would there be new laws for gaining possession of a longer term tenanted property?, surely, there would have to be!  We can imagine a situation where legislators consider the length of time a tenant has occupied a property when relating to the notice period they should be given for possession/eviction by the landlord.  Currently, a landlord must provide a tenant with two months notice period whilst the tenant must provide the landlord with one months notice period, and no notice period at all if they leave on the last day of the fixed term tenancy. Now if that seems somewhat unfair (which it is), consider that this rule is for a six month tenancy, what would the notice period be for someone on a three year tenancy who had by definition “created a home”? Our guess is that it’s going to be much longer than two months, and if it isn’t in the early launch period, it won’t be long before it is.

Any landlord who has experienced an eviction will know the cost in both time and money, and longer term tenancies will mean longer and costlier eviction periods given the current system. It is likely that the only way a landlord will be able to gain possession is under the current Section 8 rules (expect these to be amended) and given the calls for the abolishment of Section 21, which will probably come about at some time in the near future, landlords should not think for one moment that Section 21 will apply for long term tenancies, it won’t be around to apply!

But if we dig deeper, other problems appear;  as an example, what about a landlords breach of their mortgage covenant !  The vast majority of private rental sector property is mortgaged with Buy To Let lenders, and those lenders are only in the sector because of AST, which allows them a reasonably speedy recovery period (possession) of their security should they need to possess. With the introduction of three year tenancies, lenders will not easily be able to gain possession of their properties which will mean that many, if not all landlords will be in breach of their mortgage terms, surely lenders will not allow this to happen without legislation to protect themselves.  Or if lenders are not responsive, perhaps the government can apply the three year minimum term rule to properties that are purchased after March 2019 and for unencumbered properties?  You can see the BTL market coming to a complete halt, would you go out today and purchase a BTL?

Here at OneLandord, we simply do not accept that there is such a big demand for three year tenancies, yes, Generation Rent may have some valid points about families putting down roots, but we don’t believe it is a national problem.

The vast majority of landords do not get asked for long term tenancies;  in nearly all cases, tenants want an initial six to twelve months, with an option to renew or they are often happy to go periodic after the fixed term. The flexibility that short term tenancies offers the PRS far outweighs the need for longer term tenancies and in many parts of the country, it would be almost impossible to rent properties with a three year term. AST’s provide flexibility to tenants as well as landlords, people on short term contracts, people on minimum income and benefits etc cannot and will not want to commit to three year tenancies, we simply believe that if this proposal is pushed through, it will backfire and will have a detrimental affect on the investments made by landlords into the PRS.

You may not agree with our comments or even our sentiments, but if you do, and because we think this will be a very significant change to the PRS, we are asking all our OneLandlords member to complete the on-line Government Survey with their views about this proposal,  and you can do this by following this link

Martin O’Hearne