Assured Shorthold Tenancies to be Abolished
With everything else in the news, few seemed to notice that the government announced on 15 April 2019 that they intend to abolish the most common type of tenancy in England and Wales, the Assured Shorthold tenancy.
It will be at least 18 months, possibly longer, before this happens. However, it is likely to happen, even with a change of government, as Labour promise something similar. We consider here what will this mean for residential Landlords and Tenants.
If you are a private sector residential Landlord or Tenant but are not sure what kind of tenancy you have, if it began within the last 22 years it is probably an Assured Shorthold tenancy.
The government have so far only issued a press release, not legislation. We do not know if the changes will apply only to new tenancies or whether they will also affect existing tenancies.
The latest announcement is unusual coming from a Conservative government. Once, Labour governments believed in regulation and increased the rights of Tenants, while Conservative governments believed in the free market and increased the rights of property owners, including Landlords.
The System Now
The invention of Assured Shorthold Tenancies in 1989 was one of the Thatcher Government’s pro-market reforms. Since 1997, most new residential tenancies have automatically been Assured Shortholds unless the parties agree in writing that they should be some other kind of tenancy .
The essence of Assured Shorthold Tenancies is that unlike tenancies that existed before 1989, and alternatives that still exist, the Landlord does not have to prove any reason such as rent arrears to end a tenancy. After an initial fixed term, Section 21 of the Housing Act allows the landlord to give 2 months’ Notice to end the tenancy without having to give any reason.
Some object that this is unfair because a Tenant can be evicted when they may not have done anything wrong. The counter-argument is that if Landlords know they can get their properties back in a few months should they ever want to do so, more people will want to be Landlords and the supply of rented property will increase. Consequently, Tenants will have fewer rights, but more choice of rental properties, making it easier to find somewhere they can afford, and to move on if they are unhappy where they are.
On the whole, the policy did what it was intended to do. There was a large growth in the private rental sector, including “Buy to Let”.
Ending an Assured Shorthold Tenancy by the 2 months’ Section 21 Notice is, though, a regulated area which can trip up especially smaller scale and inexperienced Landlords who may not know when they need legal advice.
Some news reports gave the impression that when the 2 months’ notice to terminate an Assured Shorthold Tenancy expires, that’s it; the Tenant has to be out immediately. Actually, that is very far from the case. A Landlord who changes the locks and throws the Tenant out when the Notice expires will not only have to pay the Tenant large damages but can go to prison.
All that the expiry of the two months’ Notice means is that the Landlord is now free to take the first steps in the Court process to evict the Tenant. Unless the Tenant leaves beforehand, that will take months more.
Even so, the appeal of Assured Shorthold Tenancies for Landlords is that even if repossession takes many months, they know they will get their property back eventually.
Why is there Pressure for Change Now?
When Assured Shortholds began in 1989, the lack of long-term security for Tenants caused fewer problems. For many, renting for a few years was a stop-gap until they earned enough to buy their own home and think of starting a family. Vacating rented accommodation if the Landlord wanted it back was often no great hardship.
Thirty years on, houses are more expensive and mortgages harder to obtain. For more families, renting in the private sector is their only option. Having to leave a rented property can be extremely disruptive for families whose child-care and schooling arrangements are upset.
The government announced on 15 April 2019 that the 2 months’ Section 21 notice will be abolished. The government have not yet said if the name ‘Assured Shorthold’ will also be abolished, but it surely must be, as they will no longer be short.
Can Landlords Still Get their Properties Back in Future?
In future, Landlords will only be able to evict Tenants by proving grounds such as substantial rent arrears, serious breaches of the tenancy agreement (if there is one), anti-social behaviour, or damaging the property.
It has always been possible for Landlords to repossess properties through the courts on these grounds but that has usually been best avoided if possible. Whatever the Tenant may have done wrong, proving it in Court is often expensive, time consuming and difficult.
It is hard to prove that a Tenant’s noisy or aggressive behaviour has upset other Tenants or neighbours unless the other Tenants or neighbours will stand up and swear to it in Court. However, they may fear reprisals from the Tenant, be reluctant to be involved, or nervous of ‘being in Court’.
Even proving rent arrears as a ground for eviction can be surprisingly difficult. A Landlord who only lets out one or two properties may do things informally and may not have kept full accounts of rent payments going back to the beginning of the tenancy. If the Tenant claims they made some unrecorded payment in cash for which they have not been given credit, the Judge may have to say that the amount of rent arrears is unproven, and therefore the claim for possession fails.
If say £5,000 is due in rent arrears, a Tenant can “play the system” by counterclaiming for a rent rebate of at least £5,001 for the Landlord’s alleged failure to repair a leaking shower or whatever. Even if this is exaggerated, obtaining surveyors’ reports to disprove it, which a Judge then has to consider, takes time and money, allowing the Tenant to remain in occupation in the meantime, probably not paying any rent.
Not every Landlord is wealthy. If the rent from the property was a major part of their income and the Tenant has stopped paying it, some Landlords struggle to pay the legal and surveyors’ fees necessary to see the case through to a conclusion.
The government propose to help Landlords by adding a two new ground for possession including that the Landlord “needs to sell the property”, although how they will define “needs to sell”, and how a Landlord will prove this remain to be seen.
What will the consequences be?
A Landlord told us:
“A balance needs to be struck, but this seems to tilt the scales even further away from the Landlord. Higher stamp duty for second homes, loss of tax relief for mortgage interest, Energy Performance Certificates for rental properties – the list goes on. Landlords generally try to run their properties as a business. If a business proves too difficult or risky then people will leave that sector.
This will only result in a lesser amount of properties to let with those Landlords still in the market becoming even more ‘choosey’ about the Tenants they take on. I imagine that Tenants who need benefits to pay their rent will encounter more difficulties in finding a property. Tenants with families may also have more difficulties. Older and vulnerable Tenants will be turned down. I honestly think that this is not going to help those that are in most need at all.”
Currently, organisations providing long-term accommodation like Housing Associations often give new Tenants Assured Shortholds for 12 months as a ‘trial period’. If during that first year the Tenant pays rent reliably, does not vandalised the property and starts no serious conflicts with their neighbours, the Landlord may offer them another kind of tenancy with long-term security of tenure, potentially for life. With the abolition of Assured Shortholds, such trial periods may no longer be possible, so the cost to landlords of making an initial mistake in their choice of tenants will be greater.
Letting Agents College and County said:
“We encourage Landlords not to panic”
but added in view of the changes announced:
“It is more important than ever for Landlords to ensure they have good quality, well referenced Tenants in their properties and this is where we are always happy to help.”
Treating the Symptoms, not the Disease
Strengthening the rights of Tenants in this way may be good or bad in itself, but it can at best treat the symptoms, not the disease. It will not solve the underlying problem of too many people and not enough homes, which makes renting and buying properties so expensive. However, the causes and solutions for that are beyond the scope of this article.
If you have any questions arising from this or anything else we can help you with, then you are very welcome to contact our Civil Litigation solicitors Tim Preston or Louise Nunn.