A move towards leasehold reform? - Boodle Hatfield

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07 Jun 2023

A move towards leasehold reform?

Leasehold reform has been mooted for a number of years now, and those advising clients who own leasehold property have been waiting with bated breath to see if, and when, the proposed reforms – including greater protections for tenants and ways to make buying a freehold or extending a lease “easier, faster, fairer and cheaper” – will come to pass.

Until this month, the only reform to have been enacted was the welcome, but hardly ground breaking, restriction of the ground rent payable on the grant of a new residential lease to a nominal sum.

However, at the start of 2023, Michael Gove, secretary of state at the Department for Levelling Up, Housing and Communities, indicated that progress would soon be made, with the announcement of radical plans to scrap the “feudal” leasehold system completely. Just a matter of months later, Gove’s plans to replace the leasehold system have, it seems, been side lined, but, significantly, he has given the go-ahead to bring forward a fresh leasehold reform Bill.

Renters (Reform) Bill

The Renters (Reform) Bill, published on 17 May, is described by government as the “biggest shake-up of the private rental sector for30 years”, intended to “deliver on our commitment to give renters a better deal and make the private rented sector fit for the 21stcentury with safer, more secure and higher-quality homes”. The Bill reflects a desire to protect tenants against landlords perceived to be acting unreasonably or unfairly, following a period where there has been much focus on the poor condition of some rental properties and the use of “no fault” section 21 notices to end tenancies where a tenant complains about the condition of the property or rent increases.

The new Bill is currently being debated in parliament, which, of course, means there are a number of stages to go through and provisions could be significantly amended before it comes into force. However, on first sight, the proposals are relatively wide-ranging, will indeed trigger significant reforms to the current rental system and will undoubtedly lead some to consider whether to continue to let premises under the new regime.

The headline reform is the abolition of section 21 notice evictions, meaning it will no longer be possible for a landlord to evict a tenant simply because it wants to do so, with eviction only possible if one of the statutory grounds can be proved. This will go some way to protect tenants from rogue landlords. However, without considerable investment in the current court system, it will undoubtedly mean that it will be slower and more expensive for landlords to evict problem tenants, such as those with significant arrears or where there has been a significant breach of the tenancy. Landlords will be provided with more comprehensive statutory grounds to recover their property where tenants are at fault, but will only be able to evict in what is described as “reasonable circumstances”.

Another key reform is the introduction of a simplified residential tenancy structure where all tenancies will be continuous periodic tenancies, rather than coming to an end after a fixed period. Again, this is a reform that will be welcomed by tenants wanting the security of a long-term home, with the ability to put down roots in the local community and school system, without the uncertainty of the current regime.

Too risky?

The two reforms outlined above will perhaps impact most on the “occasional” landlord wanting to let a family home while overseas, or other temporary relocation. For this group of landlords, the current regime allows the certainty that they can terminate a tenancy at the end of the fixed term and return to their home or choose to sell the property.

This will be addressed in part by a new statutory ground allowing a landlord to evict a tenant if it can prove it intends to sell the property or allow a family member to move in. However, such a change may prove too risky for some landlords, who may opt simply to leave a property vacant rather than run the risk of having to take costly and potentially time-consuming court proceedings to regain possession.
It remains to be seen whether the creation of the proposed ombudsman scheme will succeed in providing cheaper and quicker dispute resolution. Similarly, further details are awaited as to exactly how the proposed new online portal will achieve its aim of helping landlords understand their legal obligations and demonstrate compliance.

With more than 30% of all households in the UK currently owning a dog, it is perhaps not surprising that the Bill includes the right for tenants to request the keeping of a pet at the premises. Landlords will be able to refuse consent to such a request if it is reasonable to do so. It is unclear quite what grounds may be argued here, presumably size (of property and pet) and breed will be taken into account. Landlords will be able to recover the cost of any damage caused by a permitted pet or require that pet insurance is put in place at the outset.

What happens next?

Reform is still some way off. It is anticipated that the earliest the proposals outlined in the Bill could come into force is early 2024.
While the reforms may make the private rental sector less attractive to some landlords, who may see this increased regulation as the final straw, there is in practice little in the new Bill that should concern responsible landlords. The nature of the reforms do, however, give rise to a question as to quite how and when the courts will find the resources and capacity to deal with disputes, the proposed solution being the introduction of a new “end to end digitalisation of the process”.

Set against the backdrop of one black swan event after another, leasehold reform has at times seemed low on the list of government priorities, with some in the industry speculating that the proposed changes may have been quietly put out to grass. The series of recent announcements and the publication of the Bill indicate, however, that reform is now firmly on the agenda. While, at this stage, we still have relatively little information as to what is planned and exactly when it will happen, change is looking closer than ever.

This article was first published in Estates Gazette on 7 June 2023.