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Three-year minimum tenancies – what are the legal implications for landlords?

Amid the headline-grabbing political manoeuvring over Brexit, a policy proposal which could have serious ramifications for thousands of private landlords – not to mention nearly millions of renters – slipped by relatively unnoticed.

Ministers have outlined plans to introduce a minimum tenancy term of three years in order to give private renters in England ‘more security’. The government suggests that longer agreements would give tenants more stability and allow them to put down roots without the fear of having to move home at 6-12 month intervals.

According to the BBC, 80% of tenants currently have contracts of six or 12 months, yet most renters stay in a property for an average of four years.

The proposals would allow tenants to leave earlier than the three-year term while exemptions to the rules could apply for the likes of students whose tenancies are dictated by university terms.

The plans – which are subject to a consultation until the end of August – have received a lukewarm response from private landlords who have expressed concerns about how the proposals could further disincentives those looking to invest in buy-to-let property and even those who already own one or more rented properties. Some have declared the plans to be another straw on the back of private landlords and vowed to sell their properties should the government move to introduce legislation to that effect.

Landlords have faced a raft of fresh regulation in recent years. The introduction of tenancy deposit protection schemes (TDP) has had a particular impact on smaller investors, while the Energy Efficiency (Private Rented Property, England and Wales) Regulations (EPC) – which compelled private landlords to bring their properties up to a minimum level of energy efficiency – has meant thousands have been spent in improvement works.

Additional regulations have placed an increased burden on landlords and many find it difficult to keep abreast of changing legislation. The plan to introduce a minimum tenancy term of three years will only add credence to the claims that while tenants are increasingly protected and incentivised in the private rental sector, private landlords themselves are not.

Those with longer memories will recall that, in 1988, the Housing Act introduced Assured Shorthold Tenancies (AST) with the aim that short term tenancies - for periods as short as six months – could be offered by private landlords. This most recent plan seems at odds with the act, which was widely touted as bringing convenience and flexibility to both tenants and landlords alike. Some have expressed fears that the introduction of a minimum three year rental term will mean far greater restrictions on what landlords can do with their property and when.

This is not to say that landlords are on the whole against having tenants who occupy their property for years at a time, far from it.

Among my clients, the private landlord ‘wish list’ is largely consistent across the board – a tenant who pays their rent on time and looks after the property. When a landlord finds a tenant that fits these two qualities and stays in the property long term, the appeal is obvious: a steady, stable income and an investment that is well looked after.

In my view, the greatest objection to these proposals is the impact they will have when things go wrong. Sadly, just as there are a minority of rogue landlords who give the private rented sector a bad name, there are a minority of rogue tenants who make the lives of well-meaning and well intentioned business people difficult.

It is already incredibly difficult for landlords to obtain possession of their rented property, on non-mandatory grounds, during the fixed term of the tenancy. As well as serving the necessary ‘Section 8’ notice, it can take many months for the case to come to court and even if the matter is uncontested, costs can run into the many hundreds of pounds.

Where the tenant wishes to contest the possession proceedings, legal fees and court fees can run into the thousands.

The advantage of short-term rental periods has been that many landlords have found it easier to wait until the tenancy is nearing its end and simply serve a ‘Section 21’ notice. The potential for further damage to the property or non-payment in the period between deciding to evict the tenant and the tenancy reaching its end is often worth it to avoid the legal expenditure.

It is easy to see the potential issues facing a landlord with a rogue tenant, whose tenancy does not expire for more than two years, leaving no other option than to embark on the lengthy and costly Section 8 process.  My concern is that giving a new tenant a three year tenancy could be, at best, a gamble.  Many landlords will be concerned about protecting their properties and could be put off letting altogether.

This creates a serious problem for the government, which these proposals do not appear to have accounted for.

The UK is in the grip of a severe affordable housing shortage. The government has set a target of building 300,000 new homes each year, both to meet current demand and to make housing more affordable by flooding the market with new homes in easy reach of first time buyers. Yet, even if that lofty target were to be reached, the desired effect is still some way off being realised.

Recent figures by Onward suggest that the number of parliamentary constituencies in which private renters make up more than a fifth of households will reach 253 by 2022 – an increase from 18 in 2001. The private rented sector now makes up more than 20 per cent of all households.

In short, the housing sector is heavily dependent upon private landlords to provide much needed accommodation across the country. Policies such as this could be seen as an unwelcome and – ultimately – costly squeeze on private landlords at a time when the government can ill afford to do so. The effect may force large scale sales of rented properties – admittedly freeing up some housing stock, but very few which could be considered truly ‘affordable’ – or, a necessary increase in rents to cover the risk. In either case, those individuals and families currently renting are the ones who lose out.

By Louise Hebborn is a partner and commercial law expert at Stephensons Solicitors LLP.

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    if we have to give a 3 yr term then we are going to have to be even more careful who we rent to, which will mean more homeless people sleeping in shop door ways, is this what the government are aiming for?

  • icon

    It will never work end of story plus in 15 years of being a landlord apart from arrears I have NEVER terminated a contract pointless political point scoring its always the tenant who decides to leave

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    A policy which will reduce supply and increase rents further
    We will be adopting a strategy to wait for the highest quality tenants and guarantors with as many applicants as possible to mitigate the risks government wish to place on landlords with this latest clueless policy ..
    More pain for tenants .. for something which is not even needed, landlords don’t put out a good tenant for no reason

  • Kathy Taylor

    Employees are very protected by HR legislation nowadays however when you get a new job more often than not you will have a probationary period. Turn up for work on time and do well in your new role then you will pass your probation and keep your job! In a way this is very similar to the initial Landlord Tenant relationship. During the first 6 or 12 months of a tenancy if the Tenant performs well in respect to paying their rent on time and looking after the property then when the time comes to renew there is no reason for the Landlord not to. On the flip side, if arrears have built up and/or the property is being damaged then at the moment the Landlord has the option not to renew and serve notice instead. I fail to see why this needs to be changed!

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