The Government is proposing to launch a new charter aimed at protecting tenants who rent properties in the UK private rental sector. Through introducing the ‘Tenants Charter’ it is hoped that standards in the rental sector will improve and rouge landlords discouraged from the industry by tighter regulation. It also aims to help families by offering them greater stability through longer fixed term tenancy agreements. This might sound like a good idea if you are blessed with perfect tenants who pay their rent on time. However, there are a number of concerns surrounding this proposal which have been highlighted by Landlord Assist.
The main areas of difficulty arise with problem tenants who default on their rental payments. If the charter is to be introduced it could leave landlords with much greater rental arrears from problem tenants, and with fewer powers to evict them. A landlord has every right to repossess its property if a tenant fails to meet the rent as long as notice is given and a county court order has been obtained. According to the Daily Telegraph, evictions from rental properties currently stand at a five year high, and repossessions have increased by a staggering nine per cent. With this in mind, getting rid of tenants under the Tenants Charter could be a very long and drawn out process if they have entered into a long fixed term tenancy agreement. This could spell disaster for the buy-to-let landlord who is not receiving any rent, therefore possibly defaulting on its own mortgage payments.
The other problem with the proposed charter is that many landlords who have entered the market through the buy-to-let route are usually only allowed to rent out their properties for a maximum period of 12 months. This is in line with the banks lending procedures and ignoring this could lead to breaching landlords’ buy-to-let conditions. From a bank’s point of view, if a property is repossessed and it can not get the tenants out then it can not be sold on as vacant, which undoubtedly increases the bank’s attitude to risk. The bigger the risk to the lender could mean an increase in the cost of lending, which in turn may get passed onto the tenant.
Other costs that may get passed onto the tenant could come from the letting agents themselves. They make their income from short term letting agreements, but if long term lettings were to become the norm then letting agents would most likely increase their fees to bridge the gap in their income stream. This in turn could lead to higher fees for the tenant.
With year-on-year increases to the rental market throughout the UK, landlords may begin to predict their own future rental increases and have this written into tenancy agreements. According to the Office of National Statistics, UK rental prices saw an increase of 1.2% in the 12 months to August 2013. With landlords potentially introducing their own increases, the rental market may suffer further inflated prices, which can only impact on the tenants once more.
Stephen Parry, Commercial Director at Landlord Assist recently commented on the proposals saying ‘We accept that a landlord may enjoy reduced void times through the introduction of longer tenancies, but the cost of such comfort could mean increased mortgage payments, changes to insurance premiums and enormous letting agency fees, where the agent calculates their fee as a percentage of the term that is agreed. Such costs and uncertainty will do little to incentivise landlords to invest further in the sector at a time when the country is witnessing a housing shortage.’
Holmes & Hills Solicitors offers legal advice for landlords across Essex and Suffolk. David Dixey is the firm's specialist in the field.
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