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24 AUG 2018

RICS response to the Governments consultation on three year tenancies

Tamara Hooper RICS

Tamara Hooper

Policy Manager - South and East UK

London, UK

RICS

RICS submitted a response to the MHCLG consultation: Overcoming Barriers to Longer Tenancies in the PRS. We support a promotion of longer tenancies but do not support the framework proposed within this consultation.

General comments

We welcome an opportunity to share our views on the lettings industry to this consultation. The private rented sector plays a vital role in our housing market, having doubled in numbers of households in the last 20 years. It is predicted that over 20% of all households will be housed in the Private Rented Sector (PRS) by 2020.

The recent declared intention of the Government to professionalise and regulate the PRS reflects a long-held call from industry. RICS supports the codification of high standards and accreditation for practitioners and landlords, to bring transparency to the industry, and a better consumer experience.

It has not been demonstrated that the current consultation proposing mandatory three-year tenancies will deliver the benefits for landlords and tenants that the Government aims for. The paper itself is vague and in regard to rent increases, contradictory, with a lack of clear direction for the proposals.

There is a risk that this proposal will increase disruption within the PRS, with the possible leakage of stock into sale, as landlords react to recent fiscal and legal changes. In the recent RICS Residential Market Survey, members highlighted rent increases and a diminishing rental stock with landlords citing the many government interventions in the market over the last period.

There are other changes that can be made instead of the proposed mandatory three-year term with exemptions for shorter tenancies where needed.

Recommendations:

  • Offering of voluntary three-year tenancies based on the communication of the benefits, possibly in the How to Let & How to Rent guides.
  • Convene a working group to examine the efficacy of s21 for both tenants and landlords, in all tenancy term limits.
  • Adoption of a code of practice for agents and landlords, with minimum standards, accreditation of practitioners, and compulsory continuous professional development.

Three Year Tenancies

As stated, it is already possible to offer up to 7-year ASTs.  Many RICS members working in regulated agencies offer extended ASTs as an option yet report low take-up by tenants.

A key reason is a lack of understanding of extended tenancies and their benefits including stability in residence and rent payment levels. We consider that the Government, professional and membership bodies, and tenancy representative bodies, could better promote three-year tenancies, which could be written into a Code of Practice, obviating the need to legislate formally, and which could be adopted quickly through delegation to the Secretary of State afforded under s87(7) of the Leasehold Reform, Housing and Urban Development Act 1993.

Whilst the proposed framework will give exemption for shorter tenancies there is little detail as to what conditions landlords and agents would need to meet to get the exemption or flexibility for shorter tenancies. The exemptions would need to be applied to all areas of the sector and not just student and short let accommodation.

Not all tenants should be genericised as favouring longer-term tenancies, as there are many factors that may impact the duration a tenant would want to stay in a property, for example, those with visa commitments, those renting with room-mates or in-house share situations, and those working in secondment or seasonal jobs. It would be better for potential tenancy term limits to be advertised with rental adverts to offer tenants choice-based lettings.

It is mentioned within the paper that mortgage conditions don’t allow for three-year tenancies, however no real solution to this barrier is proposed. Mortgage conditions are not the only financial obligations that are a barrier, with some freeholders putting tenancy limits on leasehold properties for their own security.

The six-month break clause while well intentioned has the potential to be misused by tenants (and landlords) to create short term tenancies, giving no actual security to either party on the longevity of the tenancy in the first six months.

Evictions and s21

The PRS sector has always been a careful balance between landlords’ and tenants’ rights and obligations. This proposal, especially the ability for landlords to evict tenants, pushes the balance unfairly towards tenants. An efficiently functioning sector should allow for landlords easily to evict troublesome tenants whilst also giving security to tenants that they can’t summarily be evicted on a whim.

Within the paper it is proposed that tenants give two months’ notice that they intend to leave the property but acknowledges that it may lead to ‘tenants finding a new property and leaving the rented property early, increasing the chance of voids and lost revenue’ for landlords. A notice period to leave a property must be treated the same as the notice period for landlords to tenants, in the interests of balance.

If a longer notice period is considered there needs to be a robust, speedy system for eviction in cases of bad tenants, for other reasons than finance and rent arrears. The proposed Scottish model of grounds for eviction within Annex C appears to make it even more difficult to evict than under the current Schedule 2 grounds in s8, without justification for the harder conditions despite the admission within the paper that the current process is unnecessarily burdensome. The small percentages of landlord-ended tenancies stated within the paper also calls into question why s8 is being made more burdensome.

The Government should convene a working group for s21, with the proposed changes to be worked through with industry representatives, rather than introduce incremental tenancy mandates which are likely to circumvent the issues rather than solve them.

Rent increases

Many of our members have indicated that the landlords they represent would prefer a long-term tenant and not uplift rent, than to have a continually changing tenancy but with the opportunity to raise rents, particularly as the forthcoming lettings fees changes will increase void costs. This notion is supported within the paper, highlighting Shelter’s YouGov survey which found over half of Landlords kept the same rent when negotiating new tenancies with existing tenants.

The vagueness and contradictions within this section of the proposed framework is a concern. The proposal appears to aim to keep the flexibility currently seen within the sector, without a cap, yet still mentions and consults on potential rent increase cap options, which we oppose. With the long-term nature of the housing market, attempts to link increases to a measure may result in larger increases than if the sector had been allowed to retain flexibility.

The focus of this paper aims to mitigate higher rents and create a better consumer market for tenants through limiting the amount of times rent can be increased within the fixed term at a rate agreed before the tenancy starts. This will not alleviate current affordability issues.

Standards

The Government should consider the inadvisability of introducing incrementally a long-term tenancy framework, without having a comprehensive regulatory and standards framework in place.

Whilst a framework was consulted on in late 2017, with the Government’s comments to the consultation released earlier this year, no work has been started on a framework, and the time period for any proposed professionalisation and regulation of the industry remains in the future. The proposals and consultation also focused on agencies and agents whilst a whole sector focus is needed especially if the intention is for a normalisation of long term tenancies.

RICS would like to see the adoption by Government of a Code of Practice, embodying best practice agreed on a cross industry basis by landlords, property managers, letting agents, redress-providers and deposit protection scheme administrators.

RICS is a standards organisation with both a PRS Code and an adopted (i.e. is a Statutory Instrument) Residential Service Charge Management Code with both member and sector profile. We have been consistent in our offer to work with Government to share our best practice as a public interest regulatory body as well as to offer a stakeholder agreed code of practice.

Conclusion

RICS supports the principle of long term tenancies, but do not believe that the current proposal from Government is the right method to deliver them. Proposals in this paper would create unintended consequences and could distort the relationship between landlords and tenants.

Tamara Hooper RICS

Tamara Hooper

Policy Manager - South and East UK

London, UK

RICS

Tamara is our Policy Manager for the South West, South East and East of England. She is based in London and work within the UK External Affairs team.

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