England currently has some of the shortest leases in the advanced world: the typical assured short-hold tenancy lasts either 6 months or a year. At the end of the lease period landlords can evict tenants without giving a reason. Such evictions are currently the main cause of homelessness in this country, and one reason why tenants find it difficult to complain about poor quality and services.
The Government’s consultation on introducing longer leases in the private rented sector (PRS Longer Tenancies Consultation) closed last weekend. Click here to view the response document we submitted. The document asked whether extending lease terms to three years could help stabilise the private rented sector and provide greater security for tenants wanting a long-term home. The appearance of this consultation reflects the increasing political importance of tenants as voters: the sector now accounts for more one in five households.
The language of the consultation paper implies that any changes that help tenants will be to the detriment of landlords and vice versa. We think, however, that it would be possible to make changes that would benefit most good landlords and good tenants, because turnover is costly for both parties. But importantly to reach this win-win situation we need a much more transparent and predictable process to address problems when they do arise.
We have concern about the details of the government’s proposals. The suggestion is for a three-year lease with a break clause at six months, at which point either party may cancel the contract. This generates two no-fault eviction points— one at six months and one at three years. Landlords who want to raise rents excessively (however that is defined) can use the break clause to remove any existing tenants and increase the rent.
On the other hand, without some sort of probationary period, landlords may well become much more selective about which types of tenants they accept, because they are committing to a longer term. Some may decide to leave the sector. It will be interesting to see what happens in Scotland, where they have recently introduced indefinite leases, but no break clause for landlords. Tenants on the other hand can give 28 days’ notice at any time. The new regulations only came into effect at the beginning of this year, so it is still too early to know how Scottish landlords are responding.
Partly to address landlords’ concerns, the proposed longer-term tenancies in England will be mediated by a range of ‘exceptions’ allowing the landlord to gain possession when circumstances change. One of these gives the landlord the right to repossess the property if they wish to sell–even to another landlord. This mirrors legislation in Scotland and Ireland – but clearly reduces the feeling of security for tenants.
A further suggestion is that the tenancy contract must include a written statement about how the rent may increase year by year during the tenancy (the common approach in many countries is to allow rents to rise in line with some external measure, such as the consumer price index). Stipulating annual rent rises in the lease will mean that rents do rise every year, but at the moment over two thirds of sitting tenants do not experience such yearly rent increases. The outcome will almost certainly be higher rents, as evidence from Germany shows.
One problem with the consultation is that the document appears to treat landlords and tenants as almost homogeneous groups. This is a massive simplification which seems to reflect both a lack of understanding of landlord and tenant behaviour and the lack of any clear evidence base for the suggested proposals.
Overall, the writers of the consultation document appear to have more than usually open minds about how they wish to proceed. We would argue that it would be better to move immediately to indefinite tenancies as is the norm in most European countries. Equally the benefits of an index to determine rent increases, rather than a pre-contract agreement, may well be more acceptable to both landlords and tenants. Finally, any changes require more transparent, cheaper, and quicker means of resolving problems and ensuring standards.
Given the lack of evidence about the likely impact of the proposed changes on the supply of privately rented accommodation it might be better to move slowly (e.g., by making the approach voluntary for a period), so that appropriate data and research findings can be analysed, and their results considered. There is clearly considerable agreement that change is long overdue. What is now needed is to develop a willingness on the part of all parties to move forward towards a more coherent system.