Section 21

Farmers are concerned about the impact on rural life that the government’s initiative, “A new deal for renting: resetting the balance of rights and responsibilities between landlords and tenants” could mean for rural landlords?

Writing for FarmingUK.com, Charlotte Brackley and Gemma Richards, of Barlow Robbins LLP analyse the impact that the change could have, and they give some sage advice to farming and landlords in general.

The government announced in April this year that it would bring an end to the eviction process, the Shorthold Tenancy set in Section 21 of the Housing Act 1988 – the so called “no-fault” evictions for tenants.

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The consultation process ran through the autumn and has now closed. Whilst we await the outcome of the consultation, there is much speculation as to what will be the practical changes that all residential landlords must face up to.

What one must remember is that this policy change, and the consultation process that follows it, was started under a previous regime, not under the current incumbents, and certainly not under the likely new government we get after the December 12 election. These things could change?

In the meantime this article tackles the issues that may be pertinent should this change come about under in present direction of travel.

Farmers and residential landlords in general will need to review their strategies for their rental properties in the light of these potential changes and here Charlotte Brackley and Gemma Richards provide some useful information and some ‘do’s’ and ‘don’ts’ for those who want to be prepared of any eventuality.

As it is now

Section 21 of the Housing Act 1988, and the Shorthold Tenancy as it stands, has provisions for landlords regaining possession of a rented residential property.

Providing the original contracted term is ended, under S21, a landlord can serve the tenant/s with a two-month notice to leave, pending the landlord obtaining a possession order signed by a judge.

Providing all the landlord’s paperwork is in order, and all the necessary pre-requites have been complied with, a possession order can be issued without a court hearing. Once a possession order has been obtained, court bailiffs can lawfully evict the tenant/s.

The process can take up to 9 months in total, though 6 to 10 weeks would be the norm, so this is not a matter of landlords throwing tenants out on the street, as some of the popular media stories would have us believe.

However, popular opinion is such that the government of the day back in the spring of this year was convinced that radical change was needed. Encouraged by pressure for homelessness charities, strong signals from opposition parties, and perhaps (cynically) the need for votes from a growing cohort of tenants, and the government acted.

The flexibility extended to landlords with Section 21 meant that landlords could let their properties with confidence, safe in the knowledge that if things went wrong they could always regain possession of their property with the least amount of fuss. They can plan their letting periods, refurbish the properties, reallocate them, redevelop and sell them – within the terms of their letting contracts – as and when they needed to.

But the very flexibility that the process extends to landlords comes up against the insecure position it places tenants in. Not all tenants want long term security, but many actually do, especially if they have families and children in local schools.

Most landlords want tenants to stay long-term, especially if they pay rent on time and look after the property, but some don’t. That’s the problem, and usually it’s the minorities in each case that spoilt the party.

The proposed changes

The government is proposing to end the concept of the shorthold tenancy which has been the mainstay of the de-regulated housing market since the 1988 Housing Act.

The idea is to swing back the “balance” in power in the residential lettings market, from the landlord having the choice, within the rules, as to when a tenancy is terminated, and to giving tenants more stability and security.

In such a regime, with Section 21 gone, landlords would have to fall back on the existing Section 8 procedure. This is a county court process where the landlord must, in order to obtain a possession order and secure any eviction, provide evidence that a breach of contract has occurred.

These cases are often not straightforward; determined tenants can throw up all sorts of objections, and because court time is limited for any one hearing, these cases can be drawn out for months. This is not even taking into account losses that landlords are often experiencing because of lost rent while all this goes on. Plus, legal costs can run into thousands.

Section 8, Housing Act 1988.

The Country Landowener’s Association’s (CLA) Andrew Shirley commented that this proposed new regime would be a “sledgehammer to crack a nut”. The article points out that there’s a difference between urban and rural residential lettings markets, where in the latter tenants are already more likely to stay in one place for longer.

Shirley states that:

“The reality is that in rural areas the average residential tenancy exceeds eight years, compared with the urban figure of less than three, and tenants in the countryside enjoy a higher level of satisfaction and a greater sense of community”.

The government has indicated that the Section 8 procedure would be enhanced with more grounds for possession, enabling landlords more flexibility to take back possession of residential properties in limited circumstances. In particular, where landlords can show they want to sell the property. But so far there’s been no mention of how the courts could be made to cope with the extra workload involved – they are already over stretched.

What would this change mean for landlords?

Charlotte Brackley and Gemma Richards, of Barlow Robbins LLP respond:

  • Unless a tenant is in breach of the terms of their tenancy, a residential landlord will not be able to recover possession.
  • Residential tenancies will become secure and landlords will have to think carefully before entering into new tenancies.
  • What is certain is that landlords will no longer be able to rely on Section 21 to guarantee vacant possession on sale and to manage out problem tenants.
  • Landlords will need to start thinking now if they will want to reorganise the occupation of cottages on a farm or estate to accommodate, for example, family members, beneficiaries and employees in the short to medium term.
  • It remains to be seen whether expansion of the Section 8 eviction procedure will offer sufficient flexibility to landlords.
  • The government hopes that one of the resulting changes will be a more stable rental market which landlords will want to invest in.

The Central Association of Agricultural Valuers has said that with the additional Stamp Duty Land Tax (SDLT) payable when purchasing a second home, a buy-to-let, and all the other red tape that goes with letting, they believe that the proposals could lead to rural properties being left empty and sold for owner occupation.

It also believes there could be a major shift from letting under Assured Shorthold Tenancies (ASTs) to short-term holiday lets for landlords to avoid being stuck with tenancies that they cannot terminate and tenants that they might not want long-term.

The Association use Scotland as an example, where similar new regulations where brought into force in 2017, and already with the removal of no-fault evictions fewer properties are now available for rentals.

What does this mean for agricultural tenants with sub-let cottages?

It is common practice for agricultural tenants (farm business tenancies) to sub-let the residential properties on their holdings.

But given the removal of the Section 21 safeguard, unless a sub-tenant is in breach of the terms of their tenancy, it will be impossible for an agricultural tenant to guarantee vacant possession of a sub-let cottage at the end of their own tenancy. In such a case, if vacant possession cannot be given, a tenant may be liable to the farm owner / landlord in compensation.

Barlow Robbins LLP ‘s Dos and Don’ts for rural landlords

Do

Review each existing tenancy and identify those where a Section 21 Notice could be served if necessary

Carefully consider the strategy for your residential portfolio, now and for the next generation (for example, if you have good tenants, a guaranteed income stream and no voids may be to your advantage now, but may not fit with future development plans)

Talk to agricultural tenants about their sub-lettings so that these can be managed, particularly where the agricultural tenancy will come to an end in a few years’ time

keep an eye on the press so that you know when any new legislation is to come into force and the expiry of any transition period (which might be your last chance to use the Section 21 Notice)

Don’t

Fail to use the Section 21 Notice (if necessary) before it disappears

Take on any new tenants without vetting them carefully, as you could be stuck with them indefinitely.

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