Communities’ Secretary Eric Pickles’ plans to introduce a Tenant’s Charter could meet with some resistance from landlords and mortgage providers. It has been argued that the scheme will work against landlords’ and tenants’ interests long-term.
The proposed changes have come about as a result of proposals made in a recent DCLG Committee Government inquiry and previous enquiries into standards in the private rented sector. It could be argued this is the Coalition Government’s attempt to head off more draconian measures being proposed by Labour.
The main thrust of this Tenant’s Charter is to give more security and stability to the growing numbers of families renting in the private sector. By providing longer (5-year) tenancies, it is argued, tenants can make long-term plans and feel more settled in their accommodation, which is particularly important when their children are attending local schools.
Whilst is it without doubt desirable that families should be afforded stability in the private rented sector, both landlords and tenants may face difficulties with the scheme.
Buy-to-Let mortgage providers will only usually permit six or twelve month Assured Shorthold Tenancies (ASTs). Any tenancy longer than this presents banks with difficulties, as it does landlords, if they need to repossess a property.
So, unless the Government can bring about some kind of universal change to the way mortgage providers restrict tenancy lengths, many buy-to-let landlords would be excluded from letting long-term.
Also, as it can take up to 9 months to remove a bad tenant, often paying no rent and damaging the landlord’s property, many landlords will be unwilling to sign-up for five years unless:
(1) They know they have a good tenant, the tenant having built-up a tract record of paying rent on time and looking after the property, and
(2) Some change is made to the law which enables bad tenants to be speedily evicted.
The latter point is unlikely as the whole idea of the Tenant’s Charter is to avoid a change in the existing law.
So, despite the recommendation that these long-term tenancies have break clauses, it is unlikely to be any quicker than at present to re-gain possession when landlords discover they have rented to a nightmare tenant.
Longer tenancies also have the potential to put up costs where letting agents are involved. They often base their fees on regular renewals, so with a longer term let they are likely to require higher initial fees, and inevitably these costs will be passed on to the tenants in higher rents.
Another proposal for the charter is to give some certainty to tenants by having rents fixed to the cost of living index. These ideas sound plausible at first, but closer examination will show that indexation will result in rent increases way above natural market increases in most areas. Compared to the practices of many landlords, where long-term AST tenants don’t have an increase for long periods, the rises will be excessive.
It took many years to arrive at a situation with ASTs, which on the whole strike a reasonable balance between the rights of tenants and landlords. A change like this could easily result in a destabilisation of the private rental market and will likely do nothing to encourage more provision of private rented accommodation.
We shall have to wait and see how these proposals develop, whether the Government is willing to facilitate the change by bringing in other measures, and exactly how this will pan out in practice.
It seems the pressure is coming on landlords from all quarters:
Our lead article comments on the move by several councils to implement and extend their HMO licensing schemes under the discretionary licensing rules, imposing additional costs on landlords for what would give nothing back in the way of benefits.
Good landlords welcome the opportunity to clean-up bad practices and stop rogue landlords from operating, but invariably it seems councils impose more and more red tape with little by way of true enforcement action.
Several London boroughs including Newham, Haringey and Tottenham, plus Southampton and now Nottingham have either proposed or fully implemented extended licensing requirements.
Although licensing fees, in theory, should not exceed the council’s cost of implementing and running these schemes, the additional cost is a serious one for landlords.
Cash strapped councils appear to be using this as a way of funding what they should be doing in any case under existing rules and in particular the Housing Health & Safety Rating System (HHSRS) introduced under the Housing Act 2004.
These additional burdens on landlords will drastically increase costs, at a time when landlords are already under fire for charging high rents.
Although some of this extra cost may have to be absorbed by landlords, it is inevitable that some of this will be passed on to tenants in the form of even higher rents.
Tom Entwistle, Editor