The government’s announcement on 15 April 2019 that section 21 of the Housing Act 1988 (HA 1988) will be repealed was welcomed by tenants’ lobbies and the Labour Party. It was trumpeted as ‘an end to unfair evictions’. However, if the effect of the proposal is to drive private sector landlords out of the market, it is tenants who are ultimately going to suffer.
Section 21 allows a landlord to end an assured shorthold tenancy on or after the expiry of any fixed term by giving at least two months’ written notice. No reason need be given. Abolition of that right will mark a once-in-a-generation shift in the balance of rights and responsibilities between landlords and tenants.
What’s behind the repeal?
To understand why this is we need to turn the clock back to just before 15 January 1989, the day on which the HA 1988 came into force. Back then the private rental market was tiny compared to today, with solicitors – such as my own father who practised in north Lincolnshire – routinely advising clients not to let out homes they owned due to the difficulty of obtaining possession and the ‘fair rent’ system which imposed rents well below the market rate.
Today there are 4.5 million households in private rented accommodation in England alone. That is 20% of all English households. They are housed by approximately 1.5 million private landlords (English Private Landlord Survey, 2018: 95% of all landlords are individuals and 45% only rent out 1 property). There is no doubt that the policy achieved its stated aim of breathing life into a moribund private rental sector.
The government claims that the loss of the section 21 can be mitigated. It says: ‘We are clear that any changes to Section 21 legislation will need to be underpinned by enhanced Section 8 grounds and a simpler, faster process through the courts. Landlords will benefit from the stability of long-term tenants, including the security of an assured rental income and fewer void periods.’
Those new grounds for possession will cover situations where the landlord has a good reason for wanting possession, such as moving in themselves or selling the property. Crucially, though, the government does not state whether these new grounds will be mandatory or discretionary. Further, concerns raised by landlords about the slowness of the present section 8 possession procedure are waived away with a vague promise that the possession claims procedure will be ‘streamlined’ and speeded up.
How to really speed things up
Court users know that the current possession procedure is far from streamlined, with possession cases listed at 10 am often not being heard until the end of the day due to shortage of judges and court rooms. More and more first hearings of possession claims are being adjourned which leads to further delay, increased legal costs and often lost rental income. And that is only after many weeks of waiting for a hearing date in the first place.
Realistically the only way of speeding up the possession procedure is to create a specialist housing court. To be fair to the government it has consulted on this subject recently but inevitably any new court is going to require substantial funding from the taxpayer to ensure it improves on what now remains of our tired and shabby county court estate following the recent round of closures.
"Ironically, tenants quite often ask their landlords to serve section 21 notices on them so that they can access public sector housing and lower rents from their local authority."
In any event though, the section 21 process is not inherently unfair. Very few landlords will evict a good tenant for no reason. Some need their homes back urgently – service personnel returning from tours abroad being the classic example. Only a very small minority use the no-fault process as a means of imposing rent increases on unwilling tenants. Many tenants, especially younger people moving from job to job in the modern flexible economy do not wish to be tied to long tenancies. They want to be able to move on quickly with the minimum of fuss. Ironically, tenants quite often ask their landlords to serve section 21 notices on them so that they can access public sector housing and lower rents from their local authority.
Change management: latest in a series
Private sector landlords should have seen this change coming, despite the fact that the removal of section 21 was not trailed in advance. After all, it is only the latest in a series of changes which, whether intended by various governments or not, have made life gradually more difficult for the private rental sector.
The tenancy deposit protection legislation brought in under the Housing Act 2004, badly drafted at first and then amended twice by subsequent legislation in 2011 and 2015, imposed burdens on landlords with swingeing financial penalties for non-compliance. This was justified on the basis that a minority of unscrupulous landlords were routinely keeping tenants’ deposits at the end of a tenancy even where the tenants had left their former home spotless.
Next came section 24 of the Finance Act 2015, introduced by George Osborne and which reduced the ability of landlords to set off mortgage interest repayments and depreciation against rental income. The only way of avoiding this was to incorporate but this in turn gave rise to a capital gains tax liability. Most other businesses are allowed to set off expenditure against income before they are assessed for tax, but not private landlords.
The Right to Rent legislation required landlords to police the immigration status of potential tenants. Again, this was justified on the basis that a small minority of landlords were getting rich by turning their properties into doss-houses for illegal immigrants, with dozens of mattresses on the floor of each room.
Implications of a flawed proposal
A pattern emerges: the tenants’ rights lobby urges the government to take action against real abuses which are nonetheless rare as a proportion of the private rental market, and the government over-reacts by imposing eye-catching remedies which ultimately penalise the many law-abiding and professional landlords. It’s not hard to see why this is so: with 4.5 million households renting privately and 1.5 million landlords, there are far more votes up for grabs in being seen to be tough on landlords than there are in striving for fairness.
The real risk for landlords, tenants and the government is that a poorly thought-out reform will lead to many private sector landlords deciding to sell up and get out of the market. That will drive house prices down, which may be a desired by-product of the government’s proposed reforms. And if that is the government’s real aim, wouldn’t it be better if it was honest and upfront about its intentions?
The government has imposed on itself a target of ensuring that 300,000 new homes are built in England every year – doubling the number currently being completed. Local planning authorities are being required to produce new local plans to demonstrate how they are going to build their share of this target in the next 15 years. Inevitably, this process is running into local opposition whether in terms of protection for the green belt or resistance to increased intensification in built-up areas. At the time of writing it is hard to see how the government is going to meet the target, and it certainly will not happen overnight.
Paradoxically therefore, repealing section 21 could well end up harming the very people it is intended to help. Renters will find that market shortage of rental properties leads to increased rents, and that the social housing sector cannot cope with the increased demand placed on it. The present government, perhaps looking round for ways of neutralising the appeal of Jeremy Corbyn to younger voters, has not properly thought through the implications of this flawed proposal.
James Browne is a member of Lamb Chambers where he specialises in commercial and residential landlord & tenant law, acting for both landlords and tenants. He is an elected member, and former Leader, of Elmbridge Borough Council in Surrey.
Win-win? Announcing the reforms and forthcoming consultation, Communities Secretary, James Brokenshire MP said that ‘every single person living in the private rented sector will be empowered to make the right housing choice for themselves – not have it made for them’ whilst improvements to court processes would ‘make it quicker and smoother for landlords to regain their properties when they have a legitimate reason to do so’.