Government Review Recommends Longer Private Tenancies

Select Committee Inquiry into the UK Private Rented Housing Sector July 2013

The (DCLG) Communities and Local Government Committee last year (2012) decided to conduct an inquiry into the private rented housing sector.

The Committee invited submissions from interested parties covering the quality and regulation of private rented housing, and levels of rent within the sector.  Those making submissions, which included well over 100 organisations and individuals, including LandlordZONE®, were asked to consider the following issues:

• the quality of private rented housing, and steps that can be taken to ensure that all housing in the sector is of an acceptable standard;

• levels of rent within the private rented sector – including the possibility of rent control and the interaction between housing benefit and rents;

• regulation of landlords, and steps that can be taken to deal with rogue landlords;

• regulation of letting agents, including agents’ fees and charges;

• the regulation of houses in multiple occupation (HMOs), including the operation of discretionary licensing schemes imposed by a local authority for a category of HMO in its area;

• tenancy agreements and length and security of tenure; and

• how local authorities are discharging their homelessness duty by being able to place homeless households in private sector housing.

After digesting the written submissions and several oral interview sessions over the following months the committee produced and published its first report on 18 July 2013. The main conclusions and recommendations are present below, with our comments and feed-back in italics:

Simplifying regulation

1.  We recommend that the Government conduct a wide-ranging review to consolidate legislation covering the private rented sector, with the aim of producing a much simpler and more straightforward set of regulations that landlords and tenants can easily understand. As part of this review, the Government should work with groups representing tenants, landlords and agents to bring forward a standard, plain language tenancy agreement on which all agreements should be based. There should be a requirement to include landlords’ contact details in tenancy agreements. (Paragraph 13)

Comment: This is a high ideal; but are the resources available to accomplish this ambitious task at this time? Does the committee take into account the cost of attempting this exercise? I’m aware that the law commission have had a plan for this for many years, but it’s not been progressed as yet, I presume down to resources and cost. Given the complexity of English property law, its development over many years and the plethora of Acts of Parliament, how achievable is this simplification. One indicator is the present confusion over the relatively simple matter of legislating for deposit protection – if parliament can’t get that right, what hope for simplifying the whole field of Housing Law? On the other hand, a standardised tenancy plain language agreement, which everyone uses, including all contact details – agent and landlord – could be in my opinion, easily achievable.

2.  We recommend that the Government consult on the future of the housing health and safety rating system and the introduction of a simpler, more straightforward set of quality standards for housing in the sector. The Government should also ensure that planning and building regulations are consistent with standards for the quality and safety of private rented housing. (Paragraph 18)

Comment: Again, at what cost? The development of the HHSRS risk assessment based scheme from the old Housing Standard must have been a major undertaking, both in its conception and development and its introduction, with all the training of local authorities involved at the time. Are we to just scrap this and start again? Yet another government change and at what cost to the tax payer?

Increasing awareness

3.  We recommend that, once the review of the legislative framework we have called for is completed, the Government, working with tenants’, landlords’ and agents’ groups, establish and help to fund a publicity campaign to promote awareness of tenants’ and landlords’ respective rights and responsibilities. Our recommendation for a wholesale review of the regulation in the sector provides the obvious platform on which to base a publicity campaign. (Paragraph 24)

Comment: Yes, makes sense, but again more cost. Landlords are notoriously hard to reach with any sort of campaign as they are small businesses and so very disparate. Information is slow to disperse in this industry, an example being the deposit protection scheme which is only now becoming common knowledge after 4 years. Educating landlords and letting agents needs to be an ongoing process.

4.  We recommend that the Government bring forward proposals for the introduction of easy-to-read key fact sheets for landlords and tenants, and consult on the information these sheets should contain. The sheets could include links to further information available online. As a minimum, the sheets should set out each party’s key rights and obligations, and give details of local organisations to whom they could go for further advice and information. This fact sheet should be included within the standard tenancy agreement we propose earlier in this chapter. (Paragraph 25)

Comment: Yes, fine but much information is already out there, including very good booklets on tenancy law produced by DCLG, landlord associations, landlord websites etc. It’s getting the intended recipients to read and follow them that’s the problem.

Raising standards

5.  Some local authorities are doing excellent work to raise standards in the private rented sector, but there appears to be more scope for sharing this good practice, so that all councils are performing to a high standard. The Local Government Association should, as part of its sector-led improvement role, make sure that mechanisms are in place to ensure all councils learn from the good practice and take effective steps to improve standards of property and management in the private rented sector. (Paragraph 30)

Comment: Agree wholeheartedly with this. Some local authority councils and some council employees are still distinctly anti-landlord. There is a need for training and a big culture change within some local authorities on this.

6.  We are concerned about reports of reductions in staff who have responsibility for enforcement and tenancy relations and who have an important role in making approaches to raising standards successful. Given the financial constraints that councils face, it is important to identify approaches to raising standards that will not use up scarce resources. One approach is to ensure that enforcement arrangements pay for themselves and help to fund wider improvement activity. Therefore, where possible, the burden of payment should be placed upon those landlords who flout their responsibilities. (Paragraph 31)

Comment: Exactly the argument of many landlords: local authorities are not putting enough priority and resources into enforcing existing legislation. Good landlords are frustrated by seeing bad landlords getting away with operating outside the law.

7.  We recommend that the Government consult on proposals to empower councils to impose a penalty charge without recourse to court action where minor housing condition breaches are not remedied within a fixed period of time, though an aggrieved landlord would have the right of appeal to a court. (Paragraph 33)

Comment: Good.

8.  We recommend that, where landlords are convicted of letting property below legal standards, local authorities be given the power to recoup from a landlord an amount equivalent to that paid out to the tenant in housing benefit (or, in future, universal credit). We hope that such a measure will help to prevent unscrupulous landlords from profiting from public money. Local authorities should be able to retain the money recouped to fund their work to raise standards. To ensure a consistent approach, those tenants who have paid rent with their own resources should also have the right to reclaim this rent when their landlord has been convicted of letting a substandard property. (Paragraph 37)

Comment: Good

Illegal eviction

9.  We do not agree that a statutory duty to have to take steps to tackle illegal eviction should be placed on local authorities, as it would be inconsistent with a localist approach. Nevertheless, it is again important that local authorities learn from each other and share best practice on tackling illegal eviction. The Local Government Association should ensure that lessons on illegal eviction are learnt and disseminated. (Paragraph 38)

Comment: Good

10.  We are concerned that the police are sometimes unaware of their responsibilities in dealing with reports of illegal eviction. We recommend that the Department for Communities and Local Government work with the Home Office on guidance that sets out clearly the role of the police in enforcement of the Prevention from Eviction Act 1977. (Paragraph 39)

Comment: Good

Licensing and accreditation

11.  The idea of national licensing has some merit, and such a scheme could bring a number of benefits, particularly if introduced alongside an effective system of redress. It is clear, however, that the Government has not been convinced by these arguments, and we have some sympathy with the Minister’s assertion that a national scheme could be very rigid. Having tailored local schemes may bring its own costs, especially for landlords operating across several areas, but on balance we would prefer to see local authorities develop their own approaches to licensing or accreditation in accordance with local needs. The Government’s focus should be on giving local authorities greater flexibility and encouraging the use of existing powers. (Paragraph 43)

Comment: Not convince that mass landlord licensing would solve any problems and the cost would be enormous.

12.  We recommend that the Government bring forward proposals for a reformed approach to selective licensing, which gives councils greater freedom over when licensing schemes can be introduced and more flexibility over how they are implemented. Councils should ensure that the cost of a licence is not set so high as to discourage investment in the sector. (Paragraph 49)

Comment: Good

13.  We recommend that the Government give local authorities a power to require landlords to be members of an accreditation scheme run either by the council itself or by a recognised landlords association. (Paragraph 53)

Comment: Good

14.  It is important that local authorities have options and tools to raise standards in their areas. Three particular options are: (1) greater use of landlord licensing schemes; (2) compulsory accreditation; and (3) taking a proactive neighbourhood approach to raising standards. In each of these cases, given resource constraints, the schemes have to pay for themselves, and, as far as possible, place the burden of payment on the unscrupulous landlords, with financial deterrents for non-compliance. Councils should be given the powers to impose heavy penalties on those who do not register for licensing or compulsory accreditation after appropriate notification. Neighbourhood approaches could be funded by local authorities recouping costs from landlords whose properties fail to meet minimum standards. We further recommend that the Government initiate a review of the fines imposed by the courts for letting substandard properties, to ensure they act as a sufficient deterrent. (Paragraph 55)

Comment: Good if applied correctly and consistently.

Houses in multiple occupation (HMOs)

15.  We recommend that the Government conduct a review of the mandatory licensing of houses in multiple occupation. This review should consider, amongst other things, evidence of the effectiveness of mandatory licensing, how well it is enforced, and whether the definition of a prescribed HMO should be modified. (Paragraph 58)

Comment: Good. I’m in full agreement with a review of the legislation here. The definition of an HMO is obscure and confusing and results in inconsistent interpretations between authorities. It needs simplification.

16.  Where there are community concerns about high concentrations of houses in multiple occupation, councils should have the ability to control the spread of HMOs. Such issues should be a matter for local determination. We therefore consider it appropriate that councils continue to have the option to use Article 4 directions to remove permitted development rights allowing change of use to HMO. (Paragraph 63)

Comment: Good

17.  Universities have a responsibility to ensure that student housing does not have a detrimental impact upon local communities. They should be working with local authorities and student groups to ensure that there is sufficient housing in appropriate areas and that students act as responsible householders and members of the community. (Paragraph 64)

Comment: Good

Safety standards

18.  We recommend that the Government work with the electrical industry to develop an electrical safety certificate for private rented properties. To obtain such a certificate, properties should be required to have a full wiring check every five years and a visual wiring check on change of tenancy. Landlords should be aware of the legal requirement to provide safe installations and appliances. (Paragraph 66)

Comment: Good. Perhaps a basic wiring and appliance test could be combined with gas checks where they apply thereby reducing costs for landlords and all done on one annual visit?

19.  We recommend that the Government introduce a requirement for all private rented properties to be fitted with a working smoke alarm and, wherever a relevant heating appliance is installed, an audible, wired-up EN 50291 compliant carbon monoxide alarm. (Paragraph 67)

Comment: Agree – good landlords do this now.

Regulation of letting agents

20.  We recommend that, as part of its consultation on the redress scheme, the Government seek views on how best to publicise such a scheme and what penalties should be in place for those agents who do not comply. The Government should also explore how the redress scheme fits alongside existing arrangements for deposit protection. We further recommend that the redress scheme is accompanied by a robust code of practice that sets out clear standards with which agents are required to comply. (Paragraph 74)

Comment: Good

21.  We recommend that the Government make letting and managing agents subject to the same regulation that currently governs sales agents. This includes giving the Office of Fair Trading the power to ban agents who act improperly, and making client money protection and professional indemnity insurance mandatory. (Paragraph 78)

Comment: Good

22.  Any proposal to require sales agents to meet minimum professional standards before they begin trading should also be applied to letting and managing agents. In addition, if at any point a requirement for sales agents to be registered with an accredited industry body is to be introduced, this should be part of a wider framework also covering letting and managing agents. We recommend that the Government review these arrangements in two years’ time. (Paragraph 78)

Comment: Agree. It should be born in mind that many successful agents start off small and costs are a limiting factor here. Perhaps a collective PI insurance scheme and an insurance bond scheme for rent collection / deposits could be arranged?

Agents’ fees and charges

23.  We recommend that the code of practice accompanying the new redress scheme include a requirement that agents publish a full breakdown of fees which are to be charged to the tenant alongside any property listing or advertisement, be it on a website, in a window or in print. This breakdown should not be “small print”, but displayed in such a way as to be immediately obvious to the potential tenant. The code should also require agents to explain their fees and charges to tenants before showing them around any property. Furthermore, the code should forbid double charging, and there should be a requirement that landlords are informed of any fees being charged to tenants. If agents do not meet these requirements, the fees should be illegal. Finally, the professional bodies should make a commitment to full, up front transparency on fees and charges a requirement of membership. (Paragraph 83)

Comment: Agree

24.  We intend to gather further information on the impact in Scotland of the decision to make fees to tenants illegal, and to return to this issue in 2014. (Paragraph 86)

Comment: Not sure on this one?

Longer tenancies

25.  The demographics within the private rented sector are changing. No longer can it be seen as a tenure mainly for those looking for short-term, flexible forms of housing. While some renters still require flexibility, there is also an increasing number, including families with children, looking for longer-term security. The market, therefore, needs to be flexible, and to offer people the type of housing they need. The flexibility of assured shorthold tenancies should be better exploited, and the option of using assured tenancies should also be considered where these meet the needs of landlords and tenants. That we are beginning to see some institutions and housing associations offering longer tenancies under the current law suggests that we do not need legislative changes to achieve them. Rather, we need to change the culture, and to find ways to overcome the barriers to longer tenancies being offered. (Paragraph 94)

Comment: Most landlords want to keep their tenants as long as possible whatever the length of tenancy, but they want the flexibility of being able to remove a bad tenant early. When it can take up to 9 or 12 months and on average 3 to 6 months to remove a bad non-paying tenant, long term tenancies would not suit most landlords. This would only be acceptable to most landlords if they could be assured of a speedy and fair eviction process. 

26.  We recommend that the Government convene a working party from all parts of the industry, to examine proposals to speed up the process of evicting during a tenancy tenants who do not pay rent promptly or fail to meet other contractual obligations. The ability to secure eviction more quickly for non payment of rent will encourage landlords to make properties available on longer tenancies. The Government should also set out a quicker means for landlords to gain possession if they can provide proof that they intend to sell the property. (Paragraph 97)

Comment: Agree wholeheartedly. The horror stories we hear of landlords losing properties through nightmare tenants, who know how to play the court system, are diabolical. The court system is slow and often not landlord friendly, seemingly putting obstacles in the way for many good intentioned landlords.

27.  Some landlords are not able to offer longer tenancies because they are prevented from doing so by conditions in their mortgage. We are pleased that lenders are considering how such conditions can be removed, and that Nationwide Building Society is to begin allowing its borrowers to offer longer term contracts. We urge the Council of Mortgage Lenders to work with other lenders to ensure that they quickly follow suit. Lenders should only include restrictions on tenancy length in mortgage conditions if there is a clear and transparent reason. (Paragraph 100)

Comment: That would be necessary.

28.  We recommend that the Government include in the code of conduct for letting agents a requirement both to make tenants aware of the full range of tenancy options available, and, where appropriate, to broker discussions about tenancy length between landlords and tenants. (Paragraph 102)

Comment: Fine.

‘Retaliatory eviction’

29.  There is a perception amongst some tenants that if they speak out it could result in their losing their home. Tenants should be able to make requests or complain without fear that doing so will lead the landlord to seek possession. We are not convinced, however, that a legislative approach is the best or even an effective solution. Changing the law to limit the issuing of section 21 notices might be counter-productive and stunt the market. Rather, if we move towards a culture where longer tenancies become the norm, tenants will have greater security and also more confidence to ask for improvements and maintenance and, when necessary, to complain about their landlord. Moreover, if local authorities take a more proactive approach to enforcement, they will be able to address problems as they occur rather than waiting for tenants to report them. (Paragraph 105)

Comment: Great in principle; but I suspect many on this select committee have no direct experience of dealing with tenants and no knowledge of how human natures pans out here. My experience of managing tenants (working and professionals) over nearly 40 years is that 95% don’t complain unreasonably and when they do you take action to help them. Bad tenants often complain as a means of avoiding paying or avoiding eviction by inventing problems with the property. Bad tenants cause problems in the property by their own actions – condensation being a prime example – they blame the landlord for the bad conditions. Then they claim they are being victimised when the landlord takes steps to evict.

Rents and affordability

30.  Problems with the affordability of rents are particularly acute in London and the South East. Although in other parts of the country average rents and yields are relatively stable, we are still concerned that some families are struggling to meet the costs of their rent. We do not, however, support rent control which would serve only to reduce investment in the sector at a time when it is most needed. We agree that the most effective way to make rents more affordable would be to increase supply, particularly in those areas where demand is highest. (Paragraph 110)

Comment: Rent control would be a disaster. As the Swedish economist Assar Lindbeck has said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”There is only one answer to this problem, increase the supply of private rental and owner occupied housing in London.

31.  There is no perfect way to set rent, but, where longer tenancies are being established, linking increases to inflation or average earnings, or voluntarily agreeing a fixed uplift each year merit consideration and could provide tenants and landlords with a degree of stability, though over time mechanisms may emerge as, for example, in the commercial property sector. Tenants’, landlords’ and agents’ groups should encourage their members to discuss these options at the outset of a tenancy. Existing arrangements for setting and increasing rent are often arbitrary and uneven, and reflect the immaturity of the market. (Paragraph 113)

Comment: Again, sounds great in principle, but? In actual fact many landlords would welcome a universally accepted annual cost of living increase in rents, because right now most landlords never increase rents during a tenancy, even if it lasts several years. The tenant gains a lot as most landlords don’t want to trigger a move and the tenant benefits because of this. Rent reviews in the commercial sector keep employed an army of rent review surveyors who negotiate and arbitrate between landlord and tenant; is this what the committee want for the housing sector?

Placement of homeless households in the private rented sector

32.  We welcome the Government’s use of secondary legislation to clarify when accommodation is unsuitable for homeless households. We expect councils to pay full regard to this order and to ensure that homeless households are only placed in suitable accommodation. Given that many of these households will be vulnerable, councils have a particular responsibility to ensure that the properties they are placed in are free from serious health and safety hazards. We recommend that, as a matter of good practice, local authorities should inspect properties before using them for the placement of homeless households. (Paragraph 117)

Comment: Good.

33.  All agree that, wherever possible, councils should be placing homeless households within their local area (unless there are particular circumstances that mean it is not in the households’ interests). It nevertheless appears inevitable that councils in areas with high rents, London in particular, will place homeless households outside the area, including in coastal towns. Before any placement, there should be a full discussion with the receiving authority and the prospective tenant and information about the household and its ongoing needs should be shared. The Government should consider making this a statutory duty. (Paragraph 121)

Comment: Good.

34.  We were pleased to hear of positive examples of work to support homeless households in the private rented sector, including the establishment of social letting agencies and the development of private rented sector access schemes. We encourage the Government to work with local government, the charity sector and industry bodies to ensure best practice is shared and lessons learned. (Paragraph 122)

Comment: Good.

Local housing allowance

35.  We recommend that the Government take immediate steps to allow councils to apply for a variation of broad rental market area boundaries where anomalies occur. (Paragraph 125)

Comment: OK.

36.  We recommend that the Government conduct a wide-ranging review of local housing allowance (LHA). This review should assess whether there is greater scope for local flexibility over the setting of LHA rates and the boundaries of broad rental market areas. Local authorities could be incentivised to reduce the housing benefit bill by being allowed to retain any savings for investment in affordable housing. (Paragraph 125)

Comment: I thought this was the objective of the current system operated by the Valuation Office at some great taxpayer’s expense?

Data quality

37.  We recommend that the Government establish a small task group of key organisations and academics to consider how data relating to the private rented sector can be improved and made more readily available. In addition, we encourage the National Audit Office to contribute to an effective evidence base about the sector and to draw upon our recommendations when developing studies on housing related topics. (Paragraph 128)

Comment: Good, bearing in mind the diverse nature of the letting industry, many landlords either letting their own property or having just one of two buy to lets. They are not easy to reach by standard marketing methods and therefore collecting data is expensive.

Tax

38.  We recommend that the Government, in reviewing the regulation covering the private rented sector, set out proposals for greater co-ordination between the tax authorities and those regulating the private rented sector. (Paragraph 131)

Comment: OK. Good landlords don’t object to paying tax and the rouges should be made to pay.

Increasing supply

39.  We welcome the introduction and expansion of the Build to Rent Fund. The Government should take steps to ensure that the fund makes a net addition to new housing, as well as speeding up the delivery of those homes already in the pipeline. (Paragraph 138)

Comment: Good.

40.  It remains to be seen how much impact the guarantee scheme for the private rented sector will have in delivering additional new homes. The policy may be well-intentioned in its aim to encourage organisations to have more confidence to invest in the sector, but the Government needs to measure results. We invite the Government in its response to our report to update us on the number of applications it has received for the private rented sector guarantee scheme, and to provide an estimate for the number of additional homes it expects the scheme to deliver. If there is any doubt that the scheme is going to deliver the homes required, we recommend that the Government rapidly explore other options for the use of the resources identified. (Paragraph 142)

Comment: OK.

41.  We welcome the establishment of the task force to promote and broker investment in build-to-let development, and are pleased that the task force is already in operation. It is important that this task force does not become another quango but quickly delivers on its objectives. We invite the Government, in its response, to set out the progress made by the task force in its first few months of operation. This update should quantify the amount of additional investment brokered, and the number of additional homes it would deliver. (Paragraph 144)

Comment: OK.

42.  Efforts to promote high-quality build-to-let development have commanded significant amounts of government attention and resources. One of the main arguments in favour of this approach is that it will lead to improved choice, quality and affordability across the whole of the private rented sector. It is too early to assess the impact, but a key part of the evaluation of these measures must be the impact they have on the sector as a whole. If, in a year’s time, there is no evidence of this broader effect, the Government must reconsider its strategy and look to other measures to boost supply across the sector as a whole. (Paragraph 148)

Comment: OK.

43.  There is an urgent need to boost supply across all tenures of housing. We recommend that the Government revisit the Committee’s report on the Financing of New Housing Supply, and set out proposals to implement those recommendations it initially rejected. (Paragraph 150)

Comment: OK.

Many of these measures result in increased regulation and more work / expense for landlords. If that helps to improve things then fine. But, as always with regulation, it’s the compliant and the good that get saddled with the extra work and the rouges tend to get away without doing it because of the lack of resources to enforce the rules.

There’s no acknowledgement as I can see here for the good work that private landlords do and the valuable community service buy to let landlords have done to provide a large slice of the private housing in Britain. How about introducing a recommendation which would provide some real encouragement for landlords, such as introducing an annual depreciation allowance on investment property, as is the case in the USA and Germany?

The comments and feedback on the inquiry report here represent the views of the editor and not those of our subscribers, though they are based on feed-back from our own surveys of landlords on these issues.

By Tom Entwistle

Article courtesy of LandlordZone

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