Longer-Term Tenancies in England: observations about the recent government consultation

Housing in Glasgow

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.

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3 Comments on “Longer-Term Tenancies in England: observations about the recent government consultation

  1. Pingback: No fault evictions: next steps and foreseeable problems | LSE London

  2. “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”

    The termination of a tenancy is not in fact the cause of homelessness. That is like saying that someone’s unemployment was caused by his dismissal.
    Shelter’s website says “The three main reasons for having lost a last settled home, given by applicants for homelessness support from local councils are:
    parents, friends or relatives unwilling or unable to continue to accommodate them
    relationship breakdown, including domestic violence
    loss of an assured shorthold tenancy.
    However, these reasons are only the catalysts that trigger people into seeking assistance, and not the underlying issues that have caused the crisis to build up in the first place.”
    http://m.england.shelter.org.uk/campaigns_/why_we_campaign/tackling_homelessness/What_causes_homelessness

    Since June 2017 Shelter’s website has also given the real reason for homelessness: “The inability to find a new place to live once a short term tenancy ends is a leading cause of homelessness in Great Britain.  New research by Shelter identifies a number of reasons why people on low incomes are increasingly unable to find a home and secure a tenancy in the private rented sector ”
    https://england.shelter.org.uk/professional_resources/policy_and_research/policy_library/policy_library_folder/research_shut_out_households_at_put_at_risk_of_homelessness_by_the_housing_benefit_freeze

    “the most important reason is the shortfall between housing benefit and the cost of private renting,”
    https://england.shelter.org.uk/__data/assets/pdf_file/0005/1391675/LHA_analysis_note_FINAL.pdf

    The shortfall is increasing because Local Housing Allowance (LHA) rates were frozen in 2016.

    Without Section 21, tenants will have tenancies for life, which is what caused a shortage of rental
    accommodation in the last century, together with rent control.

    Sitting tenants reduced the sales value of properties considerably. By definition, the only people who would buy them were landlords, drastically reducing the pool of potential buyers. So when one finally became vacant it was sold, reducing the supply.

    It was Section 21 of the Housing Act 1988 that allowed an alternative to lifetime tenancies, and so gave landlords the confidence to increase the supply of rented accommodation, which had been shrinking for decades.

    Most landlords own only one or two properties. If they have no way of recovering them if their relationship with their tenants should break down they will not rent them out in the first place, and the supply will shrink once again. There will be less choice for tenants and rents will be higher. Less choice and higher rents are what Generation Rent is campaigning for by attacking S 21.

    Abolishing S 21 will not prevent homelessness. On the contrary, abolition of S 21 will increase homelessness as landlords flee the market. I know two landlords who have issued Section 21 notices less than a week after the abolition consultation was announced.

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