Regime change in Wales

This article was first published in Estates Gazette on September 3, 2019

Residential tenancy law in Wales already differs in many respects to that in England and the differences are set to increase significantly over the coming months. This may well come as a surprise to many – in England anyway – as the widening gap between the laws of England and Wales appears to be very much under the radar.

Housing law – including residential tenancy law – is one of the areas where power to legislate has passed to the National Assembly for Wales. A recent consultation contained some interesting statistics about the private rented sector (PRS) in Wales. According to annual population survey estimates, the proportion of households in the PRS increased from 9% in 2007 to 13% (176,000 households) in 2017. When combined with the social rented sector, almost a third of households in Wales rent their home. It is therefore not surprising that the Welsh government has been active in this area.

Registration and licensing

The Housing (Wales) Act 2014 introduced a compulsory new system of registration and licensing for landlords and agents involved in letting and managing private residential premises in Wales.

Since 23 November 2015, landlords who have properties in Wales which are rented on an assured, assured shorthold or regulated tenancy have been required to register themselves and their rental properties. Registration and licensing are achieved through Rent Smart Wales and the aim is to ensure that landlords and agents are both “fit and proper” to hold a licence and that they have completed appropriate training on their roles and responsibilities.

New model for renting homes

Then came the Renting Homes (Wales) Act 2016 (the 2016 Act). Its aim is to create a new streamlined, transparent framework for renting homes that will also confer greater protection on occupiers.

It does so by re-writing residential tenancy law. When the 2016 Act comes into force, of which more below, then (with some exceptions) the current mass of legislation governing housing law and the variety of tenancies and other arrangements for renting homes in the social and private sector will be replaced in Wales. The new regime is a radical one. Tenancies granting individuals the right to occupy a dwelling will take the form of one of two types of mandatory “occupation contract”:

• The “secure contract”: a periodic contract generally for use by public sector landlords for social housing; or
• The “standard contract”: which can be periodic or for a fixed term and generally for use by private landlords.
• Significantly, the 2016 Act will have retrospective effect. Once it is in force, most existing residential tenancies will automatically be converted into one of the two new forms of occupation contract.

An occupation contract must set out the respective rights and obligations of the landlord and “contract holder” in a specified format comprising four elements:

• Key matters – such as address, occupation date, rent, rental period.
• Fundamental terms – these are prescribed and set out the primary rights and responsibilities of the parties. They are automatically included in an occupation contract. Some are set in stone and others can be modified by agreement but only if the modification benefits the contract holder.
• Supplementary terms – again these are automatically included although the parties can agree to modify or exclude them.
• Additional terms – any other terms that may be agreed between the parties.

Some aspects of the 2016 Act may come as a surprise. To take one example, it rides roughshod over the distinction between a tenancy and a licence to occupy – the latter won’t be an option and occupational licences in existence when the legislation comes into force will automatically convert to an occupation contract. To take another example, the well-established Landlord and Tenant (Covenants) Act 1995 is overridden in relation to the assignment of occupation contracts as the 2016 Act has its own regime for the transfer of rights and obligations.

As to the current state of play, the 2016 Act is not yet in force. A written statement issued in July 2019 by the Welsh minister for housing and local government stated that its implementation has been delayed as a result of changes to court IT systems, but that they are now in a position to proceed. Nevertheless they will “honour our commitment to give six months’ notice ahead of the Act coming into force so landlords, agents and licensees and tenants… have time to prepare for the changes”

However, even before implementation, the Welsh government is intent on amendment. A consultation document was published in July 2019 proposing (among other things) an increase to the minimum notice period for a “no-fault” eviction during a periodic occupation contract from two months to six months and a restriction on landlords serving an eviction notice within the first six months of a periodic contract.

The consultation ended on 5 September 2019.

Welsh tenant fees

The Renting Homes (Fees etc.) (Wales) Act 2019 (the 2019 Act) came into force on 1 September 2019. This will prohibit a landlord or letting agent from charging a contract holder any payment that is not a “permitted payment”. The “permitted payments” are:

• Rent
• Security deposit up to a prescribed limit
• Holding deposit (capped at one week’s rent)
• Payments up to a prescribed limit in the event of contract holder default, meaning a failure to make a payment by the due date or a breach of a term of the contract
• Council tax
• Payments for utilities, television licence and communication services

However, there is a technical hitch. These restrictions on tenant fees apply to payments under standard occupation contracts – but of course these do not yet exist as the 2016 Act is not yet in force. Transitional provisions therefore also came into force on 1 September 2019, extending the 2019 Act to apply to existing assured shorthold tenancies (ASTs) pending the introduction of the 2016 Act.

The Welsh government has also recently consulted on possible additional default payments that would count as “permitted payments” and the caps that should apply to them.

England versus Wales

Significant changes in the residential rented sector are not confined to Wales. It is to state the obvious that England is more than holding its own. In fact, in many respects, the actual and proposed changes in each country are heading in a similar direction.

To take a few examples:

• The 2019 Act bears a lot more than a passing resemblance to the Tenant Fees Act 2019, in force in England since 1 June 2019.
• The English government is also consulting on changing the rules on “no-fault” evictions, proposing that this be done by the radical step of abolishing ASTs altogether.
• The Homes (Fitness for Human Habitation) Act 2018 came into force on 20 March 2019 and applies to tenancy agreements of dwellings in England for terms of less than seven years, while the 2016 Act includes as a fundamental term in occupation contracts of the same length that the dwelling must be fit for human habitation.

Therein lies a potential problem. Not only is residential tenancy law diverging in a big way, it is in many respects “similar but different” on each side of the border, making it even more of a minefield. For instance, requiring a prohibited payment in England under the Tenant Fees Act 2019 will initially incur a financial penalty; in Wales it is a criminal offence.

An independent expert advisory committee was established in 2018 to undertake a review of the operation of justice in Wales. A key issue is the divergence in laws. In its first report to the Lord Chancellor published in July 2019, the committee noted: “Increasing divergence of laws made in England and laws made in Wales introduces the potential for increased misapplication of the law… there is a risk that in a continuously diverging landscape, a significant proportion of practitioners will be unaware of the divergence…”

That is certainly true in the residential rented sector.

Key legislation

• Housing (Wales) Act 2014 (in force piecemeal)
• Renting Homes (Wales) Act 2016 (not yet in force)
• Renting Homes (Fees etc.) (Wales) Act 2019 (came into force on 1 September 2019)
• Renting Homes (Fees etc.) (Wales) Act 2019 (Transitional Provisions for Assured Shorthold Tenancies) Regulations 2019 (came into force on 1 September 2019)