Real Estate Focus – May 2023

“Landmark” reforms in the residential private rented sector

The much-heralded Renters (Reform) Bill was introduced to Parliament on May 17, 2023.

The stated objective of the Bill is to “ensure private renters have access to a secure and decent home and that landlords retain the confidence to repossess their properties where they have good reason to”.

As currently drafted, the objective of the Bill is to be achieved through the following key measures:

• abolishing section 21 ‘no fault’ evictions;
• abolishing fixed term tenancies and introducing a single system of periodic tenancies. Tenants will need to provide two months’ notice to end a tenancy and landlords will only be able to evict a tenant in prescribed circumstances. The explanatory notes accompanying the Bill indicate that purpose-built student accommodation will be exempt from these changes where the providers are registered;
• reforming the grounds for possession to make it easier for landlords to repossess their properties in certain circumstances. There are new grounds for possession, including where a landlord wishes to sell their property or for repeated serious rent arrears. Existing grounds are also extended, for example where the landlord or members of their family want to occupy the property. The existing ground relating to anti-social behaviour has been amended to say that any behaviour “capable” of causing a nuisance or annoyance can lead to eviction;
• providing that landlords can only raise rents annually to market prices, giving two months’ notice of any change. Tenants will be able to challenge above-market rent increases through the First-tier Tribunal;
• enabling the government to establish redress schemes which private landlords will be required to join;
• introducing a Private Rented Sector Database to which landlords must sign up and register all the properties they let out; and
• giving tenants the right to request a pet in their property, which the landlord cannot unreasonably refuse.

Once enacted and in force, will the Bill achieve its objective? Responses to it have been mixed, with many organisations seeing it as an opportunity “to finally fix private renting” and others expressing the view that abolishing no-fault evictions and fixed term tenancies will trigger an exodus of landlords from a market that is already short of rental properties.

As a footnote, it is worth mentioning that the law of housing is a devolved matter in Wales, where a completely separate regime has already been established for the residential private rented sector by the Renting Homes (Wales) Act 2016. 

We will keep you posted as the Bill progresses.

“Decades-old laws affecting business tenants to be reviewed”

The Law Commission has announced a review of how the right to renew business tenancies, set out in the Landlord and Tenant Act 1954, is working and the options available where reform is necessary.

Business tenants automatically have a statutory right to renew their lease unless it is “contracted out” of that right. The legal framework is nearly 70 years old and it is nearly 20 years since the last significant updates were made. The Law Commission is concerned that aspects of it are burdensome, unclear and out-of-date.

The terms of reference for the review - which was referred to the Law Commission by the Department for Levelling Up, Housing and Communities - are very wide-ranging, with an emphasis on:

• creating a widely used legal framework;
• not limiting the rights of parties to reach their own agreements;
• making legislation clear, easy to use, and beneficial to landlords and tenants;
• supporting the efficient use of space in high streets and town centres; and 
• fostering a productive and beneficial commercial leasing relationship between landlords and tenants.

The Law Commission is currently collating evidence and feedback from a range of stakeholders, with a view to publishing a consultation paper by late 2023.

Protecting leaseholders: proposals for multi-occupancy building insurance reform

On April 21, 2023, the Financial Conduct Authority (FCA) published a consultation paper on proposed rule changes to address issues identified within the multi-occupancy building insurance market which are leading to poor outcomes for leaseholders.

Over the past few years, the cost of building insurance to residential leaseholders and other property owners of multi-occupancy buildings has increased significantly across the UK. These cost increases have been driven, in large part, by properties with flammable cladding or other material fire safety risks.

This led to a request from the Secretary of State for Levelling-Up, Housing and Communities that the FCA (in consultation with the Competition and Markets Authority) review the market. The resulting report  identified certain disadvantages in the insurance market for leaseholders.

The FCA consultation has been published in response to these conclusions and proposes rule changes to, amongst other things, protect the interests of leaseholders; achieve prices that are fair value to leaseholders; ensure that the level of commission charged is fair; and ensure that leaseholders have sufficient information to challenge poor practices and unfair costs passed on to them. 

The deadline for comments is June 9, 2023. The FCA intends to publish a policy statement and final rules in Q3 2023.
To find out more about the proposals and their implications, please see our briefing on the topic: https://www.regulationtomorrow.com/eu/fca-proposes-multi-occupancy-building-insurance-reform/ or contact Maria Ross, Clare Douglas, or another member of our insurance team.

Tax Day announcements: real estate

On April 27, 2023 - “Tax Day” - HMRC published a number of consultations which build on announcements made in the Budget. Two of these are particularly relevant to the real estate market:

Reserved Investor Fund consultation

The government is seeking feedback on a new UK-based fund structure: the Reserved Investor Fund. 

This is one of the workstreams emanating from the government’s UK funds regime review last year. The new fund is intended to offer more flexibility and lower costs than the existing authorised contractual scheme, thereby helping to make the UK a more viable proposition for some fund structures. 

The consultation period is relatively short, closing on June 9, 2023. 

Construction Industry Scheme (CIS) reform

This consultation seeks to strengthen and simplify the CIS regime. In particular, it seeks views on two areas that are particularly relevant for landlords: landlord/tenant contributions and group reporting. This is something that the industry has been raising with HMRC for many years, so it is good to see that it is being progressed. 

This consultation closes on July 20, 2023.

For further information please contact real estate tax partner Julia Lloyd.