Private Residential Sector - Legal Round-Up for Landlords

Law and regulation affecting the residential private rented sector is undergoing a considerable amount of change and at a surprisingly fast pace.

Here is a round-up of our top ten recent and up-and-coming changes affecting landlords in the sector.

From 1 February 2016 residential landlords must carry out “right to rent” checks on prospective tenants and occupiers. The aim is to stop illegal immigrants renting private accommodation in the UK.

What are the new requirements?

A landlord of residential premises must not allow an adult to occupy those premises as their only or main home unless he or she has a “right to rent” in the UK. A right to rent is enjoyed by anyone who is a British citizen, an European Economic Area (EEA) or Swiss national, or who is lawfully present in the UK in accordance with immigration laws – this may be for a limited or an unlimited period and slightly different requirements apply in each case.

While there is a penalty of up to £3000 if there is a breach, landlords have a “statutory excuse” against liability if they:

• carry out an initial right to rent check before allowing an adult to occupy
• if the check discloses a time-limited right to rent, conduct follow-up checks on the appropriate date; and
• report to the Home Office if those follow-up checks indicate that an occupier no longer has the right to rent.

The government is considering supplementing this scheme with new rights allowing landlords to evict illegal migrant tenants more easily and new criminal offences to target unscrupulous landlords and agents who persistently fail to carry out the checks or who fail to take steps to evict illegal migrants on notice from the Home Office. We will report further if and when these proposals take effect.

When do the new requirements apply?

Following pilots in parts of the West Midlands, the new requirements apply to most residential tenancy agreements (including licences) granted in England on or after 1 February 2016.

Home Office guidance states that checks are not needed on the renewal of a tenancy initially granted before then if the renewal is between the same parties, at the same property and without a break. But where a landlord consents to a variation or an assignment of an existing tenancy resulting in new occupiers, this is treated as the grant of a new tenancy triggering the need for compliance.

Several categories of residential tenancies are excluded from the scheme. These include student accommodation, care homes and hospices, hostels, social housing, other accommodation arranged by local authorities under a statutory duty or power and leases for a term of seven years or more, provided that there is no break clause during the first seven years.

Of course, as the scheme only applies to rented premises occupied as a main home, it does not apply to holiday accommodation that is used as such.

Landlord’s checklist

• Landlords need to have processes in place to comply with the new right to rent checks, although they have the option of appointing a professional agent to do so on their behalf. Any such appointment should be in writing and the agent must confirm that they accept responsibility for compliance. Home Office guidance also recommends that the appointment includes agreed timescales for the checks and reports to the landlord on their outcome.
• The initial right to rent check is relatively straightforward and involves four basic steps:
  • establishing the identity of all the adults (and not just the named tenants) who will live at the premises as their only or main home by making reasonable enquiries and keeping a record of the questions asked
  • obtaining originals of one or more “acceptable” documents of identity for each adult. The “acceptable documents” are listed in the Code of Practice referred to below and include a British passport and permanent residence card for the EEA and Switzerland. If an individual cannot provide the landlord with an acceptable document but claims that they are dealing with the Home Office, the landlord must verify this with the online Home Office Landlords Checking Service
  • checking in the presence of the adult concerned that the documents are genuine and relate to that person; and
  • making copies of the documents and retaining them with a record of the date on which the check is made. Home Office guidance suggests that these should be kept for one year after a tenancy ends.
• Timing: if a person has an unlimited to right to rent, the initial check can be done at any time before the tenancy is granted. In the case of a time-limited right to rent, checks must be undertaken within the 28 days before the tenancy starts. Special rules apply where a prospective occupier is outside the UK and this might prove difficult.
• Follow-up checks: in the majority of cases the initial right to rent check will establish an unlimited right to rent, in which case no follow-up checks are necessary. But if the initial check establishes a limited right to rent (such as a passport or travel document showing that the holder is only allowed to stay in the UK for a limited period) the landlord must carry out a follow-up check before the later of the expiry of the permission to remain or the document granting permission, or 12 months after the initial check (the follow-up check deadline).
• If the follow-up check indicates that an occupier no longer has the right to rent, the landlord need not evict the occupier but must report to the Home Office as soon as reasonably practicable and in any event before the follow-up check deadline. If, on the other hand, it discloses that the occupier still has a limited right to rent, the follow-up check should be repeated as often as is necessary.
• A landlord acquiring residential properties that are already let should seek confirmation and evidence that the necessary checks have been conducted, keep a record of this and diarise any follow-up checks required.
• On the other hand, a landlord selling a residential portfolio should be aware that they will continue to be liable after sale if a tenancy was granted on their watch to a person with no right to rent.
• Finally, landlords cannot draft their way round the scheme: a term in a tenancy agreement prohibiting occupation by a person with no right to rent will not excuse a landlord from having to conduct right to rent checks nor absolve them from liability if they know that a breach has been, or will be, committed.

Further detail on right to rent checks and how to conduct them can be found in a statutory Code of Practice on illegal immigrants and private rented accommodation and a User Guide, both published by the Home Office. There is also a Landlords’ Helpline: 0300 069 9799.

Landlords in England are now subject to additional restrictions when seeking to serve a notice to terminate an AST using the “no fault” procedures in section 21 Housing Act 1988 (section 21 notice). These were recently introduced by the Deregulation Act 2015.

What are the new restrictions?

• A landlord cannot serve a section 21 notice:
  • in the first four months of an AST
  • if it has not provided the tenant with an Energy Performance Certificate and a Gas Safety Certificate; and
  • if it has not given the tenant a copy of a guide published by the Department for Communities and Local Government entitled How to rent: The checklist for renting in England.
• Any claim for an order for possession must begin within a specified time after service of the section 21 notice (six months in the case of a standard notice).
• There is a new and compulsory prescribed form of section 21 notice.
• A tenant also has a new right to a repayment of rent paid in advance in respect of the period after a section 21 notice brings the tenancy to an end.
• So-called retaliatory evictions are also targeted. In order to prevent “rogue” landlords seeking to avoid their obligations to repair or maintain a property, a section 21 notice is invalid if it is served after the tenant has made a written complaint to the landlord about the condition of the premises, the landlord did not give an adequate response or did not respond within 14 days and, as a result, the tenant complained to the local housing authority who served an improvement or emergency remedial notice on the landlord.
  But there is a degree of protection for landlords as the notice will be valid if:
  • The condition complained of is as a result of the tenant not complying with its obligations under the tenancy
  • The premises are genuinely on the market for sale
  • The landlord is a private registered provider of social housing; or
  • A lender under a mortgage granted before the beginning of the tenancy is entitled to exercise a power of sale and requires vacant possession for a sale.
• The landlord cannot serve a section 21 notice within six months of the local housing authority serving such an improvement or emergency remedial notice.

When do the new restrictions apply?

They apply to ASTs granted in England on or after 1 October 2015.

They do not apply if a fixed term tenancy granted before 1 0ctober 2015 becomes a statutory periodic tenancy after that date; however this is a limited reprieve as they will apply to all ASTs in England from 1 October 2018.

Landlord’s checklist

• Landlords and their agents should put in place processes to ensure compliance with these additional requirements when seeking to terminate an AST by means of a section 21 notice. If they do not, the notice will be ineffective to recover possession.
• One crumb of comfort for landlords is that section 21 notices no longer need to specify that the tenancy comes to an end on the last day of a period of the tenancy.

Tenancy Deposit Scheme (TDS) rules apply to all ASTs in England and Wales when a deposit is paid by the tenant.

The landlord must protect the deposit in a government-approved TDS and must also give to the tenant certain prescribed information within strict time limits. These requirements were first introduced in April 2007 but also apply in part to ASTs granted before then.

What has changed?

The Deregulation Act 2015 has brought clarity to a particular aspect of the scheme that was unclear and caused real practical difficulties for landlords.

Case law had indicated that if an AST where a deposit was paid continued after the end of the initial fixed term or was renewed to the same tenant, the TDS requirements had to be repeated even if the landlord had complied with them when the AST was originally granted.

It has now been confirmed that as long as a tenant’s deposit is protected and the prescribed information served in relation to the original fixed term of an AST, the landlord does not have to repeat the process on a renewal of the tenancy (whether a new fixed term or a statutory periodic tenancy) to the same tenant provided that the premises are substantially the same.

When did the confirmation take effect?

26 March 2015.

Landlord’s checklist

• Landlords will be relieved that they no longer have the administrative burden of repeating TDS requirements in the case of a continuation AST of the same premises to the same tenant.
• But when acquiring a property subject to ASTs where deposits have been paid, landlords should check that the TDS requirements have been complied with within the time limits for doing so. There may be significant consequences if they have not: not least, it may prevent the landlord from recovering possession under the section 21 accelerated procedure (see previous item). The landlord may also be required to pay a fine to the tenant of up to three times the amount of the deposit.

Landlords of multi-let buildings who supply heating, hot water or air conditioning to their tenants through a communal system and charge them for it may be bound by new metering and billing obligations. These are intended to encourage responsible energy usage.

What are the new obligations?

Under the Heat Network (Metering and Billing) Regulations 2014 landlords of multi-let buildings with communal heating/cooling systems where the cost is passed on to the tenants are required to:

• provide information about their buildings’ systems to the National Measurement Office (NMO)
• install meters to measure the supply of heating, cooling and hot water to individual tenants; and
• issue bills based on actual consumption by the tenant.

Certain exemptions are available, for example meters need not be installed if it is shown that it would not be cost effective or technically feasible to do so.

Guidance from the NMO states that in the case of domestic buildings, the tenant must occupy a partitioned private space that has a living and sleeping space and sanitary, cooking and food preparation facilities; spaces that do not meet these criteria - such as houses in multiple occupancy or many university halls of residence - are not considered to be within the scope of the regulations. Sheltered and social housing and residential care homes are considered to be within scope, while nursing homes where all services are provided communally, are not.

Breaches are subject to criminal penalties (including potentially unlimited fines). Civil sanctions may be applied as an alternative in certain circumstances.

When are the new obligations in force?

Notification to the NMO was required by December 31 2015, with update obligations every four years after that. We have spoken to the NMO and they recommend that if a landlord who is subject to the new requirements has not yet notified – for example because of a delay in collating the necessary information or because they have recently acquired the property - they should contact the NMO and inform them of the delay.

Meter installation is required by December 31, 2016.

Landlord’s checklist

Landlords should:

• Review their property portfolio for any premises falling within the regime. (Bear in mind that the regulations apply whether the cost is charged to the tenant directly, or indirectly as part of a service charge or package.)
• If they do:
  • Where notification has not already been given, inform the NMO of the delay and the anticipated date of notification by emailing heatnotifications@nmro.gov.uk.
  • collate and submit the necessary information to the NMO by that date
  • conduct viability assessments to establish whether meter installation would be cost effective and technically feasible
  • if it is, install meters by December 2016 and set up a system for issuing bills based on actual consumption.
• Ensure that standard tenancy agreements allow for bills based on actual consumption as opposed to, for example, a fixed percentage of overall cost.

There are new obligations on private residential landlords to install and check alarms at residential premises in England to reduce the number of injuries and deaths from smoke or carbon monoxide poisoning.

What are the new obligations?

Under the Smoke and Carbon Monoxide Alarm (England) Regulations 2015, landlords must now install at least one smoke alarm on each storey of premises let as the main residence of the occupier. A carbon monoxide alarm is also required in each room containing an appliance that burns solid fuel, such as coal or wood.

The landlord must then check that these are in proper working order when a new tenancy begins.

Certain types of residential accommodation are excluded, such as student halls of residence, social housing, care homes, hostels and tenancies of seven years or more, provided there is no break clause in the first seven years.

A breach may incur a penalty of up to £5,000.

When did the new obligations start?

They have applied to all residential rented premises since 1 October 2015.

Landlord’s checklist

• Landlords need to check if premises in their portfolio used as the main residence of the occupier have the necessary alarms installed. If not they should be installed without delay.
• When acquiring privately let residential premises, checks should be conducted to ensure that these obligations have been met.
• Pre - tenancy checks must include testing all smoke and carbon monoxide alarms to ensure that they are in proper working order on the day that a new tenancy starts. The start date for these purposes is the date on the tenancy agreement, not the day that the tenant moves in.

Significant and compulsory minimum energy efficiency standards have been introduced for privately rented residential premises in England and Wales.

What are the new requirements?

In order to improve energy efficiency in the rented sector, the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 require that residential private rented property must achieve a minimum energy efficiency standard (MEES).

The minimum standard is an “E” Energy Performance Certificate (EPC) rating. An EPC is a certificate containing information about the energy efficiency of a building and must usually be obtained when a building is constructed, sold or rented out. EPC energy ratings are on a scale of A to G, with A being the most energy efficient.

A property that does not achieve an E or higher rating is a “sub-standard” property and must not be let unless the landlord carries out “relevant” energy efficiency improvements to bring the property up to the required standard.

There are some exclusions such as lettings by registered social landlords, low cost rental accommodation let by private registered providers of social housing and premises that do not require an EPC.

There are also limited exemptions, such as a 5-year exemption if the improvements required are not “cost-effective” or if the landlord, despite reasonable efforts, cannot obtain a necessary consent, such as that of a tenant, lender or planning authority. All exemptions must be registered in a proposed new Exemptions Register.

The penalty for non-compliance will reflect the degree of infringement, subject to a maximum of £5,000.

There is another dimension to the scheme as landlords must not unreasonably refuse a tenant’s request for consent to carry out energy efficiency improvements, regardless of the terms of the tenancy agreement. The circumstances in which the landlord will be considered to be acting reasonably in refusing consent include where the proposed improvements would result in a reduction of more than 5% in the market value of the property or where, despite reasonable efforts, a required third party consent cannot be obtained on reasonable terms.

When are the new requirements in force?

In three stages:

• A landlord must not unreasonably refuse a tenant’s request for consent to carry out energy efficiency improvements from 1 April 2016.
• A landlord cannot grant a new lease of sub-standard property from 1 April 2018. This is the case even if it is a renewal of an existing tenancy.
• Property subject to an existing lease must comply from 1 April 2020.

Landlord’s checklist

• There is a set process to be followed in relation to a tenant’s request for consent to make energy efficiency improvements and a considerable amount of detail on all the circumstances in which it would reasonable to refuse consent. Landlords will need to familiarise themselves with these or take advice if they receive such a request.
• The government has said that it will issue further guidance on the detail of the MEES scheme. In the meantime landlords should review their portfolios to see whether their properties are likely to reach the required standard at the relevant date – and be aware of the new requirements when considering further investment.
• Standard tenancy agreements will also need to be scrutinised to see whether amendments are needed to accommodate the new requirements.

“Home business tenancies” are a new concept enabling landlords to allow residential tenants to work from home without running the risk of the tenancy acquiring the status of a business tenancy.

What has changed?

The Small Business, Enterprise and Employment Act 2015 amends the Landlord and Tenant Act 1954 by excluding “home business tenancies” from security of tenure rights that entitle business tenants to remain at the let premises at the end of their contractual term.

To qualify for the exclusion the tenancy must provide that the premises are occupied by one or more individuals as a home and permit a “home business” to be carried on (or permit the landlord to give consent for a home business to be carried on), but must not permit any other business use. A "home business" is a business of a kind which might “reasonably be carried on at home”.

Regulations are expected to prescribe cases in which businesses are to be treated as “home” businesses. It is to be hoped that they will also clarify the extent of the exclusion as it is stated to apply to a house or part of a house and it is currently unclear whether this would extend to a residential flat in a purpose-built block.

When is the new exclusion in force?

It applies to any tenancy granted on or after 1 October 2015 provided that it is not granted as a result of a contract made before then.

Landlord’s checklist

• Landlords may wish to consider amending their standard tenancy agreements in some cases to offer tenants this new flexibility, which may prove attractive in the market. However, it would be advisable to await clarification as to whether the exclusion extends to purpose-built blocks of flats before doing so in that context.
• Planning permission would not be needed provided that the main use remains that of a home with a single room used as an office. However planning issues may need to be considered if a more extensive business use is contemplated.

A new registration and licensing regime has been introduced for the residential private rented sector in Wales and more change is on the way.

What is happening?

The Housing (Wales) Act 2014 introduces a compulsory system of registration and licensing for private landlords and agents involved in letting and managing residential premises. Under the new regime, it is an offence for a landlord to let a dwelling without being registered, to carry out letting or management activities without a licence or to appoint an unlicensed agent. Rent-stopping orders and rent repayment orders may also be made in the event of a breach.

This is one example of the increasing divergence between the law in England and that in Wales. Other changes affecting the private rented sector in Wales are afoot. The Renting Homes (Wales)Act received Royal Assent on 18 January 2016. Once in force it will reform and restructure the legal basis for renting a home in Wales from a private or community landlord. It will require that every home rental agreement conforms to one of two types of occupation contract: a secure contract or a standard contract, both prescribing the rights and responsibilities of the landlord and “contract-holder”. It will also result in the abolition and replacement of most statutory and common law residential tenancies, including ASTs.

When are the new regimes in force?

The new registration and licensing scheme came into effect in November 2015 but landlords have until 22 November 2016 to comply.

The start date of the new regime for renting homes in Wales is not yet known.

Landlord’s checklist

• Landlords with residential rental portfolios in Wales need to ensure that they comply with the new registration and licensing requirements by the 2016 deadline.
• Landlords seeking to invest in the Welsh residential private rented sector need to be aware of the new requirements, as do their agents.
• Landlords and their advisers should also be aware that there is about to be a sea-change in the home rental regime in Wales. We will report further once the start date for the new regime is known.

The Housing and Planning Bill (the Bill), first published in October 2015, contains a wide range of reforms, several of which apply to the residential private rented sector.

What is proposed?

One proposal is to give private residential landlords the right to recover abandoned property without the need for a court order. The aim is to bring unoccupied rented property back into circulation.

The Bill provides that a private landlord of premises in England may give notice to a tenant bringing an AST to an end on the day that the notice is given, provided that a specified amount of rent is unpaid and the landlord has served a series of warning notices to which the tenant has not responded. In the case of rent payable monthly, at least two consecutive months’ rent must be unpaid. The tenant can apply for the tenancy to be reinstated within six months of its termination.

The Bill also introduces measures to raise standards and deter “rogue landlords” within the residential private rented sector. These include a new power for local housing authorities in England to apply for banning orders preventing unscrupulous private landlords and agents from letting housing in England or engaging in letting agency work or property management. There are also powers to make rent repayment orders to deter landlords who have let housing in breach of a banning order or committed certain offences and also a power to access tenancy deposit information in certain circumstances.

Landlord’s checklist

• The Bill is progressing through parliament and implementation dates are not yet known, but landlords and agents in the private residential sector may be interested in many of the proposed reforms and we will report further once the detail is finalised.

Consumer law applying to contracts between a business and an individual has just been updated.

What has changed?

The Consumer Rights Act 2015 (the Act) reforms and consolidates the law on unfair terms in consumer contracts and notices. Residential tenancies between business landlords and private individuals are considered to be consumer contracts.

The Act requires the terms of a consumer contract - both standard and individually negotiated terms - to be transparent and fair. To be transparent, a term must be expressed in plain and intelligible language and be legible. A term is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.

The Act contains a “grey list” of terms which may be regarded as unfair, such as unilateral variation clauses or price variation clauses. The Competition and Markets Authority has also published guidance and identifies additional terms that are potentially unfair, such as the exclusion of the consumer’s right to assign.

When is the new law in force?

It applies to consumer contracts entered into on or after 1 October 2015.

Landlord’s checklist

• Landlords and their advisers should be aware of the need for transparency and fairness as defined by the Act when drafting residential tenancy agreements and other related contracts. If a term is found to be unfair, it will not bind the tenant.

Our round-up reflects the rapid pace of change in the law and regulation of the residential private rented sector. Of one thing we can be certain: these changes are not the end of the story.