Assured shorthold tenancies: RIP?

Introduction

In April 2019 the government announced that it wants to “introduce a generational change to the law that governs private renting”. If proposals published in July 2019 come to fruition, it will certainly do so.

Background

Most private sector residential tenancies in England are assured shorthold tenancies (ASTs). In 2018 the government consulted on replacing ASTs with a three-year fixed term tenancy.

That proposal was superseded by a further consultation proposing an end to “no-fault” evictions. Currently, AST landlords can evict tenants giving two months’ notice once their fixed term contract has come to an end – this is under the fast-track “no-fault” procedure in section 21 of the Housing Act 1988 (HA 1988).  Anecdotal evidence suggests that landlords use the section 21 procedure as a default as it is faster and less cumbersome than regaining possession through the courts under the alternative procedure in section 8 of the HA 1988 for terminating a tenancy on specific grounds, such as non-payment of rent.  

In a surprise announcement in July 2019, the government has gone a step further, stating that it has decided to get rid of the AST regime altogether. This would leave landlords with a choice between an assured periodic and an assured fixed term tenancy (possibly with a minimum length for fixed terms) and the ability to regain possession only through the section 8 route.

The current proposals

The government has published a consultation on how best to implement its decision. This seeks views on:

• How the existing grounds for possession (set out in schedule 2 of the HA 1988) could be made more flexible and effective and what new grounds should be added, for example to cater for the landlord wanting to sell the property or needing it for themselves or a family member as their home.
• How courts could deal with applications for possession orders under section 8 more efficiently and whether there should be an accelerated possession route without the need for a court hearing for certain grounds.
• Whether the abolition should apply to the social as well as the private rented sector, expressing a preference that it should. (Apparently about 12 per cent of social rented housing let by housing associations in 2017/18 was on an AST basis).
• Whether some types of letting should be out of scope or special provision made for them, such as student accommodation, the “affordable” element of build-to-rent homes or holiday lets.
• Whether the legislation should come into force six months after Royal Assent. The proposal is that it should not be retrospective.
• The likely impact of the abolition, particularly on businesses and organisations.

Responses to the consultation must be submitted by October 12, 2019.

Comment

One of the main reasons ASTs were originally introduced was to offer greater flexibility to landlords who wanted to let out properties for shorter periods. At first sight, the abolition of ASTs could have a considerable impact on the residential rental sector, given its reliance on the model. However, looking at the detail, if the section 8 procedure for possession is reformed satisfactorily – and in particular if an accelerated possession route without the need for a court hearing is introduced - that impact might be lessened significantly, particularly for institutional investors with larger portfolios who are more focussed on long term income flows than flexibility to regain possession. If that is the case, one consequence of these changes could be to encourage the institutional large scale rental sector at the expense of the smaller scale private rented sector.