After Labour’s landslide victory on July 4th, the UK has a new Prime Minister: Sir Keir Starmer. His election marks the first time in over 14 years that the Conservatives are out of power. On 11 September 2024, the Labour Government published a guide to the Renters’ Rights Bill, a new bill that aims to address a range of issues in the private rented sector. It is thought that the bill could become an Act before 2024 is out. The new government has plenty of plans for the private rented sector (PRS), but what does this mean for landlords and property investors?
In this article, we’ll explore Labour’s plans in depth and examine the potential impact they’ll have on landlords and property investors. Can the new government make the PRS more viable and stable for everyone involved? Let’s take a look…
Which PRS reforms are expected under the new Labour government?
Abolishment of Section 21 notices and move to periodic tenancies
Section 21 of the Housing Act 1988 allows landlords to seek possession of their property from tenants without providing a reason. While there are several legitimate reasons for seeking possession of a property that doesn’t constitute an eviction, more and more landlords have been using Section 21 notices as eviction notices because the process of issuing them is more straightforward than issuing an actual eviction notice. Perhaps that’s why Section 21 notices have more recently been termed “no-fault evictions”.
Section 21 notices can currently be issued at any time after a fixed-term tenancy has ended (if there’s a written contract) or for periodic tenancies (without a fixed end date) so long as the tenants are given at least 2 months’ notice to leave the property.
Labour’s planned reforms are particularly pro-tenant. By abolishing Section 21 notices, they aim to address concerns that tenants can be evicted at any time outside of a fixed term and made homeless. This has previously prevented some tenants from reporting disrepair or other issues to their landlords for fear of eviction. The abolition of Section 21 will give renters more security and will likely result in longer tenancies.
For landlords, longer tenancies could mean reduced tenant turnover and a more stable rental income. However, some landlords are worried about losing control over their properties and facing difficulties in removing problematic tenants.
Additionally, Labour has announced that when Section 21 evictions are abolished, the tenancy structure will be simplified. All fixed-term assured tenancies and assured shorthold tenancies will be abolished and replaced with periodic assured tenancies. These periodic tenancies will have a maximum term of one month, meaning all tenants will be placed on rolling contracts without a fixed end date.
Currently, landlords can regain possession of their properties at the end of a fixed term without providing tenants with a reason by serving a Section 21 notice. However, the abolishment of Section 21 ‘no-fault’ evictions and fixed-term tenancies will make it trickier for landlords to regain possession. They will only be able to do so using one of the grounds allowed under Section 8. The move aims to provide tenants with more security and empower them to challenge poor practices and unfair rent increases without fear of eviction.
As a result, property management will become less predictable for landlords. With tenants on periodic rolling contracts with no fixed end date, long-term lease planning will become much more difficult for landlords. The uncertainty of when a rental property will next be empty could make it harder for landlords to plan renovations or adapt their rental strategy.
On the plus side, the changes could increase the likelihood of tenants staying on longer, reducing void periods and the expenses associated with looking for new tenants. With tenants potentially staying longer and stricter grounds on repossession, it will become more important than ever for landlords to review their tenant screening process to ensure they are only renting to reliable tenants who are a good fit for their property.
With the abolition of Section 21, Labour will need to find a way to fund the justice system better so that it can handle an increase in court cases. However, if their reforms can balance the needs of both landlords and tenants, it could provide the clarity and confidence property investors need to stay in the sector.
Strengthened grounds for possession
To provide protection and reassurance to landlords amidst the loss of Section 21 ‘no-fault’ evictions, Labour is introducing several changes to strengthen landlords’ grounds for possession. These changes aim to balance tenant protection with landlords’ needs to manage property effectively.
While Labour plans to end no-fault evictions, they are not abolishing Section 8 evictions, which currently allow landlords to evict tenants on 17 different Grounds for Possession. These include the landlord needing to move back into the property, the landlord needing to redevelop all or part of the property, rent arrears of at least eight weeks/two months, and breaches of the tenancy agreement.
The Renters’ Rights Bill also introduces two new grounds for eviction under Section 8. Landlords will now be able to use a Section 8 notice to regain possession of their property if they wish to sell it or if they or a member of their family want to live in it. However, it’s important to note that neither of these grounds can be used within the first year of a tenancy. To give the tenant a reasonable amount of time to find somewhere new to live, landlords will also be required to provide four month’s notice when serving a Section 8 notice on one of these grounds. There will also be a 12-month restriction preventing landlords from re-letting or marketing the property to let after serving this notice to prevent these grounds from being misused.
The bill also introduces new rules for evicting tenants under the grounds of rent arrears. Landlords will now need to wait until the tenant has three months of rent arrears rather than two and provide a four-week notice period rather than a two-week one. This change provides tenants with more time to repay their arrears and stay in their homes.
Landlords will also be able to evict tenants for repeated rent arrears over a three-year period. If a tenant has been consistently behind on rent payments, their landlord will be able to reclaim possession of their property, even if the tenant has cleared the arrears.
Under Section 5 of the bill, landlords will also be able to quickly regain possession if tenants engage in disruptive or harmful antisocial behaviour or activities that negatively affect the property or neighbours.
This should provide landlords with some peace of mind that they’ll still be able to evict tenants if they display antisocial behaviour or if they wish to sell or repossess the property for personal use. However, they’ll need to go through the courts to do this if the tenants refuse to leave after being served an eviction notice.
Landlords should beware of letting agents seeking to capitalise on the new legislation by charging excessive fees for managing the eviction process under the newly regulated Section 8. At Purseglove, our team is already well-versed in the changes and will provide seamless support without any additional fees.
Introduce rent stabilisation measures
According to a recent rental market report by Zoopla, tenant demand has doubled since before the pandemic, while rental stock availability has decreased by a third. This imbalance has led to rental inflation due to basic supply and demand economics.
It has also been revealed that some unscrupulous landlords use rent increases as a backdoor method of evicting tenants.
In response to these challenges, Labour is introducing a new rent increase process to make things fairer and provide tenants with better financial stability and security. Under the new rules, landlords can only increase rent once per year to the market rate. To do so, they will need to serve tenants a Section 13 notice, which sets out the new rent amount and gives tenants two months’ notice of the change.
Tenants will also be given the right to challenge a rent increase through a tribunal if they believe it exceeds the market rate. The Tribunal process itself is being reformed to protect tenants by ensuring that rent is never increased beyond what the landlord initially proposed and to end the practice of backdating rent increases.
These reforms will give tenants the power to challenge unreasonable rent rises without fear of being evicted. However, some landlords see these measures as constraints on their ability to adjust rents based on market conditions, limiting their financial flexibility and ability to cover rising costs. The reduced tenant turnover will, however, ultimately benefit landlords.
While some landlords feel that increased tenant rights will limit their ability to manage their properties effectively, increased tenant security will improve the rental market’s reputation and make it more attractive for long-term investments.
To prepare for the changes, landlords will need to adopt a more cautious approach to planning and justifying any future rent increases. They must ensure that any rent adjustments are fair, reasonable, and in line with market trends, as tenants will have more opportunities to dispute them. At Purseglove, it is already our policy to update rents in line with market rates. We also handle any disputes that arise over rent as part of our ongoing landlord support.
Right to request pet ownership
Labour’s Renters’ Rights Bill recognises the huge benefits that pet ownership can have on a tenant’s quality of life and mental well-being. The bill provides tenants with the right to request pet ownership. Landlords will now only be able to refuse a tenant’s request to keep a pet in their rental property under reasonable grounds, such as the suitability of the property for pets or health and safety concerns.
While landlords will not be allowed to charge extra rent for pets, they will be allowed to require tenants to obtain pet insurance to protect their property from potential damage. Landlords are encouraged to update their tenancy agreements to include a policy about pet ownership. At Purseglove, we create tenancy agreements that include pet ownership clauses at no additional cost.
Landlord Redress Scheme
Under Chapter 2, Section 56 of the Renters’ Rights Bill, all landlords will be required by law to join an approved redress scheme to handle tenant complaints and resolve disputes without court intervention. Tenants will be able to use the service for free to complain about issues such as property maintenance, deposit disputes, or unfair treatment. The redress scheme then acts as a neutral third party, aiming to resolve issues quickly, fairly, and cost-effectively. The service will have the power to order landlords to issue an apology, take remedial action, or compensate tenants. Landlords who fail to register for the scheme could face penalties of up to £40,000 and even prosecution.
Private Rented Sector Database
Currently, there’s no nationwide requirement for landlords to register themselves in England or Wales, though some local authorities have introduced their own selective licensing schemes. Under Labour, joining a private rented sector database will be mandatory. This means that all landlords in England and Wales will need to register their properties, comply with an annually updated PRS Decent Homes Standard, provide proof of Gas Safety certificates and electrical tests, and declare how much rent they charge. They’ll also need to update their registration yearly.
Labour believes that the creation of this register will improve standards and accountability in the PRS and help to ensure that all rental properties meet safety and quality standards. Tenants will benefit too, as they’ll be able to check a landlord’s history, such as whether they have any criminal convictions or enforcement actions, and see if a landlord has failed to carry out repairs or pushed for unreasonable rent increases in the past. This transparency will provide tenants with more reassurance before they commit to a rental agreement.
“Bad landlords” will be put under a microscope, and it will be easier for councils to take action against them, but “good landlords” are set to benefit. This can only be a good thing for the sector as a whole. A potential challenge for landlords, however, is the additional bureaucratic burden of the database, as well as an increase in administrative costs (they’ll need to pay annually to use the register to help fund an independent body that conducts compliance checks).
Decent Homes Standard
Everyone deserves to live in a safe and decent home, which is why Labour are introducing a Decent Homes Standard to the private rented sector for the first time.
The Decent Homes Standard, introduced in Part 3, Section 90 of the Renters’ Rights Bill, will clarify housing standards and landlord requirements and give local councils the power to enforce them.
Landlords may find they need to upgrade their rental properties to comply with the new Decent Homes Standard, paying particular attention to rectifying any structural issues, updating ineffective heating and hot water systems, and improving insulation to reduce heat loss and energy bills.
At Purseglove, we prioritise property upkeep and tenant safety, ensuring that all rental properties we manage are comfortable and compliant, so landlords won’t need to worry about additional costs to maintain compliance.
Extend Awaab’s Law
Labour has also pledged to extend Awaab’s Law to the PRS. Awaab’s Law was introduced as an amendment to the Social Housing (Regulation) Act after an inquest into the death of two-year-old Awaab Ishak in 2022. He died from a respiratory condition caused by prolonged exposure to mould in a Rochdale Boroughwide Housing (RBH) flat.
With this law, it became a legal requirement for social housing landlords to investigate health hazards in their properties within 14 days of them being reported. If a hazard is identified, the landlord must begin repairs within 7 days and address emergency repairs within 24 hours. Currently, these requirements only apply to social landlords.
Labour plans to extend Awaab’s Law to private landlords in the hopes of protecting tenants from living in unsafe conditions. This will likely increase overheads for landlords but it will also help to restore trust in the PRS as a whole, and protect properties from disrepair.
Introduce new energy efficiency standards
Another key reform proposed by Labour is to introduce new energy efficiency standards for rental properties in the UK by 2030, though they’ve yet to specify what the new minimum EPC rating will be.
While these changes are designed to benefit tenants by reducing energy costs and improving living conditions (Labour estimates that the changes could save tenants around £250 annually), they also impose new responsibilities on landlords. Landlords will need to make their properties more energy efficient to ensure compliance, which could mean significant upfront costs.
On the flip side, Labour have vowed to remove the requirement for landlords and homeowners to replace their gas boilers with heat pumps by 2030 for fears it will cost them too much money. Instead, Labour will encourage heat pump installations through the use of financial incentives.
What are Labour’s plans for urban development?
Labour has pledged to take significant steps to address the housing crisis and ensure sustainable urban development. Here are some key initiatives that landlords and property investors should be aware of:
- Reinstate house-building targets for local authorities: These targets will push local authorities to address the current property shortage by boosting the construction of new homes. This could help to stabilise property prices and provide more opportunities for landlords and investors.
- Hire 300 additional planning officers: Planning officers play a crucial role in driving city and town development. The additional roles will likely be funded by increased stamp duty for overseas buyers.
- Select sites for new towns and identify locations for large-scale residential developments: New towns and developments will provide more opportunities for investment, which has the potential to boost the property market and offer new avenues for landlords and developers.
What are Labour’s plans for tax?
Labour has no plans to increase the basic, higher or additional rates of income tax, and corporation tax will remain capped at the current rate of 25%. VAT and National Insurance rates will also stay the same. However, to raise additional funds, Labour may increase capital gains tax rates, which will directly affect landlords and property investors.
To ensure fairness and efficiency in the housing market, it’s also rumoured that Labour will reduce the number of vacant homes by imposing higher taxes on empty properties and second homes. These measures are designed to stabilise the market and make housing more accessible. If these changes are introduced, it will encourage property investors to maximise the value of their investments by keeping tenants in properties for longer.
How will Labour’s reforms affect landlords and property investors?
Labour’s reforms are likely to influence market dynamics, affecting property prices and rental rates. Despite this, demand for rental properties is expected to remain strong due to Labour’s commitment to improving rental conditions and increasing the supply of affordable rental homes. This means rental yields will continue to be attractive, making it a good time for landlords to expand their portfolios. Developers will also benefit as the demand for new homes grows.
While landlords and property investors may face challenges while they adjust to the new regulations and increased compliance costs, these changes present more opportunities to attract long-term tenants, reduce vacancies, and ensure a stable income.
And remember, not all manifesto promises are fulfilled. The Conservative government only initiated 55% of their 2019 manifesto commitments so it’s reasonable to assume that Labour won’t deliver on all of their promises. Plus, all of these implementations will take time to be introduced.
Partner with Purseglove for property management in Nottinghamshire
While you may have concerns as a landlord or property investor about Labour’s proposed changes, these reforms could bring long-term benefits to the sector as a whole and improve the overall quality and stability of the rental market. With proactive management and adaptation, you can leverage these reforms to create a more stable and profitable rental business.
Choose Purseglove, a trusted property management agent, to stay informed and adapt to these changes as they come. Get in touch to learn about our property management services!