In this blog we put the Levelling Up, Housing and Communities Committee’s report released on the 9th February 2023 under the spotlight, considering the current Governments’ proposals to overhaul in-tenancy rent increases in England’s private rented sector.
The Government’s ‘A fairer private rented sector’ white paper and the committees report both use the Department for Levelling Up, Housing & Communities (DLUHC) analysis of English Housing Survey 2020 to 2021. In 2020 to 2021, the Private Rented Sector accounted for 4.4 million (19%) households housing over 11 million people. That percentage has remained stable since 2013 to 2014.
In their white paper the Government rules out rent controls in England: – “This government does not support the introduction of rent controls to set the level of rent at the outset of a tenancy. Historical evidence suggests that this would discourage investment in the sector and would lead to declining property standards as a result, which would not help landlords or tenants.” Instead, the Government wants to standardize the process.
The most common type of tenancy is an assured shorthold tenancy (ASTs). ASTs often (but are not required to) include rent review clauses allowing for an annual increase after the first 12 months, with a means of working out the increase for example, in line with market rent or the All-Items Retail Price Index (RPI) whichever is the greater.
The RPI is published monthly, measuring the inflation used to calculate cost of living and wage escalation. Like market rents RPI fluctuates up and down. For example, the February 2023 rate was 13.8% compared to 8.2% in February 2022, and 2.5% pre pandemic in February 2020. In September 1975, the RPI peaked at 26.6% but in June 2009 it dipped to minus 1.6%. These peaks and troughs are driven by factors outside landlords and tenants control, and some rent review clauses take a common sense approach applying a minimum and maximum by which the rent can increase. It largely depends on what the landlord and tenant negotiate before the tenancy agreement is signed and the tenancy starts.
Where there is no predetermined mechanism for rent increases a Section 13 can be served on the tenant at the end of the fixed once it becomes a periodic tenancy (rolling month to month) unless the landlord and tenant mutually agree to a further fixed term with an increase. Presently where a Section 13 is used only one month notice needs to be given informing the tenant of the increase. If there is an unresolved dispute over the proposed increase the tenant can refer the dispute to the First Tier Property Tribunal Chambers who can determine the market rent. The tribunal requires both landlord and tenant to present market rent evidence to support their argument. The tribunal will consider comparable rents for similar local properties using listings from property portals like Rightmove and Zoopla and often visit the property. The tribunal also has the power to apply a greater increase than initially proposed if the evidence supports that.
In reality many landlords do not implement rent increases even when they can or agree to a lessor increase but not all. The Government is seeking to standardise the process to prevent tenants being backed into agreeing unjustified rent increases for fear of losing the property before their tenancy even starts or being served notice so a landlord can market the property for a higher rent.
The Governments’ proposal is to end the use of rent review clauses, meaning that a Section 13 will be the only mechanism for increasing rents. Landlords will still be able to increase the rent once a year but will need to give two months’ notice rather than one. Tenants will still have the option to challenge a rent increase via the tribunal however the tribunal’s power to determine market rent and increase the rent beyond the initial amount, will be revoked.
The committee’s report concludes that if the tribunal’s powers are to be removed: –
“The Government should assess whether the data held by the Valuation Office Agency could be used to determine justified rent increases in the private rented sector. If it concludes that it could, we recommend either that this information be made public so that landlords and tenants can easily see what a justified rent increase would be or, if it cannot be, that the Valuation Office Agency be given initial responsibility for determining whether an increase is justified, with the tribunal serving as an appeals court. If the Government determines that the data is not suitable for this purpose, it should consider ways of collecting it. One way might be for it to require landlords to declare rent levels through the property portal. Whatever the Government chooses to do, it should explore alternative mechanisms to those currently used for establishing justified rent increases with a view to removing some of the burden from landlords and tenants themselves.”
“By getting rid of rent review clauses, the Government could be removing a mechanism for predictable and fair rent rises and replacing it with a system that relies on a resource-intensive and time-consuming appeals process. We recommend that the Government not abolish rent review clauses but make it a requirement that they stipulate by how much rents will increase. It should also legislate to require all rent review clauses to include break periods during which tenants may appeal to the First tier Property Tribunal if they think their rent has risen above local market rents.”
The Government has two months to consider the committee’s findings and you can read the full report here and the summary report here. As with all Alexandre Boyes blogs they are intended to give a general overview of a topical issue and should be not relied on for formal purposes. Posted 31/3/2023
