Apr

Why Labour plans to end ‘no fault evictions’ need a re-think

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Section 21:

Buy-to-Let Consultant and experienced landlord, David Lawrenson, in a comprehensive article on this subject on his Blog, and reproduced here, thinks that Corbyn’s plans for legislative changes in the Private Rented Sector (PRS) are misguided.

Mr Lawrenson says:

“Jeremy Corbyn’s Labour Party has said that it would consider stopping what are sometimes called ‘no fault evictions’ (Section 21) in England and Wales, if elected. But Corbyn’s plan could serve to increase the amount of property that is sitting empty, says David Lawrenson of LettingFocus.com.

The Momentum Labour Party has said that it would consider stopping what are sometimes called “no fault evictions” in England and Wales. But this Corbyn idea has not been thought through and it would be of huge significance for the private rented sector – effectively turning back the clock to before 1986.

Since 1986, as a result of policies passed by the government of Margaret Thatcher, landlords have been able to let out a residential property under an assured shorthold tenancy and be sure that at the end of any fixed term or thereafter (and providing two months’ notice was given to a tenant), they would always be able to get their property back into their possession in a fairly “reasonable” period of time.

There is no need to wait for a tenant to give notice or for there to be a breach of tenancy– such as long-term non-payment of rent. All the landlord needs to do to get their property back is simply to give tenants the right amount of notice using the right forms and they will always get it back, even if the tenant does not leave at the end of 2 months.

Before Thatcher changed things to this current system, there was no automatic right for a landlord to get his property back, if a tenant did not want to give it back. In those old days, a landlord would have to wait and hope for the tenant to leave voluntarily (which could be a very long time) or wait for him to die or wait for him to get at least two months’ in arrears on rent or wait for him to do something like turn the property into a cannabis farm/brothel, or something else very serious.

The vast majority of tenancies today run smoothly and end amicably – the tenants leave at the end of the tenancy after two months’ notice has been given. It seems to work well. Most tenancies are extended by mutual consent, (technically becoming what are called “periodic tenancies”), far beyond their initial fixed terms, (which are usually for just a year), with tenancies actually running for 3 or 4 years on average. Ninety per cent of tenancies are in fact ended by tenants giving notice. A key reason for landlords giving notice to end a tenancy is because of arrears of rent.

Understandably, there are some folks with families who might like the initial fixed-term of a tenancy to be longer than a year. However, landlords’ hands are often tied by the mortgage lenders (many of whom still do not allow fixed-terms of over a year). Plus, some letting agents convince landlords it is not in their interests to do this too. (We think this is because some agents are keen to get a chance to gouge landlords and tenants for more fees by setting a new fixed term. Discuss!).

But despite the flaws, most people seem to be happy. Tenancies can always be extended once the fixed-term has ended. Most landlords are happy to do this because they want to keep good tenants.

The picture that Corbyn and his friends often portray of landlords routinely giving notices and evicting people for no reason, other than to hike the rent is simply not true, because the vast majority of landlords want to keep tenants for as long as possible and keep rent rises low or zero in order to retain good tenants for as long as possible.

And it is obvious why – when tenants leave there is a lot of cost involved in finding and installing new tenants and making a new tenancy. So, most landlords hate it when a tenant gives notice to end a tenancy. It means lots of work and lots of cost. It is the very last thing landlords want in their day!

Tenants who have established that they can be trusted to pay rent and look after a property for an initial year, can always ask their landlord for a longer fixed term and can expect to get a positive response.

If The Tenant Does Not Leave – Accelerated Possession

In the rare instances that tenants do not vacate after they have been given notice to leave by a landlord, there is a reasonably quick court process to follow, sometimes referred to as the “accelerated possession procedure” – though it is not all that “accelerated”, as I will explain now.

Under this procedure, relevant evidence, (tenancy agreements, notices etc.), is presented in writing and once the court has checked that the landlords’ court and notice papers are in order, the court will then “issue papers” to the tenant who has 14 days to reply. Unless the tenant can prove that the landlord’s papers or notice were not in order, then an order for possession will be made by the court for the tenant to leave within 14 days.

No court hearing is necessary. OK, so it’s called an “accelerated process” by some – but it is not that fast when you think about it. Even if the landlord was straight in to court with his papers on the day after the tenant had failed to vacate, (i.e. when his notice had expired), and even if the court sends papers to the tenant within seven days of this date (unlikely in most snowed-under and understaffed courts); then there is another 14 days that the tenant has to reply and another 14 days before he was to leave.

Add the time on for stuff getting stuck in the post, the total time taken will be at least 35 days. So, the tenant, if he wants to be awkward, gets 5 weeks in the property after the date when he was supposed to leave! And don’t forget, the tenant will have already come to the end of their fixed-term and will have had two months’ notice already. So it is hardly “accelerated”.

If the tenant still refused to budge and was still in occupation after the date the court notice had told him to leave by, then the landlord will have to instruct a bailiff to forcibly evict. This involves more legal papers and yet more court costs, adding at least another five weeks’ or so onto the process – much more in some busy courts – so we are now up to 10 weeks in total! Ouch! (And landlords with tenants who are on benefits will know that most councils will routinely tell tenants to “stay put”, so that the day when the tenants becomes homeless and therefore the responsibility of the council can be pushed further into the distance).

No Fault Evictions – Unfair on tenants?

And yet Jeremy Corbyn clearly feels this process is unfair on tenants. Mmm!

As I said earlier, most tenancies actually run for 3 or 4 years, after being extended well beyond the initial fixed-term. And most end with the tenants, not the landlords, giving notice to end it. And where it is the landlord who has given notice, most tenants leave on the date they should. Having to go to court to get possession is the exception rather than the general experience of most landlords.

For the landlord though, the court processes, means at least he has the benefit that, providing the original tenancy agreement, notice to leave and court papers are all in order, he or she WILL get the property back, albeit after a few months wait!

This puts much more property onto the market, which would otherwise be sitting empty and unoccupied, purely because the landlord is afraid of not getting the property back. And by doing so, it has done much to alleviate the perennial housing crisis, which has was already raging back in the 1980s. Yes, indeed it’s been raging forever.

No Fault Evictions – The case of the Person Who Needs to Work Away

Now, imagine someone was going to work away (or overseas) on a contract for a year, after which they expected to come back to their home again. If Corbyn was to have his way, and scrap no-fault recovery of a property, our temporary expat would have no automatic mechanism to get the property back again.

She would have to just hope that the tenants leave if she asks them to do so. Normally, of course, they will. But, under Corbyn’s proposals, this sort of landlord is surely going to be a little less likely to let it in the first place and the property will be a little more likely to sit empty for a year. (If minimum 2 or 3 year term tenancies come in as many suggest, this property would not be available for let at all!). See footnote.

Interestingly, the figures for the number of landlords who use no-fault notices and the so-called accelerated route have been hugely distorted anyway due to the failing courts system. I will now explain why.

“Normal Possession Procedures”

If your tenant is two months or more in arrears you can use what we might call “the normal or standard” possession procedure to get your property back (eventually) as well as being able to make a money claim for rent owing at same time. This ability to also claim for arrears is something you cannot do with the accelerated possession procedure, which is only a mechanism to recover your property.

But many landlords whose tenants are in arrears of more than 2 months don’t use the normal possession route because it takes even longer than the “accelerated” route – the reason for this is that it involves a court hearing, which can add weeks or months onto the already long process.

So, if the fixed-term of the tenancy has ended, most landlords opt recovery with a possession notice on the so called accelerated route. Doing this effectively means they have probably given up ever being able to recover the rent they are owed or damages to the property, or use the Small Claims Court separately afterwards. But this can often be far better than having to wait, sometimes for a year, sometimes even longer, to get their property back under the “normal possession” route.

No Fault Evictions – Housing Court Solution

What is needed is a separate housing court, outside the usual court processes that could work speedily, and perhaps could tie up with the tenancy deposit scheme processes too. The Conservatives have tabled ideas for some kind of special housing court, which would take possession notices out of the cumbersome and slow normal county court processes. We welcome further work on this and keenly look forward to seeing the details of how this might work in practice. It is a step in the right direction.

Finally, there is another impact that would be felt if no fault notices were removed. Because Corbyn’s plans for the end of no fault notices involve effectively giving potential lifetime security of tenure to tenants, there would be huge implications for buy-to-let mortgages.

Buy-to-let mortgages only really came into being in 1989 when it became possible to actually get a property back into the owner’s possession effectively and simply without needing to prove a breach of the tenancy. If no fault notices to end tenancies are removed it would be interesting to see how mortgage lenders might react.

If the mortgage company cannot recover the asset on which they have lent money, simply and easily, under a variety of circumstances, one of these being landlord mortgage default (often in itself the result of tenant non-payment of rent), then it would be a moot point if they would even lend at all.

Lending for landlords and businesses for residential letting purposes could disappear overnight and the quantity of private renting would collapse rapidly, such that we would come full circle to where we were in the 1960 to the 1980s – to a situation where people could not move to other parts of the country, (or into the country from abroad), for work. This was because they could not find any rental accommodation near their new place of work, leading to big issues for the economy.

So, I hope you can now see why Corbyn’s ideas are not thought through. They may serve to increase the amount of property that is sitting empty, as is the case with the example of the expat worker. They would undoubtable also reduce the size of the private rented sector.

There are better ways of doing things and making the private rented sector work effectively, which I will explore in forthcoming blogs this year.

David Lawrenson

www.LettingFocus.com

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