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RIP the fixed term residential tenancy?

Landlords will have to provide a good reason to evict residential tenants from now on, the government announced on 15 April, in a proposed major reform of the private rental market.

It says it will abolish so called “section 21 evictions”, which currently allow landlords to bring to an end residential tenancies without an underlying reason on 2 months’ notice once their contractual term has ended. Instead, landlords will have to rely on a specific reason, such as the tenant’s failure to pay the rent or the landlord wishing to occupy the property itself.

The effect of this will be to change what are currently fixed term tenancies into open ended, rolling tenancies.

The intention is to protect vulnerable tenants from being evicted from their homes at short notice. According to the government, this is one of the major causes of family homelessness.

Theresa May said: “this important step will not only protect tenants from unethical behaviour, but also give them the long-term certainty and the peace of mind they deserve”.

Communities Secretary, James Brokenshire MP called it “the biggest change to the private rental sector in a generation”.

The government’s plans to abolish section 21 of the Housing Act 1988, leaving landlords to rely on the grounds set out in section 8 and a court order to take back possession of a property, will have far reaching consequences, even taking into account the additional grounds for possession under section 8 (where the landlord wishes to sell or occupy the property themselves), which the government plans to introduce as part of its reforms along with an expedited procedure.

Housing charities, such as Shelter, have applauded the change. Polly Neate, Shelter’s CEO said:

“One in four families now privately rent their home, as do hundreds of thousands of older people. And yet, we frequently hear from people with contracts shorter than your average gym membership, who live in constant fear of being thrown out at the drop of a hat. Ending Section 21 evictions will transform these renters’ lives – giving them room to breathe and put down roots in a place they can finally call home.”

On the other hand, some landlords are more sceptical. The National Landlords Association says that section 8 is an ineffective and expensive means of terminating a tenancy. It says the change has created “a new system of indefinite tenancies by the back door” and predicted chaos in the courts amid a rush of section 8 applications.

Any changes to the law which are implemented should balance the need to address this issue against the government’s stated need to increase the number of available rental homes (which in turn means not putting off investors from investing in new housing stock).

There is also the much wider question: is this just the first step in the changes for fixed term assured shorthold tenancies? Facing tenants with an open ended tenancy, landlords may well look to grant longer leases with rent review provisions where they have previously offered short, fixed rent leases.  What would the government make of a significant change in market practice?  Can we expect to see further rent controls during the term of the lease?  This looks to be only the first chapter in a new story for assured shorthold tenancies and the government’s proposed consultation on its package of reforms will be an important second paragraph.