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Renters Reform Hits Students

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The long-awaited renters reform bill was finally published this month with much discussion of the extension of the Decent Homes Standard to the Private Rental Sector, the banning of Section 21 'No fault' evictions and the much needed tightening of rules for social housing landlords.

The content of the bill will change as it makes its way through the Parliamentary process, but the wording relating to the removal of Section 21 and related items will cause chaos in the student rental market unless it is radically changed. In its current form, landlords will not be able to let for a fixed period, so come February when normally students choose their accommodation for the next year, landlords will have no certainty that current tenants will leave when the summer term ends and as a result, will not be able to advertise their properties.

The impact for students is that they will have to fight for whatever becomes available in July / August, rents will be higher as a landlord stuck with 1 tenant or worse an empty house will recover those now unavoidable void periods with higher rents when he or she is able to find tenants and there will be a lot less property available as landlords inevitably move to more reliable income sources.

 What Is Proposed?

The government argues that currently tenants face a system which mixes fixed-term tenancies with periodic tenancies and the world would be better for tenants if we only had periodic tenancies.

Their words:

"The most common form of tenancy in the PRS is an Assured Shorthold Tenancy (AST). The current tenancy system mixes fixed-term tenancies with periodic tenancies. While this appears to offer choice, these complexities can be difficult to understand, and tenants do not always have the power to negotiate their preference at the outset. Both types of contracts are described in Figure 4.

Figure 4: tenancy types in the Private Rented Sector

Fixed terms commit both landlord and tenant for an agreed period, typically 6 or 12 months.

During a fixed term, landlords cannot use Section 21 to evict a tenant, though they can use other grounds for possession.

Tenants can only leave during a fixed term with the landlord's agreement, and they must pay rent for the duration, unless agreed otherwise. At the end of a fixed term, tenancies do not automatically end – instead becoming periodic unless a new fixed term is agreed, or notice is served.

Periodic tenancies are weekly or monthly tenancies that do not last for a fixed period. They offer more flexibility to tenants and landlords.

If a tenant wants to leave the property, they are liable for the rent until the required notice period has expired. This is typically one month but can vary.

A landlord can end a periodic tenancy with two months' notice by using a Section 21 eviction notice or by using other grounds for possession.

Locking parties into a contract undermines the flexibility that the Private Rented Sector offers and restricts tenants' and landlords' ability to react to changing personal circumstances. Similarly, it is wrong that tenants feel unable to challenge poor standards in their home because they worry that their landlord will use Section 21 to evict them, rather than deal with their complaints. In 2018, Citizens Advice found that tenants receiving a Section 21 notice were five times more likely to have recently made a complaint to their council compared to those who had not."

What Is Wrong With The Bill?

This all makes a great deal of sense for the non-student tenant – but a student happily signs a licence for a fixed period, often 48 or 50 weeks for student halls (purpose built student accommodation normally referred to as PBSAs) and needs to be able to do the same when choosing a home for a year living in the community.

If the only option is a periodic tenancy, a small percentage of students will benefit if they drop out as they will be able to give 1 months notice but the vast majority will find it much, much harder to find accommodation as it will not become available until the summer break, it will be much harder to find a home for a group of friends as previous occupants will have a right to stay meaning more houses of mixed groups (always the ones where problems occur), and rent levels will be much higher as there will be fewer landlords willing to take the financial risk or the much higher costs involved associated with longer void periods and less certainty, even if mortgage companies allow student lets in properties they finance.

Andrew Simpson, Chair of the York Residential Landlords Association clearly stated the concerns of many when he said:

"60-70% of our members operate in the student market and I would imagine the figure is circa 20/25% nationally. Whilst I think the proposals will improve some PRS sub-markets, there is a distinct lack of understanding when it comes to the student market and as a result there will be a multitude of unintended consequences. Whilst I appreciate that this is not the bill, it is heading for chaos in its current format. You will be aware of these issues but here are my thoughts:

  • Fixed term contracts are in the interest of landlords and students as both parties want the agreement to end at the close of the academic year. Students are described as 'Comfortable Renters' in the document for this reason i.e., the system is not broken. The problems that are trying to be addressed do not exist in this sub-market. Student properties need to be viewed in the same light as PBSA and University accommodation with properties marketed based on a certain number of weeks 48,51,52 etc. The proposed changes should vary based on the renter demographic and not be a one-size-fits-all approach that only improves tenancies for certain sub-markets
  • The document grossly overestimates the student demand to stay in a property beyond their academic stay. I would say that you are looking at well under 1%.

  • How can students secure properties with any certainty? Landlords compete with institutional PBSA providers and Universities signing students up in advance (generally between November and April for tenancies starting in the summer). If there is no certainty over when a new tenancy will start, then they will not be able to sign contracts with student groups and students won't be able to secure properties. The current system works well based on the cyclical nature of academic years through to graduation. However, PBSA providers and Universities will be able to advertise a fixed number of weeks in advance when attending housing fairs and operating other marketing while landlords wouldn't be able to do this if tenancies are periodic which is a restriction on trade. Students and landlords need certainty as to where they will be living, with who and when. Landlords wouldn't be able to advertise until the existing tenants have handed in their notice which may or may not happen as most students will intend to move out at the end of the third term but fail to provide notice.
  • Essentially, we are talking about a 2-month minimum term which is ridiculous considering the value of 12-months accommodation. You can't sign-up for a mobile phone or car lease deal with that kind of notice. Students could invoke the 2-month rule on a periodic tenancy at any time leaving landlords with void periods during or between academic years that would otherwise be covered by a contract. Students could move in on day 1 and decide they don't like the property thus handing in their 2-month notice with the landlord having invested a lot to turn the property round at the point of the tenancy changeover.
  • If the viewing process is moved forward to around 2 months prior to the end of the tenancy, viewings would take place during exam season when students have other priorities. Research suggests that most students prefer a 'home' having lived in university halls in the first year, but they won't be able to secure a tenancy on a house until very late in the academic year and as such will be restricted to expensive halls of residence. There is a shortage of student accommodation in many parts of the UK, and this is going to worsen that situation.
  • The above changes will drive rents up as the risk of voids will need to be factored into pricing. Landlords would be exposed to numerous fixed costs if the property is void such as council tax and energy standing charges on all-inclusive rented properties should their properties be void for any length of time. Without any changes I can foresee a surge in student rental pricing prior to the live date of the policy in a similar way that rents have increased to offset section 24 taxation changes, energy pricing and local licensing scheme compliance costs.
  • Joint and several contracts. In the student market there is typically one contract and a guarantor for each student. This works very well. The changes could drive a move towards individual contracts per room. Signing individual contracts for each student would be very heavy on administration and could put students with housemates they don't want to live with. What happens if only one person wants to move out at a specific time, but the rest want to stay? Equally it would only require one student to decide to remain in the property to skew the cyclical nature of the tenancies for future years and the ability of future students to live in the groups they choose.
  • How would you bill students for rent if you don't know how long they will be there? In most student cities the rent is paid quarterly on a group basis. Is a refund then applied if someone moves out early? How will that affect the other housemates?
  • How would student letting agents charge management fees if the rent collection is a moving target? How can you plan? How can you manage your staffing levels? All viable letting agent systems for tenancy changeovers will be in disarray, particularly if viewings/sign-ups/inspections/check ins/check outs need to take place on an individual room basis.
  • How will mortgages lenders respond to the fact that a landlord's income is more uncertain?
  • I'm not sure if this would be legally viable but if this continues along the current path it could drive dysfunctional behaviour. I can see some sort of periodic tenancy contract waiver being devised to re-engage AST fixed terms as these changes don't benefit students or landlords.

A Local View

Richard Thomas, a Portsmouth student landlord based in Chichester wrote to his local MP, Gillian Keegan, saying:

"Dear Mrs Keegan

I am writing to raise serious concerns over the proposed white paper on rent reforms.

I have had two student lets in Southsea for the last twenty years and this has proved a very satisfactory arrangement for us and our tenants.

Along the way a past government moved the goal posts on capital gains making the option of selling unattractive.

However, this is nothing compared to the problems anticipated with the proposed changes.

The student rental market operates on the premise that students and landlords are guaranteed at least 6 months tenancy and generally a ten month fixed term. Without this, and with the likelihood of students dropping out of courses, the proposed model does not work for private landlords.

The government has recognised this with purpose built student accommodation but appears set to ignore private landlords who have been working hard to provide student accommodation for many years.

I would be grateful to receive your comments and ideally representation in parliament when this matter comes up for discussion.

Thousands of landlords in the student market will be in the same position.

All the best, Richard"

Our View

We have proposals which would definitely help and there will be an article outlining how we can avoid some of these issues in next months news - but we do need local students and Universities to understand the problem, as we all know authorities tend not to heed landlords, even though we are the experts in this particular field. So do please help get the message across - or start moving out of the student rental sector.

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