Recent announcements about fundamental changes to the Private Rental Sector brought about by the proposed Renters Reform Bill have implications for HMOs. What are they and how should you respond?

Background

The overall context for the Renter’s Reform Bill sits within the Department for Levelling Up, Housing and Communities, and is part of the Government’s Levelling Up agenda. In 2022, Michael Gove, the then Secretary of State for Levelling Up, Housing and Communities, announced a white paper called ‘Levelling Up’ : an overarching White Paper demonstrating the direction of travel for this newly-labelled department.

The Renter’s Reform Bill sits within the context of the White Paper released shortly before Gove was sacked in June 2022  entitled ‘A Fairer Private Rented Sector’. This white paper leads the way for the Renter’s Reform Bill (which will become the legislation). 

The Bill has been described as the “biggest shake-up in the private rented sector in 30 years”. It is time to understand it and weigh up the impact it could have on your HMO business. 

What is the Renters Reform Bill?

The Renters Reform Bill has been put forward to improve standards and provide more security to tenants who rent privately from landlords.

There are several key elements to the Renters Reform Bill:

1. The abolition of section 21
2. The end of fixed term tenancies
3. Changes to landlord grounds for possession
4. The end of blanket bans on tenant demographics
5. Renting to tenants with pets
6. The Decent Homes Standard
7. A landlord portal and a requirement to join a new ombudsman scheme
8. Changes to how rents are reviewed and increased notice periods
9. Allowing tenants to modify properties

HMOs are only mentioned once in the White Paper which in itself is concerning, as there are very real questions that we HMO landlords need to ask with regard to the workability of some of the proposals. 

1. The Abolition of Section 21

The major proposal at the heart of the Renters Reform Bill is the abolition of section 21 evictions. Currently, landlords can give notice to tenants at the end of a fixed term without providing a reason. Under the Bill, only tenants will be able to end a tenancy in this way, with landlords instead forced to use section 8 grounds for possession through the court system (and even this has further constraints created under the new Act such a much longer eviction timelines).

The Bill also proposes to add additional grounds for possession under Section 8, while also strengthening existing grounds and improving the court process for landlords.

Under the Renters Reform Bill, landlords will only have to prove they’ve protected a tenant’s deposit to use section 8 grounds for possession, rather than the extensive list of documents currently needed. 

Although all landlords will have concerns regarding the removal of Section 21 evictions, the complexity with communal living arrangements present in an HMO means that Section 21 evictions are a particularly useful tool for removing tenants in an HMO without making a fuss. The limitation with Section 8 is that it is a ‘fault’ eviction – in other words you have to evidence the reasons for the grounds you have chosen to evict the tenant. This can be contested in court and lead to a costly and lengthy dispute. 

A Section 21 allows a landlord to rightfully regain the use of his/her property (or room) in a peaceable way in a ‘no-fault’ eviction process. 

2. The End of Fixed Term Tenancies

Fixed term tenancy agreements would be abolished under proposals in the Renters Reform Bill. This means all tenancies would be periodic from their first day, meaning tenants are able to end their stay at any stage by giving two months’ notice to their landlord. Moreover, tenant notice periods of more than two months would be banned under the Bill.

Landlords won’t be able to use grounds for moving in, selling or redevelopment for the first six months of the tenancy, meaning responsible renters will enjoy enhanced security after moving into a property.

If you are running a student HMO where normally you might issue a 6 month, 9 month or 12 month AST, you will no longer be able to do this. There will be a new form of agreement which is far more flexible for tenants. Landlords will only be able to evict a tenant in reasonable circumstances, which will be defined in law. You could therefore have a situation where a  group of students move into a property and quickly give notice to leave (of 2 months). They will be allowed to go, leaving you with an empty property and the possibility of not being able to rent it again until the following academic year. 

Student housing charity Unipol says there is already a shortage of student digs, with new PBSA not coming on stream at anything like the expected rate. Combined with an existing fall in the number of privately rented houses in multiple occupation (HMOs), the charity warns the situation could deteriorate sharply.

Unfairly, PBSA blocks are excluded from this necessity and will be able to continue to offer and expect year-long tenancies. 

3. Landlord grounds for possession

The Renters Reform Bill pledges to give landlords more grounds for possession under section 8 once section 21 is abolished, alongside an improved court process. Many section 8 grounds would become mandatory as part of the Bill, meaning judges would have to grant possession if you can prove grounds have been met. However, the same emotional and practical issues would have to be faced simply by having to use Section 8, which in an HMO can cause upset and imbalance the relationships in the house. 

Rental arrears ground amendments

Under the Renters Reform Bill, landlords will be able to give notice to tenants with a history of rental arrears, even if they’re not in arrears at the time. You’ll be able to issue a section 8 notice if they have previously been in two or more months of arrears on three or more occasions over a three-year period. If this mandatory ground is proven, you’ll only need to give the tenant four weeks’ notice to leave your property.

Anti-social behaviour ground amendments

In the case of serious anti-social or criminal behaviour from a tenant, notice periods will be reduced to two weeks.

4. No more blanket bans

The Renters Reform Bill will put an end to blanket bans on tenants with children or those receiving benefits. 

This has major implications for HMOs! 

Under HMO regulations, minimum room sizes apply for rooms where 2 or more people are living there, and the High Court ruled in 2018 that children under 18 are ‘residents’ for the purpose of calculating how many people live in a house in multiple occupation. 

Therefore, if you currently have a licence for 6 people, and find that you now have a tenant who has brought their young child to live with them, you cannot refuse. Yet you could be breaking your licence agreement on two counts – not declaring the correct number of people living in the HMO, and not renting a room large enough for 2 people. There is no clause to suggest that a tenant would have to pay extra for an additional room if they wanted to bring their child into an HMO. 

Another point on this is the question of suitability. How suitable is HMO accommodation for a child? What safeguarding risks might there be? How can a child’s needs be met fully in this type of accommodation? 

5. Renting to tenants with pets

The Renters Reform Bill aims to make it easier for tenants to rent with their pets and landlords would be unable to ‘unreasonably withhold consent’.

The Bill white paper lacks some detail on how this would work in practice, however, properties where pets are banned on the lease and HMOs are excluded from this clause. 

The Tenant Fees Act would be adjusted as part of any legislation, so pet insurance becomes an allowable and chargeable fee which you can re-charge to the tenant. 

6. The Decent Homes Standard

Privately rented properties would, for the first time, need to meet the Decent Homes Standard under the Renters Reform Bill. This is one area where HMOs are way ahead of the game! 

HMO licensing conditions generally stipulate adherence to fire safety and HHSRS standards – both of which are core aspects of the Decent Homes Standard.

Let’s not forget that the Decent Homes Standard (2006) was written to address housing standards in the public sector, especially housing associations and social housing organisations. I feel it is rich that the government now wants to turn their attention to the private rental sector when the DHS has not yet even been achieved in publicly funded housing. 

There will be additional requirements to apply including:

• Smoke and CO2 detectors
• Homes (Fitness for Human Habitation) Act 2018
• Electrical Installation Condition Reports (EICRs) being required for all private rental homes
• Minimum Energy Efficiency Standards (MEES) in private rented homes

Local council departments would also be given greater powers to enforce the Decent Homes Standard and deal with landlords who don’t comply. I think it’s likely that we may see some changes to HMO licence conditions as a result of this. 

7. Landlord portal and ombudsman

A Private Renters’ Ombudsman would be created under the Renters Reform Bill – with all landlords required to sign up. The ombudsman would help to settle landlord and tenant disputes away from court hearings, while a new mandatory property portal would be put in place to provide tenants with more information on properties.

Landlords whose properties are managed by a letting agent already benefit from mandatory redress through their agents.

Whilst this may seem like a great idea, I think we have to ask to what degree will the benefit outweigh the cost and how many more landlords (the majority of whom have an average of four properties) will decide to leave the sector as a result. Overarching meddling with the sector has reduced supply and this could also impact HMOs. As someone who was a non-executive director in the NHS when the government’s ill fated National Programme for IT was rolled out, I have seen first hand how appallingly the government rolls out national programmes of this type. 

My advice: STAY AWAY Dof LUH&C! Leave well alone and let the landlord and tenant use the tried and trusted methods to resolve disputes that are in practice today!

The White Paper is promising reform of the court system to allow faster and more effective legal redress for both landlords and tenants. By abolishing Section 21 evictions how many more cases will the courts have to deal with as a result, further blocking the system? 

8. Rent reviews and increase notice periods

Rent reviews would be limited to one per year with a revised notice period of two months put in place for any increase in rent. If a tenant believes a rent increase is unfair, they would be able to challenge this, while automatic rent review clauses would be disallowed from tenancy agreements.

Helpfully, the White Paper states,

 ‘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’.

‘To avoid fettering the freedom of the judiciary, the tribunal will continue to be able to determine the actual market rent of a property.‘

It’s nice of them to think of the impact on landlords and the reduction in property being available as a result of these changes, isn’t it? 

In an HMO, where you might have long term tenants and costs rising inordinately, only being able to change rents once per year seems highly restrictive. 

9. Tenant modifications

Although no exact detail has been given in the Renters Reform Bill white paper, tenants would be permitted to ‘modify’ rental properties as long as the properties are returned to their original condition at the end of a tenancy.

This could have serious implications for an HMO! How do you fancy a couple of your tenants clubbing together and rearranging your kitchen?

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There are clearly some huge changes proposed via this White Paper, which cannot be ignored. Not only will it change the nature of the relationship between landlord and tenant, it will substantially increase the costs for those renting out HMO rooms due to the potential tenant churn (no minimum 6 month ASTs anymore); the requirement for further heightened safety and energy measures; and the restriction of eviction by peaceable means. 

What are your reactions? Do you feel this lessens your ability to run a profitable HMO further? Perhaps you think it is a good idea to increase the role of the state in the Private Rental Sector. 

I’d love to hear your opinions!

In the meantime:  

If you do want to make your opinions about the proposals known you can

• Write to your MP
• Contact  the Department for Levelling Up, Housing and Communities. 
  • Email: luhccom@parliament.uk

Phone: Committee staff: 020 7219 6930 

Address: Levelling Up, Housing and Communities Committee, House of Commons, London, SW1A 0AA

The next stage will be draft legislation, and this will be debated and scrutinised by working groups in consultation with the government.

Once the Bill is past its committee stage, it will be debated in both the House of Commons and House of Lords, with the first implementation date set to be in late 2024.