Assured Shorthold Tenancies heading for the scrap heap
The Government is pressing ahead with its plans to reform assured shorthold tenancies (ASTs). It is currently consulting on the abolition of section 21 of the Housing Act 1988. This will put an end to the so called "no fault" eviction of assured shorthold tenants.
This is a far reaching consultation which will impact on both private sector landlords and registered providers of social housing as it spells the end of the assured shorthold tenancy, meaning that all tenancies granted under the Housing Act 1988 will be assured tenancies.
On the basis that the abolition of section 21 is designed to address the concern that tenants lack security under the present system, it is no surprise that the consultation also asks whether there should be a minimum length for a fixed term assured tenancy and seeks views on the use of contractual break options.
However, what is crystal clear is that the landlord will only be able to terminate the tenancy by obtaining possession under the section 8 eviction process. Under section 8 of the Housing Act 1988 a landlord can only regain possession of the premises if they can establish one of the statutory grounds – for example – rent arrears, or anti-social behaviour.
The consultation acknowledges that this means that the court procedure must be improved and the number of county court bailiffs increased. Unless the shortcomings of the section 8 procedure are addressed then we may well see a reduction in the availability of private rented accommodation. Improving the court process must be coupled with a proper review of the section 8 statutory grounds for eviction to ensure that the Government does, in fact, achieve its stated aim of achieving a fair balance between landlords and tenants.
The consultation runs until 12 October 2019.
Proposals for implementation of leasehold reforms
So, we now have word from the Government as to what measures they will be implementing following their consultation last year on implementing reforms to the leasehold system in England.
The most significant of these are:
- all new houses will be sold as freehold (with exceptions for shared ownership, community-led housing, home reversion plans and retirement schemes)
- ground rents on new leases will be reduced to nil
- a maximum of 15 working days will be allowed for landlords to provide leasehold information to tenants who want to sell their lease
- buyers who are “incorrectly” sold a leasehold home will have a statutory pre-emption right to acquire the freehold (at no extra cost) if their landlord chooses to sell.
- measures to ensure freeholders have equivalent rights to challenge unfair service charges.
The ban on the sale of leasehold houses has, of course, been on the cards for a while. Only developers who acquired a leasehold interest before 22nd December 2017 are exempt from the ban. However the Government has not offered an adequate solution to the problem of the enforcement of positive covenants between freeholders. Perhaps, as a priority, the Government ought to consider responding to the Law Commission's report – Making Land Work: Easements, Covenants, and Profits a Prendre - which proposed a statutory solution to the problem.
Ground rents in new leases will also be banned which will wipe out ground rent investments at a stroke. However the Government has agreed that it will still be possible to charge a ground rent for retirement schemes, community led developments and house reversion plans.
The Government has indicated that it will bring legislation forward as soon as parliamentary time allows. In view of the current pressure on parliamentary time we may be waiting some time before these changes actually become law.
Registration of beneficial ownership of overseas entities is a step closer
We have previously looked at the Registration of Overseas Entities Bill which is destined to come into force in 2021. The bill creates a public register listing the identity of the beneficial owner or controller of overseas entities that own UK land. The aim of the register is to improve transparency of ownership of land in the UK.
Essentially, overseas entities will be required to identity its beneficial owner(s) who are defined as those who own directly or indirectly more than 25% of the shares or voting rights, have the right to directly or indirectly appoint or remove a majority of the board and/or can exercise significant control or influence over the entity. Once registered the overseas entity must update the register every year. A breach of the legislation means that the overseas entity will be prevented from acquiring, mortgaging and disposing of freehold land and leases granted for more than 7 years and the entity and its officers will incur criminal liability for breach of the registration and updating requirements.
The House of Lords and House of Commons Joint Committee published its report on the draft bill and has highlighted some key points:
- The report questions whether the 25% threshold for ownership of shares or voting rights should be reduced to prevent entities exploiting the thresholds to avoid disclosure
- Trusts do not have legal personality and are therefore not an "entity" for the purposes of the legislation. The trustees themselves may need to be registered if they meet any of the thresholds but not the trust. The Report recommends that steps should be taken to address this to prevent the use of trusts to avoid complying with the bill. Ideally this would be addressed by implementing the Fifth EU Anti-Money Laundering Directive into UK law.
- As well as annual updating of the register the Report recommends that the register should be updated before a transaction occurs.
- The report also highlights that proper verification checks should be put in place to stop the submission of false information
- The report also points out that enforcement of criminal sanctions may prove difficult and consideration should be given to whether civil penalties would be more appropriate.
- The Chairman of the Committee, Lord Faulks QC, concluded that:
"We welcome this much-needed legislation as one of the vital tools required to create a hostile environment for money launderers who want to use the UK property market to hide unlawful funds. The legislation is well drafted, but there are still some loopholes in the draft Bill which, if unaddressed, could jeopardise the effectiveness of this important piece of legislation. In the current political climate, anti-money laundering may not seem an immediate priority. But the evidence we took shows there’s a huge problem, and it’s not going away. Time is of the essence: the Government must get on with improving this Bill and making it law."
And more to come….
There are a couple of other consultations worth mentioning.
Firstly the Government is consulting on the introduction of a new national model for shared ownership. The new national model would:
- make it easier for homeowners to increase their share in the property
- allow homeowners to sell their properties
- increase standardisation of documents
The Government is proposing that tenants could have the ability to staircase by 1% increments, making it more affordable for tenants to increase their share in the property in a rising market. It is hoped that this will widen the appeal of shared ownership as tenants will be able to increase their share in the property in much smaller more affordable increments.
Currently landlords have an eight week exclusive period to market the property should the tenant wish to sell. The new proposals in the consultation would allow homeowners freedom to sell on the open market but would give the landlord/registered provider a limited right of first refusal to buy back the property so that it can be sold to a new shared ownership tenant so that the property remains affordable. Landlords are understandably concerned that these measures will erode their control over the onward sale of these properties.
Finally, the Government believes that a standard model for shared ownership will allow lenders to provide more competitive finance. However with standardisation comes a loss of flexibility to adapt the model to changing circumstances.
You can find the detailed proposals in the Government discussion paper – Making home ownership more affordable.
Secondly there are further reforms proposed in relation to residential tenancy deposits.
The Government's call for evidence seeks to understand the barriers tenants face providing a second deposit when moving from one tenancy to the next. It looks at what can be done to speed up the return of deposits to tenants at the end of the tenancy.
It considers whether existing initiatives to address deposit affordability are meeting tenants’ needs and whether the market can offer improved products. It also explores innovative approaches that could be taken to help tenants move more easily, including allowing tenants to passport their deposit between tenancies.
The call for evidence builds on the work of the Tenancy Deposit Protection Working Group, which has been looking at whether improvements can be made to deposit protection to the benefit of tenants and landlords.
