With Labour’s plans to scrap Section 21 immediately, what will happen to the PRS? Here, we look at the damaging consequences of abolishing ‘no fault’ evictions for both tenants and landlords alike.
Watch now:
Perhaps Labour’s most contentious plan for the Private Rental Sector (PRS) is the immediate abolishment of Section 21 ‘no fault’ evictions. Under the Conservative’s proposed Renter’s Reform Bill, the plans to scrap Section 21 were on hold until sufficient court reforms had taken place to support the inevitable rise in Section 8 evictions. However, Labour has made no such commitment.
Of course, the intention here is to better support tenants against ‘rogue landlords’, the government’s favourite scapegoats for the issues facing the housing market. Despite this, the Labour Party will find that scrapping Section 21 will instead have several serious consequences on the tenants they are striving to protect and the wider PRS as a whole.
Court reforms
As previously mentioned, the Conservatives had pledged to delay abolishing Section 21, acknowledging the need for a reformed court system to support the rise in Section 8 evictions. As of yet, Labour has failed to announce plans to follow suit.
The consequence is, of course, that the system will build up a substantial backlog of cases. As it stands, it can already take landlords anywhere between 14 days and several months to evict a tenant with a section 8 notice. Business Development Director, Jeni Browne, recently documented her own account of evicting her non-paying tenant, with the full process lasting a year.
The impact on landlords is that by serving a Section 8 notice, typically reserved for rental arrears, they face a lengthy and expensive process. Furthermore, there’s no clarity yet that Labour plans to extend the grounds for serving Section 8 notice further, rather than simply for missed rent payments or anti-social behaviour.
If Section 21 is to be abolished as planned, Labour will have to establish an alternative method to allow landlords to repossess their properties. Furthermore, the replacement of fixed-term tenancies with periodic tenancies raises an even bigger question over how landlords will serve tenants notice to sell their own property.
It’s clear that for the stability of the rental market, Labour needs to follow Rishi Sunak’s lead and delay abolishing Section 21 until there is a sufficient alternative and a substantial reform of the court reform has taken place.
Vetting tenants more vigorously
One concerning consequence of abolishing Section 21 is that landlords will be forced to vet prospective tenants even more vigorously. With the increased difficulty of repossessing a property, landlords will quite rightly be more vigilant in their reference checks when selecting new tenants. A number of factors will influence their decision, such as:
- The combined income of the tenants
- Whether the tenants own pets
- Whether the tenants receive benefits
- Whether the tenants have a previous section 8 notice on their record
Understandably, landlords will want to protect their investments as best they can. However, despite Labour’s attempts to support renters, the most vulnerable will be pushed to the bottom of the list when landlords select their next tenants.
Tenants on benefits
Part of Labour’s Renter’s Charter involves removing the ability for landlords to advertise their properties as ‘no pets’ and ‘no tenants on benefits’. The goal here is obvious, but it won’t prevent landlords from choosing their tenants based on income and stability. Whilst the media will try to paint landlords in a bad light, landlords need to protect their properties and income from the potential of financial void periods and the difficult task of repossessing the property.
Section 8 rendering tenants ‘intentionally homeless’
A further consequence of abolishing Section 21 that seems to have been forgotten is that many tenants may be deemed ‘intentionally homeless’ when served Section 8 notices.
When applying to the council for help, they will look into why a tenant has become homeless and may not offer long-term housing if they decide a tenant has made themselves so. A tenant's actions will be deemed deliberate based on the following:
- Whether they have carried out anti-social behaviour
- If they have refused to get benefits to support their rent payments
- Refusal to pay rent when they can afford to
Mental health, disabilities, and drug and alcohol problems will categorise tenants as ‘vulnerable’ and so will be exempt from this categorisation.
The current system works so that tenants have a legal right to stay in the rental property until the bailiffs arrive to evict them, although it may not be necessary for them to stay this long. Shelter's guidance is that tenants stay until the council has accepted that it's unreasonable for them to stay and emergency housing has been offered. Leaving any earlier will also leave a tenant ‘intentionally homeless’. Intentional or not, abolishing Section 21 will lead to a significant increase in homelessness, something our new government will surely be keen to avoid.
What this means for landlords
Despite how the media portrays landlords, we know that it's just a few rogue property investors give the rest a bad reputation. Landlords want to look after their tenants and provide them with safe, affordable, and good-quality housing. Making their tenants ‘intentionally homeless’ is by no means the aim of serving a Section 8 notice, but many will be left with no choice if Labour proposes no alternative option to replace Section 21.
A note on ending ‘bidding wars’
Separate from the plans to abolish Section 21 is the pledge to end ‘bidding wars’. The main question surrounding Labour’s plans is how this will be controlled. Given the ongoing supply and demand disparity driving the rental market, many tenants look to increase their initial bid in order to help them secure a property. Why shouldn’t landlords be allowed to accept the highest offer to help them cover the costs of their property investment?
What’s next?
As with both Labour’s plans for Section 21 and ‘bidding wars’, it’s clear that, as always, we need further clarity on the proposed legislation to get a better idea of the impact on landlords. With the new cabinet formed, we’ll look eagerly to Angela Rayner, Deputy Prime Minister and Secretary of State for Housing and Communities, for more details on what’s to come. The hope is this new government will work with the industry to find better solutions to support both tenants and landlords alike.
As soon as we know more, we will keep you informed. To be the first to hear the latest legislation news, sign up to our investor update here.
Speak to an expert
If you have any property finance enquiries, get in touch with our team of experts on 0345 345 6788 or submit an enquiry here.
