Foundations of landlord and tenant law – part 13
So we have finally reached the Housing Act 1988 – the legislation that governs most private sector tenancies today. How did this come about and how does it work?
The background
In 1979 a conservative government was elected headed by Margaret Thatcher. The rented sector was one of the things she had in her sights.
It safe to say that she succeeded, and the sector has now changed out of all recognition.
At that time she was elected, the private rented sector had gone down to about 8-11% (from the 76% we saw in 1918) and social housing was about 30%.
This was (eventually) dramatically changed by:
- Giving council tenants the right to buy – which increased substantially the number of owner occupied properties and
- Strengthening the rights of private landlords in the Housing Act 1988, which eventually led to the buoyant private rented sector we have today.
It took a while though. This was partly due to the property crash in the late 1980’s. Private landlording did not really take off until the introduction of the buy to let mortgage in the 1990’s.
When it did, it was a largely ‘small landlord’ phenomenon – individuals buying one or two properties as an investment or an alternative to a traditional pension.
The private rented sector has never really succeeded in attracting a lot of large corporate investment, which is one reason for the current housing shortage. Small landlords just buy properties, they don’t usually build them.
So how did the new legislation change the balance of landlord/tenant rights?
(Apologies for the fact that the chart does not show time properly – but it will give you an idea)
How the new act changed things
As we saw in the last article, there were three main areas where the Rent Act changed the underlying ‘common law’ –
- Rent regulation
- Security of tenure, and
- Succession
Let’s have a look and see how these were changed by the new act.
Rent Regulation
This was dramatically reduced. The basic rule is that landlords can charge whatever they like, and the rent can only be challenged by tenants:
- During the first six months of the tenancy (assured shorthold tenancies only), and
- Upon service of a notice to increase rent, which can be used by landlords annually to increase the rent after the fixed term has ended
So far as (1) is concerned, if a tenant believes his rent is more than the current market rent for his property, he can refer the rent to the Rent Assessment Panel for review. However few tenants will want to start their tenancy by challenging the rent in this way (particularly in view of their landlords right to end the tenancy under section 21 discussed below) and few people are aware of this right anyway.
So far as the second situation is concerned, landlords can easily avoid using the notice procedure (and avoiding any regulation) by increasing the rent via a ‘renewal’ tenancy agreement.
So these rights are used far less than the old fair rents. As a result rents have risen dramatically, encouraging more landlords to enter the private sector.
Security of tenure
The Housing Act provides for two types of tenancy, one with long term security, and one not. The secure tenancy is an ‘assured’ tenancy. This is very similar in many ways to the old protected tenancy, save that there is a mandatory ground for possession for serious rent arrears. This is the tenancy type used mostly by social landlords such as housing associations.
However, most private sector landlords will want the other tenancy type, the ‘assured shorthold tenancy’ (AST). This is actually a type of assured tenancy and differs in just two ways:
- The right to challenge the rent in the first six months, mentioned above and
- An additional shorthold ground for possession set out in section 21 of the act
As with Rent Act tenancies, assured and assured shorthold tenancies will continue as a statutory periodic tenancy after the end of the contractual fixed term (under rules set out in section 5 of the act). With assured tenancies, this is what gives tenants long-term security. However periodic assured shorthold tenancies can be ended at any time after service of a properly drafted ‘section 21’ notice.
It is this right in section 21 for the landlord to recover possession of the property after the end of the fixed term if he follows the proper procedure (i.e. service of the section 21 notice and then via the courts), which has changed radically the picture of renting in this country.
Most landowners are reluctant to let a tenant into their property if it means that the tenant will be almost impossible to evict for two generations. However if they can evict them within six months of the end of the contractual fixed term, that is a different matter.
Succession
For assured tenancies, this is similar to the rules under the Rent Act (and the Housing Act 1988 also changed the Rent Act rules), although only a spouse (again including a same-sex partner) can inherit. However, there are very few assured tenancies in the private sector.
So far as assured shorthold tenancies are concerned, the succession rules are irrelevant, as the landlord can always serve a section 21 notice and (provided both the fixed term and the notice period have expired) evict the tenant through the courts.
Further thoughts
The Housing Act 1988 changed completely the balance of landlord / tenant rights in this country. Now an (assured shorthold) tenant’s security is only either as long as his fixed term lasts, or if it has ended with no s21 notice being served, the notice period of a section 21 notice, plus (in both cases) however long it takes to get a possession order through the courts.
Interestingly, a section 21 notice does not actually end the tenancy (so there is no reason why the landlord should not continue to accept rent), it simply means that the Judge has to grant a court order in possession proceedings.
Some people say that the balance has shifted too far and that it is now much easier for bad landlords to evict tenants who try to assert their rights. However bad landlords have always been with us, they just adapt their tactics to the situation they find themselves in.
Although the current laws are not perfect, at least they have created a system where more landlords are prepared to enter the market in the first place. This means that there is more property available to rent, giving tenants greater choice. Or there would be if there were no housing shortage.
People who want to take away the landlord’s right to evict under the no-fault section 21 ground might reflect on this.
Next time I am going to take a quick look at social housing.
Margaret Thatcher picture by jay galvin
As an addendum Tessa I would stress the astonishing level of social engineering involved. Back in the day we didnt need private landlords. There were enough social homes going.
I remember in 1989 homeless applicants were given three offers of accommodation to choose from, all council or housing association, it was their’s to take their pick and single people who were born and brought up in an area could also easily source social housing, as my mate Shane did. He got a 2 bed council flat in a tower block that families turned down. He was 19 and single.
As you say it was the right to buy that really kicked it all in and drove the serious money that we see being generated by the PRS today, money that along with the housing shortage in London has attracted the criminals.
“Small landlords just buy properties, they don’t usually build them.”
Eh? Unless you mean landlords don’t actually get out their hod and trowel and physically lay the bricks themselves, then I beg to differ.
Landlords were responsible for the creation of 2.5 million homes between the 1996 and 2013, which was 83% of the increase in dwellings over that period.
Attacking private landlords in a housing crisis without having anyone ready to take their place beggars belief.
Take off the rose-tinted’s Ben.
I remember social housing in the 80’s too.
There’s a reason people had their pick of 3 accommodation offers to choose from.
Decent families fought tooth and nail to escape living next door to 19 year old single Shane’s on feral council sink estates.
(Apologies to Shane if he was a paragon of virtue and a perfect neighbour)
Labour were complaining about a severe shortage of rental properties in 1965 though over half the population still lived in rental properties. The protected tenancies they introduced that year were more favourable to landlords than the previous controlled tenancies, but they failed to stop the declined in the PRS. Rather they accelerated it by affecting many more properties. In the 1970s owner occupation became the most common tenure.
In 1980 a limited version of assured tenancies was introduced – secure but without rent controls. They weren’t generally available but had little effect.
There were two main problems with protected tenancies. Fair rents were supposed to be based on market rents, but there was no longer a functioning market, As was proven when a market started working in the 90s they dropped far below a truely fair value. The second problem was that someone considering becoming a landlord would be guaranteed to lose money if they changed their mind as property let on a secure tenancy could not be sold on the open maket, and with the low rents would not fetch much as an investment.
Margaret Thatcher succeeded where Labour has not only failed but made things worse.
I grew up on the edge of a council estate. It had been built in the 50s using PRC. After right-to-buy came in the quality of the houses started to improve as people took better care of their own houses than the council had. Due to the construction method they were (and are) very difficult to mortgage and don’t fetch high prices. Since the people living in them had secure tenancies they weren’t available for new tenants anyway.
There isn’t a general housing shortage in this country,. There are more dwellings per household than ever, even in London. There is a distribution problem. Builders prefer to build expensive houses or luxury flats as they can make more money that way. That had been addresses after the war by lowering the quality of dwellings and trying experiments that often did not work very well. Since standards have been raised and the amount of social housing being built has dropped the supply of new cheap properties is lower.
The 1988 act also gave rent officers powers to stop a major source of benefit fraud. Landlords and tenants were colluding to agree higher rents which would then be paid by the council. Criminals have been around housing for a long time. Rachman (amongst other things) used criminal means to make money from the controlled tenancy system,