Section 21 and Beyond What does this all mean?
At the last count, there was estimated to be over two million landlords operating throughout the UK, servicing four million tenants. Recent regulatory changes have been fundamentally changing some of the ways landlords do business. Let’s see what this really means for landlords.
There are estimated to be as many as 2.59 million landlords across the whole UK, according to figures collected by the Treasury. They preside over a private rented sector, where there are estimated to be roughly 5.45 million homes let as buy-to-let properties or homes of multiple occupancy (HMOs).
Landlords have built up a toolkit to help them out when it comes to seeking possession of properties, but as recent political developments have shown, a major overhaul of regulations regarding eviction notices is underway.
Section 21 eviction notices are one such tool landlords have used for a number of years, but as we shall explore in this piece, governments have started altering how they may be used. As a result, landlords might need to start reconsidering strategies, if proposals from the government ultimately come into force as intended. Landlords have built up a toolkit to help them out when it comes to seeking possession of properties, but as recent political developments have shown, a major overhaul of regulations regarding eviction notices is underway.
What is Section 21?
First things first. Section 21 eviction notices were introduced in the Housing Act 1988 as a means for landlords to seek possession of their properties from tenants on assured shorthold tenancies, without having to provide a reason to the tenant for why they wished to seek possession. Effectively, you could be a landlord, requiring possession at short notice, and Section 21 was intended as the mechanism you could use to do so.
Tony Gimple, founding director of Less Tax 4 Landlords, explains: “In general terms, a landlord might wish to use Section 21 because they have decided to sell their property, they are leaving the sector for personal or commercial reasons, the property in question is underperforming, the mortgage term has expired and can’t be remortgaged...or that Section 24 (the capping of mortgage interest cost deductibility) no longer makes the property viable.”
He adds: “What people have to remember is that before the introduction of Assured Shorthold Tenancies (AST), private sector landlords had very few ways of gaining vacant possession if their personal circumstances changed.
- If a landlord realises their property is no longer viable financially, or in any other sense, Section 21 ensures a more convenient means to sell up
- Life happens – personal reasons may require having to sell up at short notice
- Mr Gimple goes further, adding that Section 21 might be employed in situations where landlords have passed away, or “the area is being redeveloped or is subject to a compulsory purchase order”.
- Ultimately, Section 21 serves as a convenient means for landlords to seek possession, but there have been great changes to it in recent years, reducing its scope and altering how landlords can actually use it.
Tighter regulation of Section 21
For a number of years, landlords remained entitled to use Section 21 eviction notices without much in the way of restrictions. However, in 2015, the government introduced legislation which added new requirements for landlords, through the Deregulation Act 2015.
Since 2015, landlords have had to factor in the following new obligations:
- If a landlord is presented with an improvement notice, Section 21 notices would be invalid for six months, as they would be expected to first carry out remedial work to ensure the property was habitable
- Section 21 notices are now invalid during the first four months of a tenancy
- When presented, a Section 21 eviction notice is only valid for a period of six months from the moment it is issued
This is just the beginning – if you’re a landlord, there are far greater changes afoot – in April 2019, the government proposed the idea of scrapping Section 21 notices in England altogether.
As you may have noticed, this discussion is only regarding properties in England. Devolution means the respective countries of Scotland, Wales and Northern Ireland have gone their own way with regards to Section 21, as we shall see. It’s a mixed bag overall, but the trend is moving towards scrappage.
As of mid-2019, things are as follows:
- Northern Ireland shows no signs of ending no-fault evictions - where landlords can evict tenants with two months’ notice for no reason - anytime soon
- Scotland, having scrapped Section 21 back in 2017, could serve as a useful example of what scrappage could mean in the coming years
- Wales is expected to follow England’s move towards eventual scrappage
Is Section 21 used fairly?
Section 21 serves as a means for landlords to seek possession of a property from tenants without having to provide a reason, but landlords may have differing motivations for wanting to use it.
Landlords might wish to use Section 21 but not always for the same reasons. The housing market is constantly shifting, and landlords have the choice of wishing to look for new tenants, or they might simply wish to exit the market entirely. Here are some practical examples of these two situations:
- You wish to sell up your property, but it’s currently occupied by a tenant, and you’re in need of a quick, efficient way of ensuring they will leave the property
- You own a property with a tenant living in it, but they are failing to meet obligations such as rent or they might have done damage to the property
Joe Alexander, Director of property sector publishing outlet Property Notify, says: “An ethical landlord would never voluntarily give up rental income they receive from a good, well-paying tenant.”
This suggests that Section 21 is intended to be used by a landlord as a rational means by which to seek possession if a tenant is demonstrably failing to meet their obligations, as laid out in a tenancy agreement.
As renting a property is a form of income for landlords, the implication is that it only makes sense for a landlord to seek possession at such short notice if they have requirements to sell up entirely immediately, or if their tenant has breached the terms of their tenancy.
Where are we now?
The proposals to scrap Section 21 in England and Wales will somewhat limit the ability for landlords to seek possession of property if the changes are enforced. The government has taken the view that tenants require greater support with regards to housing, resulting in a transfer of power from landlords to tenants.
Putting this into perspective, the government’s proposals for scrappage came after a period in which Section 21 was already being fundamentally altered or weakened, and part of the UK (Scotland) was diverging from the rest of the country on the matter already.
Under the original remit of Section 21, landlords would have still been allowed to use the notices to seek possession without reason after two months, but the requirement for improvement notices, introduced from October 2018, served as a caveat. If enforced on a property, improvement notices block the usage of Section 21 for a period of six months.
Landlords face limits on Section 21
As a result of reforms from 2015 onwards, if a local authority believes housing requires significant remedial work, it can place these improvement notices on a property, meaning landlords will be unable to use Section 21 notices for a period of six months after issue.
Despite some moves to reduce the power of Section 21, landlords are still allowed to use the notices as of mid-2019. If complaints are made about the quality of a property, but no improvement notice is issued, Section 21 is viable, so long as it is not in the first four months of the tenancy.
- Improvement notices are key – some tenants make complaints, but not all of these result in improvement notices
- The Home (Fitness for Human Habitation) Act allows private tenants to take landlords to court if they think they have been negligent about maintaining properties
- Taking complaints to court doesn’t guarantee that the ruling will be in the tenant’s favour, so Section 21 might still be viable, even after court proceedings
Possible impact of losing Section 21
We’ve taken a look at the history of Section 21, along with its uses, as well as some of the recent restrictions that have been placed upon landlords. Now, we will look at what the rental sector thinks could happen to the housing market in the future, if Section 21 is scrapped.
There has been criticism from housing charities that Section 21 has contributed to insecurity for tenants. One such charity, Shelter, which welcomes the proposals for the scrappage of Section 21, says: “Government plans to abolish no-fault evictions represent an outstanding victory for England’s 11 million private renters.”
Shelter is a vocal critic of Section 21, believing that it has left tenants in a more vulnerable position, given that the evictions can be served at short notice. In their view, moves to scrap Section 21 would ensure that more vulnerable tenants aren’t presented with such short-term eviction notices.
In contrast, Joe Alexander, director of Property Notify, is of the view that the scrappage of Section 21, risks leaving both landlords and tenants in a vulnerable position.
Mr Alexander argues: “The Section 21 changes, while certainly leaving landlords vulnerable, could also potentially leave tenants more vulnerable, as landlords may have to leave the sector, tired of more red tape, increased costs and lack of support.”
His argument is based on the premise that the scrappage of Section 21 risks reducing the number of landlords willing to provide properties, reducing the diversity of the private rental market. In turn, he believes tenants lose the freedom to choose from a wide variety of rented properties, forcing them to stay in their existing accommodation.
Mr Alexander goes as far as to say that government proposals could also have profound social implications. He argues that scrappage of Section 21 risks unintended consequences, saying it could reduce “viable rental opportunities, which could ultimately lead to a rise in homelessness, as rental demand and lack of supply pushes prices up”.
Shelter would contend that the proposals to scrap Section 21 are far less of a shake-up to the private-rented sector than some might think. They claim that “landlords will still have the legal power to evict tenants who break the rules of their contract, or if they genuinely need the property to sell or to live in themselves.”
In essence, Shelter clarifies that Section 21 is merely one means by which landlords can seek possession and that its scrappage would do little to impinge on the rights landlords have had for a considerable number of years, to seek possession of property. Shelter concludes, saying: “All these changes will do is stop renters being evicted at short-notice for no reason.”
Tony Gimple notes the further concern that the scrappage of Section 21 could have a negative impact on landlords seeking finance. He says: “It could make mortgage lenders twitchy and some might exit the buy-to-let market or tighten their lending criteria, making it harder for landlords to borrow.”
Any alternatives?
Although the proposed scrappage of Section 21 eviction notices is significant, it does not limit landlords from seeking possession entirely.
- Scrappage of Section 21 is still in proposal stages for England - until it comes into force, Section 21 is still available for landlords to use
- Section 8 is still available, which allows landlords to seek possession (provided they explain the reason for basing their decision, out of a list of 17 possible reasons)
Section 8 remains a clear option available to landlords in the event of Section 21 being scrapped, but critics of the government proposals believe it could result in costly legal proceedings which might not actually produce an outcome in the landlord’s favour.
As indicated by Shelter, Section 21’s proposed scrappage would not remove a landlord’s right to evict tenants entirely - the time frame in which they can seek possession is the factor at play and proposed scrappage would mean landlords would expect a lengthier process to seek possession.
It is important to point out that while the government has announced its aim to scrap Section 21 eviction notices, proposals aren’t the same thing as presenting actual legislation or bills on the matter. Effectively, the Government made its statement of intent, but until there is concrete legislation passed through Parliament regarding the matter, Section 21 remains available for landlords to use, under the existing law.