Student Landlords and the Renters’ Rights Bill – Part 2

This is the second part of my series on how the Renters’ Rights Bill will affect student landlords.  Particularly those letting smaller shared houses.

Links to the other posts can be found in the Series Overview.

In this series, I am writing for the landlords of smaller student properties.  Rather than universities or landlords of purpose-built student accommodation.

In my last post, I looked at the abolition of fixed terms – perhaps the most serious problem facing the sector.

Today, I want to talk about the issues facing student landlords regarding the payment of rent.

The Bill makes several key changes affecting rent:

• The requirement for a ‘proposed rent’ in adverts which landlords cannot exceed – this is to prevent ‘bidding wars’
• The prohibition of rent in advance
• Rent increases to be limited to the section 13 statutory notice procedure
• Changes to the mandatory eviction ground, ground 8.

As most students will only be in the property for one year, the new rules about increasing rent are probably less important.

Likewise, few student landlords will need to bring proceedings for possession (although I will be looking at this in Part 3). It can take up to a year or more to get an eviction claim through the courts.  Most students will be long gone by then.

However, we should take a look at the other points.

The ‘proposed rent’.

I don’t know how prevalent bidding wars are in the student sector, but the precautions taken in the bill to prevent them will apply to student lets as well as other rental sectors.

Landlords may feel that in order to get the highest rent possible, they should make the proposed rent as high as possible.

However, landlords should also take into account the tenant’s right to refer the initial rent to the First Tier Tribunal (FTT) for review during the first six months of the tenancy. This right has always existed (although previously limited to assured shorthold tenants), but has been very rarely used.

In fact, the only instance of it being used that I have heard of was a student property let to a group of law students!

It is more likely to be used once the Renters’ Rights Act comes into force, when the right will be extended to assured tenants.  Because the FTT will (unlike now) not be able to increase rent but only reduce it.

So canny tenants may well sign up to a tenancy with a very high rent, and then get it reduced once they are signed up by challenging it to the FTT.

Again, groups of law students may well be the most likely to take advantage of this right!

Landlords will need to be careful, therefore, to ensure that their proposed rent is at a level which they can justify as a market rent should it be challenged.

Rent in advance

This could be a big problem for landlords. The proposed new rules vary depending on the status of the tenancy:

• Before the tenancy is entered into – no rent in advance is permitted at all. Advance rent paid by tenants must be returned. Asking for it will make landlords vulnerable to civil penalty notices and prosecution under the Tenant Fees Act.
• Between the tenancy being entered into and the tenancy start – one month’s rent ONLY can be taken
• During the tenancy – landlords/agents cannot require rent to be paid before the period for which it is due, but can require it to be paid at the start of the period. However, once the tenancy has started, tenants can pay rent in advance if they want to

For example, if a landlord takes a full term’s rent in advance before the tenancy starts (as many landlords do now), they could face a civil penalty unless that rent is returned.

This could cause problems for student landlords. Often, student rents are paid from a grant or loan, and students will pay the whole of this over at the start of the tenancy, if only to prevent them from spending the money on something else.

If landlords are unable to do this, the temptation for some students to spend the money on something else could be irresistible. Sensible students will pay the money over voluntarily (as they are allowed to do once the tenancy has started).  However, not all students are sensible.

This may be resolved in part by student grants and bursaries being managed differently.  There is no doubt, though, that the change in the rules will put landlords at risk.

This brings us to the subject of

Guarantees

I suspect guarantees will be far more important once the new legislation is in force.

The Renters’ Rights Act brought in one important change to the rules regarding guarantees. This is a new section 16N being added to the Housing Act 1988.  It will (after the commencement date) provide that where the guarantor is a family member of a tenant, and the tenant dies, the guarantor will not be liable for rent.

This was in response to some very sad cases where student tenants had committed suicide and the family guarantor had been forced to pay the rent for the rest of the fixed term.

Note though that

• The change is limited to the death of a tenant. So it will not affect other situations, such as default or abandonment
• It only applies to guarantors who are family members, so for example, it will not apply to professional guarantee companies
• It only appears to apply to the payment of rent. So if (for example) the tenant smashed up the furniture in his room before committing suicide, the family member could still be held liable for this.  Assuming this was something provided for in the guarantee.

When is the tenancy ‘entered into’

This is a phrase used a lot in the Act, but does not appear to be specifically defined anywhere.  Not that I have been able to find anyway.

It is generally understood to mean that the tenancy agreement has been signed by both parties and so forms a contract which cannot be cancelled by either party without the consent of the other.

Other signs that it has been ‘entered into’ are

• a date being given for the tenancy start, and
• where ‘wet signatures’ are given, the copies signed by the landlord and tenants have been exchanged.

My advice for landlords is to treat the date when both parties have signed and (where appropriate) exchanged the agreement as the point at which the tenancy is ‘entered into’.

Generally

These rent-related changes will require student landlords to rethink how and when they take payments.  They will need to ensure their paperwork and procedures comply with the new regime.

In the next post, I will be looking at the new eviction rules for student tenancies.  Find links to all posts in the Series Overview.

Note that I now have some helpful FAQ for landlords on the new rules on  my Landlord Law site.