Government propose three year rental contracts
In plans published on the 2nd July 2018, Secretary of State for Communities Rt Hon James Brokenshire MP proposed the introduction of a minimum 3-year tenancy term, with a 6-month break clause. The proposed plans are designed to help renters ‘put down roots’, and give landlords longer term financial security. The concept extends beyond calling your rental property a ‘home’, Brokenshire adds: “It is deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract…”
However, the National Landlord Association (NLA) conducted a poll on tenants and found that only four out of ten (40%) of tenants would want longer term contracts, a further 50% of tenants were happy with the contract lengths they had and 20% of persons surveyed said when they had asked for a longer contract, it had been granted. This is unsurprising, given how longer contracts can be freely negotiated between the tenant and landlord on a discretionary basis. It is precisely this flexibility that fuels the private rental sector – which boomed with the introduction of assured shorthold tenancies back in 1996 – three-year contracts are likely to introduce uncertainty into the process of lenders granting mortgages against a property when their recourse of repossession is hindered by a tenants’ contractual right to inhabit the property.
Three-year contracts also have the chance of working to the detriment of tenants who fall into ‘high risk’ categories for landlords, those who fail credit checks and require guarantors. Tenants may find it harder to find a guarantor as they may be less willing to be financially tied to a three year contract. Guarantors aside, landlords will undoubtedly be more selective with potential tenants, it stands to reason that one would endeavour to protect their investment in the property. The risk to Landlords is noted in section 78 of the Overcoming Barriers to Longer Tenancies in the Private Rented Sector, which states “We are also aware that a legislative approach could restrict landlords on the time taken and burden of repossessing their property through the Section 8 process and steps would be needed to mitigate this.” The eviction process via Section 8 can take months, if not upwards of a year.
Presently, the consultation is just over half way into the eight-week discussion surrounding contract lengths and implementation. As part of the consultation, which runs until 26 August 2018, ministers are seeking views from landlords, tenants and related organisations about the most effective ways to tackle obstacles to introducing longer tenancies, you can find the consultation here with the Q&A section on pages 22 through 30.
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