Consultation on the Renting Homes (Wales) Bill
I am writing on behalf of the Residential Landlords Association (RLA), to make representations in response to the consultation on the Renting Homes (Wales) Bill. The RLA represents over 18,000 small and medium-sized landlords in the private rented sector (PRS) who manage over 250,000 across the UK. We seek to promote and maintain standards in the sector, provide training for members, promote the implementation of local landlord accreditation schemes and help drive out those landlords who bring the sector into disrepute. Members also include letting and managing agents.
The RLA aims to ensure that private rented housing can be seen as a first option as opposed to being second best to the owner occupied sector or social renting.
The Renting Homes (Wales) Bill introduces radical changes to the way we rent homes in Wales. Some of these changes the RLA supports, such as increased tenant education and awareness. Although the RLA has some reservations in other areas, many of the principles behind the Bill are well intentioned and with merit. In our response to the questions raised we look at the various concepts and principles underpinning the Bill. We consider what we believe to be the key issues; and we also comment on various provisions within the Bill, some of which are of a technical nature.
1.The general principles of the Renting Homes (Wales) Bill and the need for legislation to improve the arrangements for renting homes in Wales.
1.1 Introduction
We agree that the process of renting a home in Wales has for too long been complicated by variances in contract types and process, with both landlords and tenants often not being fully aware of the key details and rights as well as their responsibilities. The RLA supports the calls to make renting a home simpler and creating what should become a “default contract” for establishing the majority of tenancies in the PRS. Assimilating contracts into two types with as many common characteristics as possible is welcome. We do however have concerns about the upheaval involved, as well as costs associated with implementation. We had originally called for an across the board adoption of the assured tenancy regime, with the addition of various provisions recommended by the Law Commission, which we believe would have mitigated the impact of change. Achieving simplicity is not a straight forward process. Whilst we agree with many of the principles behind the Bill we do have reservations about the particular matters within the Bill.
1.2 The Agreement
Written contracts for particular transactions are a Holy Grail, but repeatedly, history has demonstrated that it is not achievable in practice. We therefore agree with the underlying purpose of the Bill to introduce what is in effect a “default contract”. The hallmark of the private rented sector (PRS), unlike the social sector, is flexibility. Whilst we strongly encourage the use of written tenancy agreements, nevertheless, things are often dealt with orally or with minimum formality. The concepts of fundamental terms and supplemental terms, along with the key particulars, operate as a default contract regime both prescribing minimum requirements and setting out certain basic terms, but, in our view, this replaces informality with a complex approach which is not readily understandable to the non lawyer. We accept that the model contract will in reality set these provisions out, but a model contract is of limited use if it does not replicate tenancy terms which are in common currency. There is also an accompanying need to address all the varied types of property in the private rented sector, both singly and multiply occupied. One size does not fit all.
1.3 A Default Contract
Although the RLA would strongly recommend that landlords create a full written contract, a small minority of landlords may attempt to continue to issue contracts informally, orally or missing out fundamental terms. Where this happens we recommend that the landlord must still issue the Key Terms, of no more than 2 sides of A4 (or face penalty), but otherwise the contract should automatically revert to a ‘Default Contract’ set forth by the Welsh Government. This ‘Default Contract’ would include any provisions that the Welsh Government see fit to include within a tenancy agreement (which should be subject to consultation).
By establishing such a mechanism, the Welsh Government would essentially force landlords to issue contracts correctly inline with the new guidance, or face having the contract written for them by the Welsh Government
1.4 The relationships between various terms
We support the notion to make it clear, by the way of “Fundamental Terms”, exactly what clauses must be included within the contract. This being said the relationship between fundamental terms, fundamental terms which can be changed, supplementary terms and additional terms must be clear. At present it is possible in certain instances to change a “Fundamental Term” if the landlord and tenant agree, and if that change offers greater protection to the contract holder. Many of these “Fundamental Terms” already offer the greatest form of protection to the contract holder, that is likely to be offered in reality and including the conditional ability to alter the term could lead to unnecessary confusion. Instead “Fundamental Terms” should be ‘fixed’ (without the ability to be altered) where appropriate, and where not they could be reclassified as supplementary.
1.5 The need for additional terms
At present the relationship between “Fundamental Terms” and “Supplementary Terms” on the one hand and “Additional Terms” on the other is also something that will need to be the subject of training and education when it comes to landlords putting contracts together. As we identified in the last paragraph, based on what we had seen in the Model Contract, this is somewhat limited. The usual comprehensive tenancy agreement contains many more terms. We perceive this to be a considerable disadvantage in the proposed regime. A Model Contract could not have maximum utility unless it is comprehensive. There is an additional danger here that if terms which are normal in the market place are not incorporated then you end up with the many variations of the tenancy agreements which you encounter today, which undermines any simplification. There is also the danger of terms introduced as additional terms which conflict with Supplemental Terms and the difficulties which can then ensue. We acknowledge the need in any Model Contract for the basic requirement for fairness, having regard to the special status that the Model Contract will enjoy under the Unfair Contract Terms Legislation. We believe that a balance can still be maintained if a rather more comprehensive approach were adopted as to what will be supplementary terms. By reasonably increasing the number of supplementary terms included, landlords and agents are likely to have a few additional terms which they wish to see included. This also means that it reduces the opportunity for terms which “clash” with the prescribed supplemental terms or worst still fundamental terms.
At present it is unclear as to exactly how landlords and tennats will use the power to vary terms in practice. Section 32(3) contains a requirement to ‘identify’ non incorporated terms. Does this mean that for example there could be a list of excluded terms, e.g. “Terms 7, 8 and 9 shall not apply”. Alternatively, would it be acceptable that the supplementary term which would otherwise apply should be crossed out and the crossings out initialled? Clarity is needed. Presumably, however, if another term is incorporated into the contract which by implication would exclude a prescribed supplementary term this is not sufficient?
Much of the additional documentation (such as key matters document) is aimed at explaining the contract to tenants. Because we see the use of these terms as a potential source for confusion, it would be beneficial to see a “how to” guide for landlords putting a contract together. This would also address the issue which we phrased in the previous paragraph around the addition of “additional terms” in the tenancy agreements.
In order to ease the introduction of Additional Terms, the Bill should, in secondary legislation, set out as many Additional Terms as feasibly possible. This will help to increase the clarity of Additional Terms for later use; however this process should also be subject to further consultation due to the inherent nature of Additional Terms as they currently stand.
1.6 The extent of documentation to be handed over
The RLA supports the emphasis placed on improving tenant awareness of their rights and responsibilities. The RLA has long campaigned for more informed tenants to better hold landlords to account and vice versa, because the majority of disputes arise due to a lack of information and understanding on all sides. Keeping this in mind, the RLA feels that the amount of additional documentation that the landlord is required to give the tenant is somewhat excessive. Specifically we are referring to the Key Matters, Easy Read Guide, Model Contract and Model Contract Summary as well as the additional documentation such as deposit protection already required. While we support the need for information to be clear to tenants, this amount of documentation is excessive.
Furthermore increasing the number of documents required to fully establish a tenancy will likely result in more unnecessary errors, as landlords simply forget about one of the less important documents, or where documents get lost and tenants do not sign receipts for documents. The amount of paperwork that a landlord is now expected to complete or hand over during the establishment of a tenancy is becoming an onerous task, especially when considering the amount of ‘accidental landlords’ in the PRS. Overwhelming tenants at the outset with such a volume of paperwork is likely to prove counter productive. It also undermines the concept of simplicity.
If the Welsh Government insisted on having a large volume of documentation to be handed to the tenant, we could expect the Government to meet its commitment to sustainability. This would mean allowing information to be given electronically to minimise the physical impact of reams of paperwork that would otherwise be created. See section 2.1 for further details of ‘Digital by Default’.
1.7 Problems with new concepts and terms yet to be scrutinised by the Courts
The RLA is cautious that with any new Bill, especially one which rewrites tenancy agreements, new terms and concepts can often cause difficulty when it comes to legal interpretation. Many of the new terms and concepts are yet to be tested by legal scrutiny, thus increasing the potential for problems once the Bill is implemented. One of the core principles of the Bill is simplicity. This should mean simplicity for the tenant and landlord so that their respective legal positions are clear.
It is important, in our view, that the Bill itself avoids uncertainties and that issues raised as it passes through the Assembly are clearly addressed. It has taken many years and various cases to interpret the assured and secured tenancy regimes. Case law now provides a considerable element of certainty but the reality is that there will be a significant number of test cases because of the novel concepts introduced in the Bill. Indeed, these will take up much of the cost involved in implementation. We hope that as the Bill is scrutinised and questions are raised that answers will be incorporated in the Bill as necessary by appropriate amendments to deal with these. These terms (or for this matter, the Bill) should not be defined by a number of legal battles, which are ultimately costly, and may undermine the Bill.
1.8 Inter relationship with common law and existing legislation
The Bill cannot and should not operate in isolation from the common law. It is an impossible task for any Bill such as this to incorporate all common law or existing legislation. It has to be recognised, that the foundations on which the Bill sit are common law concepts such as tenancy and licence, which in turn are underpinned by the law of contract. There is nothing wrong in our view in relying on common law where this is appropriate.
This relationship with the common law can be viewed in two stages up to the formation of the contract and then thereafter during the course of the tenancy. In reality, the involvement of the common law in particular cannot be excluded from either. After all it is a precondition of the existence of an occupational contract that there should be a licence or tenancy, both of which involve contractual common law concepts (see Section 7 of the Bill). It is perhaps legitimate to criticise the assured tenancy regime because, when it comes to termination, it is heavily dependent on common law provisions, but we feel that the provisions of this Bill, as it currently stands, fails to take account of the realities of the PRS, especially in relation to tenancy termination. Section 147 purports to provide an all embracing code, subject to limited exceptions in relation to rescission and frustration. This, coupled with the absence of a provision requiring occupation under occupation contract as being in respect of an only or main home, gives rise to potential difficulties, as it overlooks both implied surrenders and mergers (when the tenant acquires the freehold for example). In particular this fails to address the important issue of implied surrenders – see below.
It is disappointing that, contrary to usual practice, the Bill does not contain a list of relevant repeals or amendments to existing legislation. For example, the inter relationship with the provisions of the Bill and the Protection from Eviction Act 1977 are important.
Likewise, the inter relationship between the Bill and the Law of Property Act 1925, especially when it comes to formalities is significant. We question the need for there to be a deed where a tenancy exceeds three years or is not granted in possession. This could be amended to 7 years so as to tie in with the requirement of HML and Registry as to registration. Most tenancies are not actually granted in possession because there is often a delay before a tenant moves in. This strips the tenant of certain protections, e.g. if the property is sold by the landlord in the meantime. It can also mean that the provisions of Section 62 of the 1925 Act, implying certain easements do not apply. The opportunity should be taken to address technicalities of this nature.
1.9 Basic Concepts
1.9. Dwelling”
This is barely defined; for example the traditional reference to “building or part of a building” is not even included. The issue of tenants sharing with others (beside the landlord) is not addressed. Therefore protections which work well in relation to shared accommodation as contained in the assured tenancy regime are omitted. In case law the Ultratemps case settles the issue that if the key amenity is omitted where the tenant does not have the use of other accommodation, it is still a dwelling. However, case law has not determined whether a property is still a dwelling even though the tenant has shared use of the amenities such as a kitchen. Do the premises actually let still comprise a dwelling as a key facility is outside them? Whilst dealing with a different concept of “separate dwelling” the assured tenancy regime addresses this issue. This is an example where clarity at the outset would be helpful to avoid subsequent litigation.
The Bill provides an opportunity to address the issue of “home working”. Whilst business tenancies within the scope of the Landlord & Tenant Act 1954 are excluded from the definition of “dwellings” this key issue is not addressed. The volume of business tenancies and those “home working” is increasing, we would expect to see this recognised within the Bill. The UK Government have raised the issue of the necessity to amend the 1954 Act legislation so that unintentionally what started out as a residential letting cannot be brought into the scope of the 1954 Act. Another issue which the Bill does not address is whether the list of exceptions for Section 7 set out in Schedule 2 is intended to be exhaustive or whether the residential lettings fall outside the scope of a “dwelling” even though that particular type of occupation does not fall within the exceptions listed in Schedule 2 (see R (CZ) v London Borough of Newham where the Supreme Court held that the provision in the Housing Act 1988 was not exhaustive).
1.9.2“The Tenancy”
Again, the definition of “tenancy” is skimpy. One assumes that it includes a tenancy be estoppel. Again why cannot this be spelt out to avoid uncertainty? In practice, properties are often let out by a letting agent or a father may manage and let family properties in his own name when in fact they belong to other family members. It is important to address these casual relationships; avoiding uncertainty.
1.9.3 The “Principal Home”
The requirement of “principal home” is no longer a key element for the existence of an occupational contract. Nevertheless, the requirement for a property to be a person’s only or main home is important when it comes to certain aspects of the Bill, e.g. possession of abandoned dwellings (See Section 216) and exclusion of joint contract holders (Section 221). We have already commented adversely on the problems around drafting contracts from a landlord’s perspective and omitting such a requirement is therefore yet another trap for the unwary, especially if no provision is incorporated in the Model Contract (as is presently the case with the Law Commission’s version). This brings us back to the point we have made about what is in termination because under the assured tenancy regime if the tenant moves out for good (e.g. into long term care) the landlord can take action at common law to terminate the contract, e.g. by serving notice to quit.
1.10 The upheaval and cost to landlords
As mentioned previously, the Renting Homes (Wales) Bill creates wide scale changes to the way we rent homes in Wales, which inevitably will incur a significant cost. The cost of this Bill falls in three main areas, landlords, markets and government expenditure. Inevitably, some of the costs payable by landlords will be passed onto tenants through increases in rents.
This Bill is expected to increase costs for landlords when renting out a property under the new system. This includes the obvious such as further training, extra printing costs and re-issuing tenancies. It also includes some less obvious costs, for example with such big changes being introduced, inevitably more landlords are likely to make mistakes, especially early on. This could mean increased court visits, reissuing of documents and changes of business practice. Some of these costs can be mitigated against, for example by distribution of a ‘how to’ guide for landlords, greater training and the inclusion of ‘Digital by Default’. There is the likelihood of significant litigation costs as the provisions for the Bill are tested in the Courts. The ever present ingenuity of lawyers should never be underestimated.
The Renting Homes (Wales) Bill also poses a threat to further investment in the market, due to increased levels of financial risk. Where the Bill has made it more difficult for landlords to recover assets, or where the Bill increases the length for a potential return of investment (see retaliatory eviction below), the Bill also impacts the market viability of further investment in the PRS. This is potentially dangerous considering the increasing demand on the PRS and the new discharge of homeless duties, landlords should not be discouraged from investing further in their property (which benefits the tenant) or expanding their portfolio (which helps increase supply for tenants and social tenants).
1.11 Implementation/training
The huge upheaval to which we referred above makes it essential that there is both sufficient awareness and training, particularly for landlords and agents. We are concerned that as yet no thought has been given for how the new regime under the Housing (Wales) Act regarding mandatory training as part of licensing process will be used or tailored so as to meet the requirements of this Bill. We estimate that there are at least 70,000 private landlords in Wales. The Welsh Government have a figure of 80,000. A significant number of these will be accidental landlords or landlords with one or two properties. We need to get a message across to them regarding the terms of this Bill, once it is implemented, and this will be a huge endeavour. It is important, that the Welsh Government explores ways of using the registration and licensing scheme to put across a message regarding the requirements of the Bill. Likewise, it is important that tenants are alerted to the provisions of the legislation.
To achieve this need, we would expect to see a full communications plan, including costing, as to how the minister expects to inform and educate all effected by this Bill.
Turning now to the key issues in the Bill
1.12 Removal of the 6 month moratorium
The removal of the ‘six-month moratorium’ has a number of benefits for both landlords and tenants, adding a degree of flexibility to the system. Contrary to some views, landlords do not (nor does it make good business sense) consistently look for ways and means to evict good tenants. Landlords do however risk assess tenants in order to establish whether that