Another crackpot idea attacking buy-to-let landlords that will actually harm tenants more

Why open-ended tenancies are dumber than  dumb

No sooner are landlords becoming used to the idea they may have to sign longer tenancies (as discussed in our blogs “What new legislation can buy-to-let landlords expect in 2019?” and “What do you think about three-year tenancies?”) that they have another crackpot idea floated by another quango-like body.

This time, the Institute for Public Policy Research (IPPR) – a group that declares itself to be “the UK’s leading progressive think-tank” (nothing like a little self-adulation, is there?) – has called for the end to fixed-term tenancies. Instead, it believes that all tenancies should be open-ended.

Another attack on landlords – or is it?

Undoubtedly, this is another attempt to attack ‘evil’ landlords. We’ve seen many calls for such action in recent years.

The one that springs to mind is the ban on tenant fees. Clearly aimed at reducing the costs of renting for tenants, it could backfire and make renting more expensive.

Tenants’ fees cover the costs of doing things such as vetting and background checks, drawing up tenancy agreements, and other administrative work. These costs must be covered somehow, and one way is to increase rents. Of course, tenants’ fees are one-off costs to the tenant. Higher rent is an extra cost in perpetuity. A noble aim poorly considered and badly executed.

The IPPR appears not to have considered the consequences of its call for mandatory open-ended tenancies. Should they be brought in as obligatory, the move could backfire on tenants.

Why are open-ended tenancies being considered?

In its report ‘Sign on the dotted line? A new rental contract: Final Report’, the IPPR sets out ‘radical but necessary reform to the private rented sector’, which it says would address the current challenges facing it.

The challenges it has identified include unaffordability, poor conditions, a lack of tenure security and limited control over the place they call home. In addition, it also cites cuts to benefits and welfare reform, a slow court system, and a lack of strategic policy causing ‘structural foundations which are essential for a thriving sector being eroded’. Heady stuff.

To address these challenges, the IPPR makes several recommendations, including:

  • The government should prevent landlords from banning tenants from undertaking reasonable decoration
  • The government should prevent landlords from banning tenants from having pets by default
  • The government should widen access to legal aid and make it available for cases in the housing court
  • The government should launch a review of all taxation relating to private landlords
  • Local authorities should purchase private rented properties to address local housing need

So, as a buy-to-let landlord, you will have to allow tenants to decorate and must allow them to keep pets if they wish. Tenants will have greater access to legal aid to fight you in court – presumably paid for by higher taxes paid by landlords.

Then there’s the IPPR’s recommendation that:

Government should introduce a mandatory open-ended tenancy, ending section 21 (no-fault eviction), removing selling a property as a ground for eviction in the first three years of a contract and limiting rent increases to once a year, capping them in line with the consumer price index.

Capping rent increases don’t work – Berlin tried this and the policy failed miserably. However, the first part of this recommendation is equally poorly thought out. The IPPR believes that making open-ended tenancies mandatory would remove the right for landlords to evict tenants because the landlord wishes to sell. That’s true, and it certainly makes the tenant far stronger in the landlord/tenant relationship.

What the IPPR hasn’t considered is the negative effects of this policy.

Why open-ended tenancies are dumb – especially for tenants

In our experience, there are very few landlords that wish to sell within the first three years of a tenancy, unless they have very good cause too, such as altered circumstances, finances, etc. Very valid reasons. Landlords don’t simply evict because they don’t like the way the tenant looks at them.

Open-ended tenancies would put an end to the no-blame eviction under section 21. Very often, this is used rather than using the real grounds for eviction that often exist in such cases. Evicting someone because of these grounds for eviction would mean:

  • Tenants would be deemed as being intentionally homeless, and so unable to receive adequate support in the benefit and social housing system
  • Other landlords would be less likely to accept their application to rent

In other words, the tenant, and their family is royally screwed.

Are open-ended tenancies really necessary?

There are very few cases where tenants are evicted under the no-blame scenario. The latest figures from the latest English Housing Survey (released at the end of January 2019) show that average tenancy lengths are increasing, and now stand at more than four years. It seems to me that the IPPR may have based its recommendation on a relatively small number of adverse cases, without considering the wider implications.

Landlords do not evict unecssarily. Each eviction adds to a landlord’s costs:

  • After an eviction, homes need to be cleaned and usually redecorated
  • Acquiring new tenants takes time
  • Marketing the property, vetting tenants and getting deposits and paperwork process is not an overnight exercise

A void period of several weeks, coupled with redecoration costs and the costs of reletting, could cost thousands.

Landlords want to keep their tenants for as long as possible. Higher tenant turnover means lower profits. I don’t know of a single landlord who wants to cut their profits. If a no-fault eviction is made, there is usually a very good reason to do so. Forcing landlords to state an explicit reason is likely to damage the tenant more than the landlord.

For effortless property management from a manager that supports both landlords and tenants, contact one of our team today on +44 0 1522 503 717.

Live with passion,

Brett Alegre-Wood

By |2019-04-15T07:58:32+01:00May 6th, 2019|Landlord lessons, Property Management|0 Comments

About the Author:

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Ezytrac. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.