Industry News Paul Shamplina 24/11/2020

BLOG: Section 21 - Going, going, gone…

The NRLA will publish its response to the Government consultation on its Renters Reform Bill next week. The bill includes widespread changes and includes plans to abolish Section 21 repossessions. Here Paul Shamplina, Head of Property for Hamilton Fraser and Founder of Landlord Action shares his thoughts on the Government proposals.

Prior to Covid-19, the abolition of Section 21 was one of the greatest threats to the future of landlords. Although formal government action might temporarily be on hold, it remains very much on the agenda and its purpose is increasingly diluted.

In many ways, the introduction of Section 21 as part of the Housing Act 1988, and the use of assured shorthold tenancies, started the buy-to-let industry as we know it.

It gave mortgage lenders the confidence to lend to landlords, meaning the rental market was not solely attainable to cash buyers. 

The purpose of the Section 21 notice is typically the first step a landlord employs to regain possession of their property. 

However, over the years it has become known as a 'no-fault' eviction, owing to the fact a landlord does not have to provide a reason for wanting possession.

This, I believe, was the beginning of the end of Section 21, giving the false impression that landlords were simply evicting tenants on a whim in order to chase higher rents.

Having worked in the field of eviction for 28 years, I can confidently say that the vast majority of landlords who have used Section 21 did so for the simple fact that it was a quicker route to gaining possession than using Section 8, because it does not require a court hearing.

In my experience, most landlords who serve notice do so for three main reasons; rent arrears, needing to sell or wishing to move back in. 

Let’s be clear, retaliation eviction accounts for less than two per cent of Section 21 notices served.

However, for many landlords, taking this route has come at a high price, having to write-off thousands of pounds of rent arrears just to get their property back.  

The reality is Section 21 proceedings have been on the decline for years. In 2015, there were 35,000 accelerated Section 21 cases, in 2019, there were 20,000 cases.

Could the end of Sec 21 increase homelessness?

Another point that I think has been forgotten along the way, is that the use of Section 21 has enabled thousands of tenants to be re-housed by their local councils.

If a landlord evicts a tenant through Section 8 for rent arrears, the council is not obliged to re-house that tenant because they have made themselves homeless by failing to pay rent.

But if a landlord evicts using Section 21, providing no reason for eviction, tenants are able to present themselves as involuntarily homeless, meaning the council is obliged to re-house them.

We have seen hundreds of cases over the years where tenants have in fact requested that the landlord serve them notice. If this option is no longer available, we will see a significant rise in homelessness.

The private rented sector (PRS) has doubled in size over the last 20 years, which means any changes to the current regulations will have a huge impact on the lives of millions of people, both landlords and tenants. 

We passionately believe that if landlords are forced to become virtually powerless over their own properties, the future of the PRS will be compromised.

Overhauling the process

Following the Government’s announcement and subsequent consultation into repealing Section 21, Landlord Action joined The Lettings Industry Council (TLIC), along with other industry leaders including the NRLA, to advise and lobby the Government about overhauling the possessions process, necessary improvements to Section 8 and the court system.

In October this year, TLIC released a report ‘Beyond Section 21’ which details the negative consequences of the abolition of Section 21, including a reduction in supply of rental properties by up to 20 percent, rising rents and increased pressure on the justice system.

It found that vulnerable tenants will also be hardest hit by tougher referencing and landlords’ decisions to move into other market segments, such as short-term lets.

Whilst the report makes a number of suggestions for implementing measures to balance the impact of abolishing Section 21, including strengthening the grounds of Section 8 and engaging in mediation, the most critical improvements for me are bailiff and court reform.

As it stands, the current legal system / court process will not be able to cope with the significant rise in possession hearings, particularly off the back of Covid-19, which has created a backlog of cases.  

It will not only disproportionately delay repossession proceedings, but also challenge the functionality of the judicial system in general. 

The timeframe for gaining possession is already heading towards 12-14 months in some cases, which now includes the new six-month notice period, and that is without the abolition of Section 21.

If you combine the deluge of barriers which landlords have faced over the last few years, from the stamp duty surcharge and cuts on mortgage interest tax relief, as well as the most recent possibility of an increase to Capital Gains Tax, we’re already heading for an avalanche of landlords selling up.

It is short-sighted of the Government to think that abolishing Section 21 will help tenants when the private rented sector is built on landlord investment.

This is not the time to rush major reforms to the possession process that will restrict the supply of quality rented homes and exacerbate the plight of increasing numbers of vulnerable tenants. 

We must find the best way to give tenants greater security in their homes whilst balancing this with restoring landlord confidence in the process and timeliness of gaining possession.

Setting up a specialised housing court, with several locally based courts, as well as offering the option of using a High Court Enforcement officer, is an effective long-term approach to reducing possession timescales and growing landlord confidence.

More information

The NRLA is submitting its reponse to the Government consultation on Section 21 following extensive consultation with members. Keep an eye on our news sites and social media channels for more information next week.