News & Events
In this article, Rikki Foster, solicitor and real estate litigator in our Development & Strategic Projects team looks at the implications that The Renters (Reform) Bill will have for property developers.
There has been widespread media coverage about planned changes to the law under The Renters (Reform) Bill but very little, if any, attention has been given to the potential impact the introduction of the Bill might have for property developers.
The first draft of this Bill contained wording to abolish commonly called “no fault” eviction notices, currently available for landlords in the circumstances set out in section 21 of the Housing Act 1988. Whilst Parliament has resolved to delay abolition of “no fault” eviction notices until there have been improvements in the court system, the measure is “down”, but by no means “out”.
How things often work at the moment
After a developer purchases property, there is frequently a period of time, sometimes lengthy, before development can commence. During that period, if the property comprises lettable premises, the developer might seek to have it occupied – by tenants on “contracted out” leases in the case of commercial premises and by tenants on assured shorthold tenancies where the premises are residential.
Of course, a crucial feature in this situation is the ability for the developer to gain lawful possession of the property when it is required for development.
With a residential property held under an assured shorthold tenancy, a landlord – here the developer – can start the process of obtaining lawful possession by serving a section 21 “no fault” eviction notice on the tenant. After the notice period expires and if the tenant has not left, the landlord then issues court proceedings seeking an order for possession.
Provided the correct procedures have been followed, both in relation to the grant of the tenancy and the termination of it, the court must order possession, although if the tenant still refuses to leave a further step may be required where the landlotrd must obtain a warrant or writ for possession.
The foreseeable issues for property developers
However, when section 21 notices are abolished, the only way for a landlord of residential premises to gain possession lawfully will, instead, be through section 8 of the Housing Act 1988, although section 8 is to amended to some extent by the new Bill.
Section 8 provides the mandatory and discretionary grounds which may be used by landlords to start the process of gaining possession of a residential property.
However, the only applicable mandatory ground for developers to use in these circumstances will be ground 6 – “redevelopment” – the revised form of which is set out at section 18 of schedule 1 to the new Bill.
As currently proposed, for ground 6 to apply, the Bill requires first that the tenancy must have commenced at least six months before notice is given under ground 6 and secondly that the landlord must be able to demonstrate that the changes cannot be done with the tenant living in the property.
So, the significant and problematic issue the Bill will bring for developers is that they will need to demonstrate that the changes, that is the development plans, cannot be implemented unless the tenant leaves the property.
Arguments about this will muddy the waters and it is envisaged that, for some developers and some schemes, this will cause major problems.
Developers may opt for safety and refuse to let out the part of the property even though it is equipped and suitable for residential use. Others may decide to take the risk but that might prove to be a costly decision, both financially and in terms of the development programme.
There may also be a knock on effect on funding, with mortgagees of a developer’s interest in a development scheme wary when they know that vacant possession cannot be secured without cause.
Developers need to be proactive in preparing for these changes.