Legal update – Renting revolution

Renting revolution

Martin Partington led the Law Commission’s work on legal reforms that are set to be the basis of the Renting Homes Bill. Here he analyses the changes in housing law in Wales and the impact on the private rented sector

Introduction

The transfer of legislative power on housing matters to the Welsh Government is leading to a revolution in housing law in Wales. Two major sets of changes are currently in prospect:

• The Housing (Wales) Bill, currently going through the Welsh Assembly; and
• The Renting Homes (Wales) Bill, due for publication in January 2015.

This article focuses on the potential  impact of these changes on those operating in the private rented sector of the housing market. 

The housing (Wales) Bill

The Housing (Wales) Billcontains a number of different measures. When they become law, they will significantly alter the detailed content of the law, as compared with the law in England.

At the moment, the Bill is still on its way through the Welsh Assembly. And large numbers of amendments – including many proposed by the Welsh Government – are being considered. So, much of the detail is not yet settled. However, this should not prevent all those involved in housing in Wales making sure they are aware of what is in the pipeline. This will enable them to begin to plan how they are going to respond to the changes. It is understood that the final Act is scheduled for Royal Assent in the late summer of 2014, and commencement is likely in April 2015.

The major changes envisaged in the Bill are:

• registration and licensing of landlords and letting agents in the private rented sector
• major changes to the law relating to the homeless
• new provisions relating to gypsies and travellers
• the introduction of a Welsh Housing Quality Standard for local authority housing
• new rules relating to local authority rents and service charges
• abolition of the Housing Revenue Account subsidy system
• provision to promote co-operative housing
• giving power to local authorities to increase council tax on empty homes.

Thus, the bulk of the changes relate to powers and responsibilities of local authorities. This is particularly true of the alterations to the rules relating to gypsies and travellers and to homelessness law. These changes will also need to be closely monitored by those providing advice and assistance to the groups particular affected by these changes.

The changes could provide some opportunities for those renting in the private sector, particularly for landlords willing to work with local authorities to enable them to meet their statutory obligations. However, these topics will not be covered further in this article.

Here, the focus is on the first item listed above – registration and licensing of landlords and rental agents.

Registration and licensing of agents and landlords

Proposals to regulate letting agents who are not members of one of the recognised professional organisations, such as ARLA or RICS, have been around for a long time. ARLA and RICS members are required to keep client money in ring-fenced client accounts and to take out client money protection (CMP) insurance. Those bodies argue that unregulated agents have an unfair commercial advantage, because their overheads are lower than those of regulated agents. They also argue that unregulated agents can damage the reputation of letting agents by taking questions of consumer protection less seriously.

The Welsh Government has decided to act. The Housing (Wales) Bill will create a two-stage scheme of registration and licensing. It will be operated by Cardiff City Council on behalf of all the local authorities in Wales. It is based on the existing voluntary accreditation scheme that is already in place. The local authorities will retain the responsibility for enforcement of the scheme.

The scheme will involve a two-stage process: registration and licensing. After an agent has registered, the process of becoming licensed will start. For agents registered on the scheme, the process to become licensed will involve becoming a member of an approved body and ensuring that at least two thirds of staff who are directly involved in the lettings and management of residential properties achieve the accreditation. Accreditation is obtained after successfully completing approved training provision. Accreditation courses will be run by the scheme itself, though other providers – such as ARLA or the Registered Landlords Association – are likely to be authorised to provide relevant training as well.

Similar provisions will apply to landlords. However, landlords will be exempt
from these requirements if they use an accredited lettings agent to manage the letting.

Enforcement

At present, the primary responsibility for enforcement will lie with local authorities. A number of measures are in contemplation:

• Criminal proceedings
• Civil penalties
• Preventing landlords receiving rent
• Making it harder for landlords to regain possession.

Further, local authorities will be allowed to share information concerning council tax and housing benefit to assist in identifying landlords for the registration and licensing of landlords.

While the details are not yet settled, it is clear that the Welsh Government intends that these provisions should be taken seriously.

Next steps?

In terms of what should happen now, I suggest the following:

• agents already regulated should consider how they can market their services to landlords
• agents not already regulated need to think about which regulatory scheme is best for them
• landlord representational bodies, such as the Registered Landlords Association, should be considering how they can help private landlords for whom this will come as a great shock.

Renting Homes (Wales) Bill

The Bill is not scheduled for publication until early 2015. But the Welsh Government announced in a White Paper published in May 2013 its intention to bring into effect the Law Commission’s report, Renting Homes, which was published in 2006.

This makes great structural changes to the law that regulates the rented sector as a whole – private and social.

The main aims of the legislation are to:

1. make it easier for social and private landlords to work together, by removing the rules that only local authorities can create ‘secure tenancies’ and only private landlords can create ‘assured’ or ‘assured shorthold tenancies’. In future, there will be ‘secure contracts’ – to be used for those in long-term housing need; and ‘standard contracts’ for those with more flexible renting requirements
2. create a stable legislative framework within which private investors such as pension funds can invest with confidence in the building of residential accommodation for renting – in the way they currently do with commercial property
3. encourage innovative use of contracts (the tenancy agreement) to deliver a much greater variety of types of short and longer term agreements. Instead of a rigid legislative framework imposing a ‘one-size fits all’ position on landlords, the new regulatory structure would give the Welsh government the option to require landlords to give longer term contracts, for example where lettings are provided to people hitherto on local authority waiting lists. Landlords who wanted to issue longer-term contracts would be able to do so. But landlords who preferred to rent short term, or tenants who wanted only to rent short term would also be able to do so. (This would seem to be a more flexible outcome from the position currently being advanced by the Labour Party for England)
4. improve consumer protection through model occupation agreements which set out in plain language the mutual rights and obligations of both tenants and landlords, and which actually include the different legal rights and duties that are so often left out of or misrepresented in existing tenancy agreements.

At this stage, none of the details have yet emerged.

Obviously, having led the team that produced the report on which the new Bill will be based, I am strongly in favour of what the Welsh Government is proposing. There will be some who are resistant to change and would prefer to muddle along with the over-complex law we currently have on the statute book. But I am certain that, once fully understood, all those involved in the rented sector will see the advantages of the scheme. It will create new opportunities in the market – new ways of doing things that will benefit both tenants and landlords.

I accept that the Welsh Government will have to earmark resources for a public education programme to ensure that the key messages do get through – but this is some time off.

The big question, for me, is how long the divide that is opening up between Welsh and English housing law will remain? Those with businesses operating both sides of the border are likely to be driven mad by having two sets of legislation to satisfy. They will play an important role in ensuring that the Westminster government starts to take tenants and landlords as seriously as the Welsh government is doing.

Martin Partington CBE, QC was Law Commissioner for England and Wales 2001-2005. He led its project on the reform of housing law. He now chairs the Tenancy Dispute Service, one of three companies providing tenancy deposit protection