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I was recently at lunch with two friends, both of whom are landlords. The conversation turned to the Renters’ Rights Act. I was met with blank looks. How were they unaware, I wondered? From next week, how a property is let in England and how easily possession can be regained will change dramatically.
On Friday May 1, landlords and tenants will face the biggest overhaul of the private rented sector in decades when this Act comes into force. Yet from what I’m seeing on the ground, they are far from ready. The UK has some 2.3mn private landlords and according to property inspection platform Inventory Base, only one in five are confident they understand how the changes will affect them. For those who haven’t looked at the new rules, now would be a good time to start.
The legislation, years in the making — first under the Conservatives and then reshaped by Labour — will apply to most properties renting for less than £100,000 a year, or £1,923 a week. At its core is a fundamental shift in control from landlord to tenant.
For decades, the Assured Shorthold Tenancy (AST) has underpinned the rental market, giving landlords a clear end point and a degree of certainty. That disappears overnight, when all ASTs will automatically convert to Assured Periodic Tenancies (APTs) — rolling tenancies with no fixed end date. In these new, open-ended arrangements, tenants will be able to stay unless they choose to leave, or can be evicted on limited statutory grounds.
In practice, that means the removal of something landlords have always taken for granted: the ability to regain their property simply by giving notice.
When I set up a rental property management service for landlords 14 years ago, the regulations were stable, the sums added up and most landlords were in it for the long term. They wanted to outsource responsibility for their properties, while still earning stable income alongside long-term capital appreciation.
Today, the conversations are very different. New research from Hamptons shows that those rolling off five-year interest-only mortgage deals in April are seeing payments rise by 28.5 per cent. Landlords who are barely breaking even, or making a loss, after mortgage and maintenance costs, want to keep their options open.
In recent weeks I’ve talked many through the same concern: “What happens if I want my property back?” One longstanding landlord told me he had always viewed his flat as a flexible asset. But a lot of the flexibility is now gone and for most landlords that’s the biggest psychological shift.
With “no fault” evictions (section 21) soon to become a thing of the past, unless a tenant has fallen into arrears or breached their contract, landlords will have to provide clear legal grounds for possession. For most, the list of grounds they will realistically be able to use is short. Selling the property, moving in yourself, allowing a close family member to move in or carrying out major redevelopment works will qualify. Simply wanting your property back won’t.
If a tenant is evicted due to a sale, the property cannot be re-let within 12 months, so my advice to landlords is to plan for the worst-case scenario and be certain you can cover any mortgage, service charges and maintenance costs for at least a year. The market is soft and if the sale doesn’t happen or falls through, you need to know you can cover the costs until you’re allowed to let the property again.
Several landlords in our portfolio considered serving notice before the changes come into effect on May 1, but many ultimately decided to stay in the market because there’s a dual purpose to the investment, such as using it as a pied-à-terre in the future or passing it down to their children.
Others have chosen to hold on to their property in the hope of a sales market recovery, rather than selling now and crystallising the losses they’re likely to face if they bought in London within the past 12 years, especially when factoring in the cost of stamp duty. However, they need to be prepared for a long wait since there is little on the horizon to suggest a near-term improvement.
Those who remain will need a far more disciplined approach. I’ve long been an advocate for rigorous tenant vetting and under the new regime it will be even more critical. Nobody wants to be stuck with a nightmare tenant they cannot readily remove, especially since there is no longer a pre-agreed end date.
This is already feeding through to risk appetite and every single landlord in our portfolio who has started a new tenancy this year has taken out rent and legal protection insurance, covering arrears, legal disputes or tenancy breaches. Having some protection in place under the new regime is paramount.
Fair and responsible landlords with good-quality properties have nothing to fear from the Act, but there’s no escaping the fact that the system is about to become more heavily regulated and far less flexible. The era of the casual or “accidental” landlord is firmly over.
Jo Eccles is founder and managing director of London buying and property management agency Eccord
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