The Government has said it is open to tax or cash incentives to encourage landlords to move towards longer term three-year tenancies.
A consultation released yesterday by the Ministry of Housing, Communities and Local Government unveiled plans to move from a two-year model tenancy agreement to one that lasts three years.
Under the proposals for a new longer term tenancy model, landlords would have to offer a minimum three-year tenancy but with an opportunity for them and the tenant to leave the agreement after the initial six months if dissatisfied. If both landlord and tenant are happy, the tenancy would continue following the break clause.
Following the six-month break clause, the tenant would be able to leave the tenancy by providing a minimum of two months’ notice in writing.
After six months, the landlord can only repossess their property during the fixed term if they intend to sell the property or by serving a Section 8 eviction notice. They would still be able to serve a Section 21 notice at the end of the tenancy term.
Exemptions could apply for short-term lets or student accommodation, and landlords would only be able to increase rents once a year and must be clear about how charges will increase when advertising the property.
Proposing how the new tenancy length could be implemented, the consultation said: “Financial incentives could be explored. This could be quicker to implement but would still require legislation and could be administratively burdensome.
“The landlord would likely need to demonstrate compliance with other legislative requirements such as completing annual gas safety checks and protecting any deposit taken in a Government approved tenancy deposit protection scheme, and this would need to be easily verifiable. We would also have to consider ways to ensure that incentives were not subject to abuse.”
The consultation cites research by the Residential Landlords Association (RLA) that said 63% of landlords reported that tax relief would encourage them to offer a longer tenancy.
It said: “Any tax incentive would require primary legislation, and need to take into account the interaction between tax, which is partially devolved, and housing, which is fully devolved.
“There is a further consideration around how any tax incentive would play out in Scotland, where they have recently regulated to introduce indefinite tenancies. Different rules would also be required for individuals and corporate landlords.
“Cash payments could be considered for landlords who demonstrated that they had offered and delivered a longer tenancy. Such payments could be administered locally by local authorities.”
The consultation suggests longer term tenancies could also cut down lettings fees charged to tenants.
It said: “Letting agents charge fees for tenancy renewals. The repeated churn in tenancies prompts business for an agent, and the opportunity to charge fees. This arguably creates an incentive for agents to advise landlords and tenants to agree a short-term contract, representing another barrier to longer term tenancies.”
Responding to the consultation, David Smith, policy director at the RLA, said: “With landlords having faced a barrage of tax increases, we believe that smart taxation, such as that being proposed today, would provide the longer term homes to rent many families and older people want.
“We would warn against making it a statutory requirement to introduce three-year tenancies. Many tenants simply do not want to be tied to a property long term. It is vital that the market is able to provide the flexibility that many need in order to swiftly access new work and educational opportunities.”
Meanwhile, agents can expect yet more change to come in the property market as James Brokenshire used his first speech as Housing Secretary at the Policy Exchange think tank, to say more action would be taken to fix the property market.
Brokenshire said he would be launching a call for evidence in the autumn to better understand and improve the experience of people using courts and tribunal services in property cases, including considering the case for a specialist Housing Court.
There was also an update on the Government’s work on leasehold reform, with Brokenshire confirming that any new Government funding scheme will contain the condition that the money cannot support the “unjustified” use of leasehold for new houses.
He said changes will also be made so that ground rents on new long leases – for both houses and flats – are set to zero.
But that may not be the end of consultations as Brokenshire added: “Since 2010, government-backed schemes have helped over 468,000 households buy a home.
“The number of UK first-time buyers is at an 11-year annual high.
“But this ambition still remains out of reach for many.
“That’s why I will be considering further steps in the time ahead on turning the vision of home ownership into a reality.”
The consultation on three-year tenancies will last for eight weeks and close on August 26.