The Renters’ Rights Act (RRA) comes into effect at the start of May and it is fair to say many people in the real estate industry have been, at best, mildly sceptical as to whether it is the right prescription for our ailing housing sector.
Alexandra Ward
The aim of the act is to offer greater protection for residential tenants. For some in the industry, that translates to more burdensome regulation. But property is not a zero-sum game, and the act will have some negative consequences for tenants – including discouraging investment in the new homes we need to increase supply and drive down rent – as well as some benefits for certain segments of the real estate investment landscape.
It will reshape the operating environment for anyone managing residential assets, including joint fixed-charge receivers, like me. Receivers are often required to take control of portfolios at speed, frequently inheriting assured shorthold tenancies and tenants whose rights the act is designed to strengthen.
There are reasons to believe that while the RRA is not a net positive for the sector, it does come with benefits for lenders that are under-represented in much of the discourse. While lenders need to be careful, as they always are, they should understand that much of the conversation around the act isn’t aimed at them and instead weigh it up on its own merits and make plans to mitigate its impact.
As with most legislation, the impact of the act in an insolvency scenario remains the final piece of the puzzle. In recent years, possession cases have typically taken between 12 and 18 months, depending on the court in which proceedings are heard.
Additionally, due to the receiver’s inheritor status – we take on tenancies once the property is placed in receivership, rather than instigate them – no-fault evictions have always been a challenge. Instead, it is possession proceedings on the basis of lender possession or rental arrears that are the routes open to us and the lenders on whose behalf we act.
It will reshape the operating environment for anyone managing residential assets
However, a review of the new legislation suggests that the grounds for possession available to receivers may, in fact, be broader than those currently available. While the default and notice periods will be longer, a wider range of grounds should provide greater certainty for possession claims from an insolvency perspective.
Additional options
Relevant grounds to recover possession available to receivers will include rent arrears, mortgagee possessions and, crucially, intent to sell. Given that intent to sell is typically the primary objective from a receiver’s perspective for recovering debt, this is a significant clause in the lender’s arsenal.
In terms of likely timeframes, uncontested possession could take as little as four weeks for an accelerated rent arrears claim, compared with around six months under the current system. However, where possession is contested, it may take 12 months or longer.
New ground: reasons for repossession will include rent arrears, mortgagee possessions and intent to sell
Given the inherently contentious nature of receivership, we expect that the upcoming changes will result in longer timeframes to gain possession and ultimately sell the property. It is therefore more important than ever that extended timelines are factored into decision-making at an earlier stage.
With the cost of capital becoming more expensive again, as a freeze on base interest rates and wider geopolitical factors depress capital realisations, it may not be worth the time and effort of gaining possession and instead selling the property now to mitigate for market uncertainty in a year’s time.
While it is likely going to take longer to obtain possession through the new system, a Section 21 notice is still worth considering before May, if there is an issue with your property and the portfolio strategy is to sell your units individually in the next 12 months.
The RRA tightens tenant protections and raises the evidential and compliance burden on landlords. While some new grounds may improve clarity for insolvency-driven possession claims, longer lead times and higher costs are expected. Early planning, robust documentation and timely action will be essential to preserving value.
Alexandra Ward is a senior associate (recoveries and receivership) at Allsop