By J
09/05/2020

A five point plan

I suspect I’m going to regret this, but there is so much flawed analysis and (wilful) misunderstanding around the policies announced by Labour to deal with the housing and Coronvirus crisis, that I think I should write something. In the spirit of full disclosure, I’m one of the (many) people that were consulted about the policy.

 

What is the problem?

The problem caused by the Coronavirus pandemic is easy to identify. There are millions of tenants (whether private, social or any of the myriad range of “intermediate” rental products that exist) who are presently not working. It is unclear when they will work again. Some will be entitled to welfare benefits but (a) not all will and, (b) in any event, in the vast majority of the country, housing related welfare payments (whether HB or the housing element of UC) will be nothing like sufficient to cover the full rent.

Presently, there is no prospect of any of those tenants being lawfully evicted. Practice Direction 51Z means that, in simple terms, there can be no possession claims progressed in such cases. But that is due to expire towards the end of June 2020. It might be extended. Or it might not. Or, on Monday, when the Court of Appeal gives judgment in Arkin v Marshall, the whole Practice Direction might be quashed.

Regardless of the position under the Practice Direction, the Coronavirus Act 2020 (Sch.29) gives some temporary relief. Again, in simple terms, it has extended the notice period of the vast majority of tenants from the normal two months to three months. But it doesn’t stop the subsequent possession proceedings nor does it provide any answer to what to do about the rent arrears.

 

What, then, needs to happen?

(a) Provision needs to be made to stop evictions where the reason for the eviction is Coronavirus related rent arrears. That requires reform to both s.8, HA 1988 (especially Ground 8, although I’d also probably extend it to the other rent arrears grounds) and s.21, HA 1988 (otherwise landlords will just use s.21 to evict and then seek to cut their losses on the unpaid rent by deductions from the deposit). I’d also extend the same protections to tenants of local authorities and amend the rent arrears grounds under the HA 1985. And, although they are now rare, I’d certainly want to protect Rent Act 1977 tenants in the same way.

(b) A policy decision has to be made as to what to do with the rent arrears.

(c) An “anti-avoidance” scheme needs to be created so that a landlord who cannot use a ground for possession does not simply resort to other legal means to put pressure on the tenant (e.g. bankruptcy for unpaid rent).

 

So what is the proposal?

The press release identifies five policy proposals.

  1. Extend the temporary ban on evictions for six months or however long is needed to implement the legal changes below.
  2. Give residential tenants the same protections as commercial tenants, by protecting them from being made bankrupt by their landlords for non-payment of rent.
  3. Bring forward the government’s proposal to scrap Section 21 ‘no-fault’ evictions and outlaw evictions on the grounds of rent arrears if the arrears were accrued because of hardship caused by the coronavirus crisis.
  4. Once evictions are prevented, grant renters at least two years to pay back any arrears accrued during this period.
  5. Speed up and improve the provision of Universal Credit, as Labour recently called for, and consider a temporary increase to the Local Housing Allowance to help prevent risk of homelessness.

 

As far as I can see, those five more than answer the three problems above. Policies 1 and 3 deal with problem (a). Policy 2 deals with problem (c). Policies 4 and 5 deal with problem (b).

 

And what are the criticisms?

So far as I can see, the criticisms are all directed at policy 4.  Taking the broad criticisms in turn

Why can the rent arrears not just be cancelled?

There are a number of obstacles to such a course. Let us look first at social landlords. Cancelling rent arrears owed to local authorities will play havoc with the Housing Revenue Account. That is the ring-fenced fund that local authorities use to pay for repairs, maintenance and build new properties. Abolishing rent arrears means that money that the authority were expecting to have for those purposes has vanished, so that repairs get postponed, properties don’t get built etc. In addition, as a result of changes made to the Housing Revenue Account Subsidy System by the Localism Act 2011, many HRAs are actually heavily indebted. Adding to that debt has significant implications for the business plans of authorities (i.e. it means they can’t build new homes).

The position is similar for housing associations. Although not regulated in quite the same way, most associations have significant borrowing (often at a relatively generous rate), all of which is predicated on rental income. If that income is simply abolished then it impacts on the ability to provide services and new housing. In an extreme case it could even put the association in breach of the terms of its loans. That would be a very bad thing.

As for the private sector, the position is even more complicated. The right to receive rental income from your tenant is a property right protected by Art.1, Protocol No.1. Abolishing it would almost certainly be considered to be a deprivation of property and, as such, would require the state to provide compensation to the private landlord. The sums involved would be eye-watering and, perhaps, not the best use of public money. In any event, it is far from clear how many landlords can afford to absorb a period without rental income. One of the biggest structural weaknesses in our private rented sector is how unsophisticated it is. Around 60% of landlords own just one property. One of the biggest growth areas in the PRS is the lodger market. Such landlords are not equipped to deal with a lengthy period without receiving rental income.

In short, abolition just isn’t on the cards given the current legal framework and structure of our housing market. Now, you can argue about whether or not that framework and structure is the right structure, but changes will take years and require very complex legislation.

 

Why two years to repay?

Well, if you can’t simply abolish rent arrears (see above), you need some repayment mechanism. Two years is as good a starting point as any. More importantly, it buys time for the government, landlords and tenants to decide what to do. For example, suppose that we are still in lockdown a year from now. The scale of the arrears is likely to mean that, in many cases, repayment is unrealistic. At that stage, a further policy choice would need to be made. Some landlords might want to negotiate a “clean break” approach on arrears (say, tenant pays 10p in the £ or similar). The government might want to offer tax breaks if arrears are written off (which would meet my A1/P1 concerns). This is a proposal for emergency legislation. It isn’t necessarily the whole answer. It’s an answer to an immediate cliff-edge problem that arises once PD51Z lapses.

There is also some suggestion that this is somehow putting tenants in debt to landlords. But that is wrong. The moment the tenant failed to pay the rent, they were already in debt. The landlord was free to take any enforcement mechanism permitted by law (eg bankruptcy, court order for the money to be paid and, hence, a CCJ against the tenant). That debt has nothing to do with this proposal. What this proposal does is hugely ameliorate the position of the tenant by giving them a window of time in which the landlord *cannot* take certain enforcement proceedings). To put it another way – if you are reading this and have missed a rental payment, your landlord is presently free to take court proceedings against you (albeit not for possession). What this proposal does is prevent that for a period of time.

 

Why not nationalise the PRS and have the local authority provide social housing for all?

Aside from the enormous cost of nationalising the private rented sector (see the A1/P1 discussion, above), and the years that it would take (Compulsory Purchase proceedings are slow enough as it is), I cannot see that this is attractive whilst the right to buy exists. Why would you want to spend billions on acquiring private property, just to have the tenant buy it at a fraction of its market value? Now, I suspect most readers of this blog would support abolition of the RTB, but that is not presently on the cards.

Why does the policy not include [insert suggested policy idea]

Unless your policy idea can be enacted before PD51Z expires (and enacted by this government) then your policy is not what matters at the moment. The Right to Buy is bad. It should be abolished. It won’t be abolished by this government and even if it was, it wouldn’t address the immediate problem. Rent controls are probably a good thing. But they won’t help people who can’t pay their rents *now* (to say nothing of the government not supporting them). Building more social housing is good (‘tho a local authoritiy should do it via a special purpose vehicle so as to ensure that the RTB doesn’t attach to the property), but won’t solve the immediate problem that we have to face *now*.

 

 

 

 

 

 

 

J is a barrister. He considers housing law to be the single greatest kind of law known to humankind and finds it very odd that so few people share this view.

22 Comments

  1. John-Paul

    I’m a landlord, and the rent my tenants pay me is (pretty much) my income. I’m not one of the many accidental landlords, this is what we do.

    Every tenant not paying rent is lost income to me. We’re living through a plague, so I expect my life and business to suffer with everyone else.

    However, we’re also not eligible to the support available to self employed people or any grants to support my business. No one’s keeping us going so we can bounce back in the future.

    I’m certainly not going to argue that the answer is evicting non-rent paying tenants, but just delaying an eviction until we’re out of the initial crisis just defers things. It’s not as if tenants with reduced or no income are going to suddenly get back to what was previously normal. And even if they did, I’m not sure it will help much.

    If a tenant doesn’t pay rent for three months, even with two years to repay the rent it means people finding an extra 12.5% of their rent every month for two years. Lot’s of people can’t afford that. Six months unpaid rent and it’s 25%. I can’t imagine many tenants have that amount of “surplus” income, let alone carrying that forward into a (fairly inevitable) recession.

    The social tension that that sort of debt burden will introduce is easy to imagine. People owing money will be guided by self interest and simply move away and try and leave the debt behind. Credit histories will be damaged for years.

    There aren’t enough alternative properties available for the country to lose much of the Private Rental Sector. Owed enough money and with future pandemic cycles possible, the temptation to sell up will be hard to resist.

    In the same way that businesses or the self employed are receiving funds to get them through the initial shock of the pandemic, the government needs to pay some people’s rent.
    If people are furloughed, maybe rents should be limited to 80% of what they were.
    If people are unemployed, the LHA rates need to be significantly closer to market value (maybe 80% again).
    If people are still employed and just not paying rent, landlords should be able to evict them – perhaps making ground 8 discretionary to limit any landlord abuse.

    The section 21 abolition either requires wholesale changes to allow different routes to repossession, and is really a pretty London centric problem anyway.

    Reply
    • J

      There are a few points in here, most of them good ones. The debt issue and repayment is obviously critical, both for tenants and landlords. I wouldn’t be surprised if there was ultimately some loan scheme from the gov for landlords (as is being developed in Scotland). If there were such a scheme then it would also allow the government to be even more generous with rent repayment periods (since the repayment could go to the gov over a longer period of time). But these are hard questions and not apt to be solved in emergency legislation.

      Reply
      • Adam

        Why is the landlord expected to take out a loan to cover the debt of the tenant? The loan needs to be made by the government to the tenant to pay their debt (but paid directly to the landlord so it is used for rent).

        Reply
  2. John-Paul

    A parallel concern (which naturally only occured to me as I hit post) is that some (/a lot) of landlords won’t do maintenance when owed money by their tenants.
    They’re obviously supposed to, but human nature is what it is.

    Which also increases the tension.

    Reply
  3. Jamestown

    Some good points here from everyone , there really is no easy way around this , on the other side as well.

    It will be a lot harder to find thood quality tenants for those vacant properties

    Reply
  4. Martyn

    I am sympathetic to the intention behind Labour’s proposals, but it is sadly inevitable that a few tenants will “try it on” and use the crisis as an excuse not to pay rent. Labour’s draft legislation says that the eviction/money claim ban will apply if “[the] failure to pay rent was, in any way, related to the effects of the coronavirus disease”. The words “in any way” are very broadly drafted and to my mind could include situations where someone was able to pay their rent but just decided not to do so. I would be more comfortable if Labour were also reassuring landlords that only bona fide cases of coronavirus-caused hardship would be covered by their proposed legislation, eg emphasising that the tenant will need to satisfy a judge that their reasons for non-payment were genuinely down to the coronavirus (and perhaps granting accelerated possession in cases where the tenant was held to be trying it on).

    Reply
    • J

      That *might* be what eventually develops. Labour are not saying this is the once and for all answer. They are saying that *something* needs to be done to prevent mass issuing of claims once PD51Z expires in June. As I note in the post (and, for the avoidance of doubt, the post is all my own views, not Labour policy), much depends on the wider public health position and economic picture. If there is still mass un/under employment in a year, then, frankly, the arrears will be unmanageable in many cases. There may need to be something done with the tax position of landlords so as to encourage write-off of rents or similar. We simply don’t know. What we do know is that the government has no publicly explained plans for what to do once PD51Z expires. And that is a problem.

      Reply
      • Michael Barnes

        Tax only helps when there is a profit.
        Non-payment of rent means no profit for LL.

        Reply
    • Tim Wragby

      Why not provide an opportunity for rent arrears owed to be paid for by the state and the state then set the timeframe for its repayment- for those working it could be an element of their tax allowance
      Rent due is rent owed and needs to be paid for I am a landlord and an agent with 1000+ properties under management- we have found a significant proportion of enquiries looking for rent off who have been advised on rent deferral reality remarkably find the means to keep pSting their rent. Those who are in genuine need of deferral option have been glad of the opportunity and have signed up – no-one to date has asked for a 2 year repayment plan which is too long despite what has been said above

      Reply
  5. Eusebio

    Surely, the simplest mechanism is extend/make more generous the housing benefit system at least for a while?

    Reply
    • J

      What does “more generous” mean? Increase to, say, cover 50% of the market rent (as it used to be pre-austerity) or increase to 100% of the contractual rent? And do you have any sort of means test? I’m all in favour of increasing HB / UC levels because (at least as a short term answer – the longer term answer is to address the problems of high housing costs) but, as always, the devil is in the detail. Hence, on balance, I lean towards a one size fits all approach (as in these proposals) to buy you the time to think through the wider issues.

      Reply
      • Eusebio

        HB has always been means tested and yes if you can work from home and are being paid/have savings over X, you should continue to pay your rent. The generous element would be on how much i.e. the % of market rent, we would need to increase the LHA to closer to market. The payments could be retrospective (given no one is able to take enforcement action). In the end there is going to be a huge subsidy somewhere in this process, I rather it be at the front end, to keep people in their home and not create further debt to a generation of renters who have limited choices

        Reply
        • J

          But even that position – if you have savings over X then keep paying the rent – begs the question of how long this goes on for. Do they stop paying the rent once a savings hit X -£1? I’m not opposed at all to an immediate increase in benefit levels. But the infrastructure isn’t there to move another Y million people onto HB/UC in a short space of time. Hence you need to create a window when this can all happen at a sensible pace.

  6. Bamidele Akodu (@oluyele)

    I do not believe Labour’s proposals consider the fact that private landlords are obliged to repay the loans taken out to purchase the rental property or service charges or any such charges incidental to the property rented.

    If the tenants are to be given a break from payment of their rent arrears, should this not apply to landlords in respect of their mortgage repayments. service charges etc? After all private landlords are obliged to pay the mortgage just as the tenants are obliged to pay the rent.

    The fact of the matter is that private landlords have stepped into the breach created by the government’s failure over the years to invest in social housing and from what I can see the focus is on the private landlords taking responsibility for the governments failure by asking the landlords to absorb the debts of tenants whose rents are in arrears without a corresponding plan for the landlords in respect of their own liabilities.

    The focus seems to be in my opinion that private landlords are to bear the fall out of the effect of the lockdown on the economy; which is unfair to say the least.

    Whatever the government’s policy might be, it should consider the impact of their policies on both sides rather than just the tenant only.

    Reply
    • J

      I don’t see Labour as harmful to landlords. The rent remains due. It gets repaid over a period of time. The state steps in to some extent by increased welfare payments. The mortgage position is not quite the same – the gov has (albeit through pressure, not law) managed to get most lenders to agree mitigation schemes. Service charges are a different matter and harder to deal with. The building needs to be insured, maintained etc. But I am aware of some large institutional freeholders who have agreed to s/c repayment plans and ground rent re-structuring deals.

      What matters now is that we ensure that the end of PD51Z doesn’t mean a rush of possession claims or other enforcement action. Once that threat has gone, we can look at how we ameliorate the financial pain *for everyone*

      Reply
  7. John Haynes

    What about stock-market investors who rely on regular dividend-paying stocks for their income – not only have many of these dividends been cut but the capital value of the shares themselves have fallen, meaning large loses if the investor has to sell,especially if bought on margin. Should these investors bear all their own losses whilst property investors continue to demand various kinds of tax-payer-funded special protection whilst still refusing to write off arrears or lower rents in line with inevitable market forces and future tenant-affordability?

    @ J – “your landlord is presently free to take court proceedings against you (albeit not for possession)” – does that mean a landlord could use MCOL or small claims to establish the debt without seeking possession? But if so wouldn’t a tenant with at least some income simply use money intended for future rent to pay off the current debt and then need to be taken to court again for the “new” arrears so created?

    Reply
    • J

      Stock markets etc are a different issue. No state involvement there. A1/P1 doesn’t protect you from the fluctuations of the market, just from state actions.

      And, yes. If not paid, rent becomes a contractual debt and can be sued for once it has not been paid. Perfectly possible to sue for a money judgment without seeking possession. The purpose was usually to allow for deductions from deposits.

      Reply
  8. The Big Retort (@TheBigRetort)

    It seems clear to me that

    1. the government has to revisit its taxation on landlords to what it was previously, and reinstate the wear and tear allowance too.
    2. mortgage companies should allow a mortgage transference to a lower rate during the pandemic, and without penalty, until normal business is resumed.
    3. due to the above, landlords can maintain their properties, retain tenants, and assist the country in a time of need.

    As it stands, due to the tax onslaught, I can no longer give my tenants rent holidays, or rent reductions when and where needed.

    Reply
    • J

      Maybe – although I’d have thought the proportionate response to meet the concerns of LLs might well depend on the nature of the LL. A build-to-rent landlord is likely to be in a rather different position to the “rent the flat I bought before I got married” kind of landlord.

      Reply
    • Giles Peaker

      There would be an argument for landlords being given some tax relief conditional on them waiving Covid related arrears, certainly.

      Reply
  9. Si

    Sigh. The issue with Labour (and Shelter) is that they hate landlords and any concept of rent. Yes, hate. In their eyes there is no good landlord and all should be burnt at the stake. The bending of reality to fit their goals really makes any message from them to be essentially worthless.

    The reality is more of an issue – both sides have costs. Tenants and Landlords. Ignoring one over the other does not help anybody and the side that gets stiffed ALWAYS puts the costs onto the other – either by rent increases or just leaving the market and the remaining properties have higher competition which also increases rents (and rent controls will just move it to brown envelopes + bad characters being involved).

    I should also point out that there is NO help for landlords in any of the current government offerings for business/SMEs/whatever as they are not eligible. So any attempt to make the landlords wear the financial loss WILL essentially cause problems for the landlords and their lenders.

    The reality for the tenant is it’s not a 100% non payment of rent that should be offered, but a reduced amount of rent that should be paid. The debt increase from 100% non-payment is horrific and will always lead to major problems later on (just see the issues that UC has created if you want current examples).
    – I would say that eviction should not be possible if a tenant demonstrates a significant ongoing partial payment of rent – this is pretty much the situation in the courts for Section 8 anyway… so not sure that law changes are needed at the moment.

    In terms of BTL mortgage deferred mortgage payments (aka the BTL mortgage holiday), it is a total mess – no lender is willing to accept it and if they do, IT WILL reflect on the landlords credit history. So this is not viable for most landlords in it’s current form.

    I suspect we have a long way to travel in regards to tenant/landlord impacts re COVID-19 and unless all sides work ***together*** and approach the government as a unified group – both tenants and landlords (plus their lenders) will be in for a hard few years with the impacted tenants suffering the worst and landlords a close second.

    in regards to Landlords tax relief, I cannot see the government changing tack as landlords are still political poison. I sense we have traveled back in time to the 1970’s and repeating history without learning anything…

    Reply
  10. Michael Barnes

    Missing from those proposals is anything regarding notices that were issued before the lock-down and the period for starting court action expires before Practice Direction 51Z is lifted.

    Reply

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