Renting Homes: overhaul of Welsh private rented sector finally arrives

It has been a long time coming. The Welsh private rented sector will finally get its long-awaited overhaul when the Renting Homes (Wales) Act 2016 is implemented on 1 December 2022, more than six years after it received royal assent.

In 2019, we wrote about the Act and what landlords, lenders and receivers could do to prepare. Since then, the Act has been amended significantly before even coming into force.

Here, we revisit the main changes the Act will bring about and look at what can be done by those active in the PRS in Wales to get ready for this fundamental shake-up. 

Background

The Act has its roots in the Law Commission’s recommendations in a 2006 report which were not pursued in England but were taken up by the Welsh Government.

It seeks to simplify the PRS in Wales by replacing the various different pieces of existing residential tenancy legislation with one overarching Act which, it is hoped, will be a clear legal framework.

Occupation contracts

Almost all tenancies and licences, whether new or existing, will be ‘occupation contracts’. Occupation contracts can be ‘secure’, when issued by ‘community landlords’ such as local authorities or registered social landlords, or ‘standard’ in all other cases (although private landlords can voluntarily choose to issue secure contracts if they wish).

A tenancy or licence is an occupation contract where:

• Rent is payable (or there is some other consideration).

• It is granted to at least one individual.

• It gives the individual(s) the right to occupy a dwelling as a home.

Exceptions apply, including where no contract holder is 18 or over, and for holidays lets, care institutions and accommodation shared with the landlord, as well as certain tenancies which already have other protections (e.g. Rent Act 1977 tenancies).

Standard contracts can be for a fixed term or periodic. Fixed term contracts automatically become periodic contracts on their expiry if the contract holder remains in occupation.

All occupation contracts must set out certain key matters (property, rent, occupation date, rental period etc.) and include certain fundamental terms which cannot generally be modified or omitted without the contract holder’s agreement.

Written contracts are compulsory

Landlords must provide contract holders with a written statement of the terms of the contract. They face financial penalties and restrictions on their ability to obtain possession if the written statement is not provided or is incomplete or incorrect. The appropriate evidence of compliance is not always readily available to lenders in an enforcement scenario and we discuss the implications of this in the ‘Termination’ section below.

Changes in contract holders

The Act makes it easier to deal with changes in the parties who make up the tenant, for example, in the case of couples moving in together or separating. Parties can be added or removed from the occupation contract without a new agreement being put in place.

Succession

The Act includes a right of succession on the death of the contract holder, but this can be excluded expressly in the written contract. Lenders might consider including a specific term in their conditions requiring the express exclusion of a right of succession in the written contract.  

Landlord’s consent timetable

The Act introduces a new regime for the giving of landlord’s consent. It applies to all matters under the occupation contract which require landlord’s consent. If landlords fail to follow the procedure, deemed consent may arise. Generally, landlords have one month from the request (or from the receipt of any further information) in which to give or refuse consent. Receivers will need to remain conscious of this where requests for consent are made.

Fitness for habitation

Landlords have an obligation to ensure the property is fit for human habitation throughout the occupation contract. The Welsh Government recently published the Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022, which set out matters which must be considered to determine whether a property is fit for habitation.

Deposit protection

The Act requires tenancy deposits to be protected in a similar, but not identical, way to the rules currently in force in England and Wales.

Tenant Fees

The provisions of the Renting Homes (Fees etc.) (Wales) Act 2019, which are already in force in relation to ASTs in Wales, will apply to occupation contracts too.

Termination

Following a consultation proposing its abolition, a landlord’s ability to serve a no-fault eviction notice to end a fixed term standard occupation contract at the end of the term has been retained. Not less than two months’ notice must be given on or before the last day of the term.

However, the new regime will be much more favourable to tenants/contract holders than the current section 21 regime. The landlord may bring a periodic standard contract to an end by giving not less than six months' notice. And notice cannot be given in the first six months of the contract. This guarantees a contract holder at least 12 months occupation under a periodic contract. There are transitional provisions in the Act which apply different notice periods to certain existing tenancies. For example, existing periodic tenancies (which become periodic occupation contracts when the Act comes into force) will retain a minimum notice period of two months and notice may not be given in the first four months of the term.

There are restrictions on the landlord’s ability to serve a no-fault eviction notice where the landlord has not complied with certain requirements of the Act including deposit protection, the provision of a written contract and written information about the landlord, or if certain prohibited payments were taken in relation to the occupation contract. This could cause issues for lenders when they or the receivers are attempting to obtain possession, but do not have copies of the relevant documentation to confirm these requirements were complied with. As lenders will inherit any breaches by their landlord borrowers, they might consider placing obligations on borrowers to comply and keep the relevant evidence.

Leaving no-fault evictions aside, there are changes to other grounds for possession too. There is no equivalent of many of the mandatory grounds for possession in Schedule 2 to the Housing Act 1988.

Importantly for lenders, the grounds for possession not carried into the new regime include Ground 2, which can allow a lender whose mortgage pre-dates the tenancy to repossess a rented property if it has a valid power of sale which it wants to exercise to dispose of the property with vacant possession. This is a ground often used by receivers where they do not have the information regarding a tenancy to be able to use the section 21 provisions. This will be a factor that receivers will need to consider.

Preparing for the Act’s implementation

Lenders will need to review and update their mortgage conditions in advance of 1 December. Many of the recommendations contained in our previous legal insight remain valid. Lenders will, however, be pleased to note the retention of no-fault evictions in the new regime.

With a myriad of new obligations on landlords, the breach of many of which restrict the ability to recover possession, lenders will be keener than ever to ensure their borrowers comply with the requirements.

Landlords will want to review their portfolios and carefully put together the terms of their occupation contracts to ensure they are fully compliant.

In planning for these changes, the hard start date of the Act should be remembered – on the day it comes into force it will apply to all new occupation contracts and existing tenancy agreements with no grace period (although, as referenced above, there are transitional notice provisions in respect of certain pre-existing tenancies).

If you have any questions about the Act and its implications, please get in touch with Graham Walters or your usual TLT contact.

Contributor: Matt Battensby

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.