Indefinite Tenancies Central Housing Group

Call for open-ended renting with reduced rent for long-term tenancies

There should be open-ended tenancies with reduced rent for long-term contracts and any rent increase tied only to inflation.

This dramatic reform of the private rental sector is being called for by a property investment consultancy which says that current thinking about the lettings industry is driven by thinking that is almost half a century old.

Aberdeen Standard Investments says the principle of open-ended tenancies would not be as unpopular as some believe, would give certainty to tenants and landlords alike, and would help make the rental option more attractive to a wider demographic.

It is proposing that the government should introduce a new Assured Shorthold Tenancy regime incorporating:

– Minimum six month fixed term tenancy but tenants can decide if they want longer. A longer term might be incentivised through a rent concession agreed between landlord and tenant. The concession is applied to a headline rent for the fixed term of the lease;

– Following the fixed term, the agreement would continue on a rolling basis at the headline rent. This can only be brought to an end by the tenant or, if one of a small number of grounds is met, by the landlord. These grounds would largely mirror the terms adopted within the Scottish Private Housing Tenancies Act (2016). Certain grounds could be subject to providing fixed compensation for the tenants, based on the length of continuous occupation capped at a year’s rent;

– Two months’ notice would be required to end an agreement at the end of the fixed term with a minimum notice period of three months for rolling contracts. ASI says this will provide the tenant with greater security of tenure “and mean they cannot be forced to leave by an arbitrary decision of the landlord”;

– Tenants can agree a new fixed term after the initial fixed period in return for a new rent concession “providing greater certainty of income for the landlord and tenure for the tenant”;

– There should be a rent review at end of the fixed term (reverting to the headline rent) and annually thereafter. If the fixed term is longer than 12 months then the initial rent review date must be agreed between both tenant and landlord;

– The ASI believes the rent review mechanism “should be solely based on inflation”;

– The agreement is non-assignable with no security for any unnamed parties such as children or dependents. Unnamed parties which are dependents can be added to the agreement if they are over 18 and have lived at the address for five years continuously.

“We need to enter into this debate with an open mind on what a system could look like rather than hark back to previous failed attempts … Any proposal of systematic rent reduction, cap or a decoupling of new lettings from a local market value would fundamentally undermine the entire sector and lead to a reduction in both the number and quality of properties available to rent” insists Ed Crockett, ASI’s head of UK residential investment.

“The goal is to create a tenancy system that works for both tenant and landlord. Getting it right should result in more certainty and less anxiety for tenants through a transparent and flexible lease, whilst creating greater efficiency for the landlord through reduced tenant turnover. Ultimately, renting should be viewed as part of the solution to the UK housing market and not the problem” he continues.

ASI says that across Europe such regulation in the private rented sector ”is not a new or destructive phenomenon.”

And it says that of the circa €8 billion of residential assets we hold across Europe, over €7 billion of that is in markets where regulation of rents and open ended tenancies are the market norm.

“An inconvenient truth is that the larger rental markets often have, or had, forms of private rental sector regulation” it concludes.

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