The Government has always made & controlled the process of Law but now suddenly, thanks to the Credit Crunch and it’s ownership of the banking system, it also owns & controls those who abide by the law. Are we about to see a Government prepared to take a stance when others have to pay the piper, but not prepared to back those ideals with it’s own money?
In 1984 the UK rental market had all but died – privately rented housing stood at 7% of the housing market (down from 90% over 2 generations), and worse – housing was allowed to stand empty rather than be exposed to the risk of being rented to someone who stayed to acquire a Protected Tenancy and it’s dreaded “Fair Rent” (set by Rent Officers at around a third of the market rent). It was believed at the time that one of the drivers of the recession & stagnation of the 1970s economy was the immobility of labour. Norman Tebbit is probably (and erroneously) best known as saying directly to the unemployed “get on your bike and look for work”, and this attitude reflected a certain frustration in government that when there were jobs labour couldn’t live close enough to take them up.
The Assured Tenancy Agreement was introduced in 1985 to address the inequity of the 1974 Rent Act, & it intended to provide the responsible tenant with security of tenure, whilst providing the landlord with a fair process for establishing a market rent when one could not be agreed by negotiation with the tenant. It was fully intended that this legal agreement would be the basis of a whole new recovery of the rental market, and yet 20 years on few letting professionals even knew of it’s existence, let alone the tenants for whom it was put it in the statute book. Why should this be?
Whilst the government was preparing it’s legislation it perceived two problems that required different solutions. It hoped to resolve the problems of how to give a landlord a market rent whilst protecting the tenant’s security of tenure with the Assured tenancy, but it could also see a vast pool of empty houses which the owners wanted to sell or live in themselves in 6 months, or a later date. These stood empty because the owner knew that to rent them out under the 1974 legislation was tantamount to giving them away. For this second problem the government prepared the Assured Shorthold Tenancy Agreement, which we all know today as the only tenancy agreement available. This contract was only intended to be used for stop gap tenancies of 6 -12 months which can clearly be seen from 2 key parts of the initial legislation:
- The tenancy wasn’t valid unless the tenant had clearly been warned that the tenancy could be terminated by the landlord. This legislation appears in section 21, & thus the warning became known as a “Section 21 Memorandum”. If the Section 21 Memorandum hadn’t been served correctly the tenancy would default to an Assured Tenancy.
- Whilst the Assured Tenancy incorporated a mechanism whereby a rent was set by a third party when a landlord and tenant couldn’t agree a new rent, the Assured Shorthold Tenancy has no mechanism whereby the landlord can increase the rent except serving notice & offering a new tenancy.
So what happened to the Assured Tenancy? Well quite simply – no one used it, understandably landlords wouldn’t sign away their tenure of a property when there was an option that gave them a right of possession. In the rental market that existed 25 years ago tenants were desperate for whatever scarce property they could find, so were very happy to sign up for an Assured Shorthold agreement even when they wanted to stay for many years.
Whilst the Assured Tenancy died, the 1985 legislation did indeed save the life of the rental market in the UK, but in ways that the government never dreamt of whilst framing their legislation. The stock market proceeded to crash in 1987, and individuals who were saving for a pension looked for somewhere other than shares for their savings. The Buy-to-Let market was born like a Phoenix from the flames of the Stock Market & the enabling legislation of the Assured Shorthold Tenancy. Before the Assured Shorthold Tenancy Banks & Building Societies made it a condition of loans that a property couldn’t rented out, because they effectively lost their security with a tenant, admittedly there were specialist loans available – but these were at a premium, which of course forced the cost of rental property even higher. The 90s became the decade of the tenant as Buy-to-Let properties were bought, & let out, but the rebirth of a rental market brought typical consumer problems with it.
Consumer problems boil down to – are you best protected buying from someone else, or from a reputable business? The answer is of course a reputable business, I don’t think that there is any argument about that, however the Buy-to-Let market is a vast amalgam of individual landlords who have tainted the reputation of an industry. The Landlords feel themselves consumers too, so in a Landlord v Tenant disputes it’s consumer against consumer, however the tenant consumer has the charity Shelter on their side. Shelter has immense influence over government & has influenced much of government policy over the last 40 years in spite of having no direct experience of the rental market itself. Remarkably for such a massive charity devoted to housing with an annual income of £34,000,000 p.a., it does not actually provide or administer any accommodation for the homeless whatsoever, it’s income is devoted to influencing government policy on housing. A powerful force indeed!
So what to the future? Well Shelter has been agitating for the repeal of the Assured Shorthold Tenancy Agreement, in order to give the tenant the right of possession rather than the landlord. Given that most of Shelter’s campaigns have resulted in successful amendment to legislation this seems inevitable., so what will it bring? Without doubt Banks & Building Societies will withdraw from the Buy-to-Let market if they can no longer secure their loans against the property freehold, & my personal view is that the only possible result of this would be a return to the situation pre 1985. This will result in the loss of much of the housing stock to the rental market, & a consequential rise in rents. This can only be good for the landlords who stay in the rental market for the long term.
There is however an interesting alternative. With the Government currently in effective ownership of the majority of the mortgage market it is in a position to insist that banks & building societies make loans on properties let under Assured Tenancy Agreements. Amazingly there is no need for any change to the Statute Book, the legislation is available to meet Shelter’s demands for the tenant’s possessiary rights, it only requires Government to make a small adjustment to the fine print of it’s lending policies. The big question is whether it is prepared to make that small change?
Now that IS a very interesting thought!
Yours ever
