Everything You Need to Know About the Loss of Section 21
Section 21 has got to be one of the biggest sticking points in the rental world right now.
Is it staying, is it going, is it morally fair, should it be used in place of a Section 8 for ease?
Whatever your thoughts on the eviction process, one thing is for certain, if you own rental properties, the conversation around section 21s won’t have escaped you. But, with so much conflicting information flying around, it may well have confused you.
We caught up with eviction-specialist and founder of Landlord Action Paul Shamplina. Paul is well-known to many of us as the face of Channel Five’s ‘Nightmare Tenants, Slum Landlords’, and is the ideal person to shed a little light on this controversial subject.
Is Section 21 it for the chop?
So, to get us started let’s clarify whether or not Section 21 is actually going to be scrapped at some point, as landlords are hearing different things almost daily!
‘Section 21 is going to go at some point,’ said Paul. ‘We’ve now kind of reached the point where we think it genuinely is going to go in the next 18 months or so. It’s fair enough to say it’s definitely going to happen. This will mean that a landlord cannot serve a two month notice to end the contract and get the property back.
‘There was a myth, and it came out through the press, that it was called ‘non-fault’. Generally, there was always a fault.’
The four tops reasons a landlord serves a Section 21 notice, that Landlord Action see are:
- That the landlord is selling. Paul says, ‘I’ve never seen so many landlords selling to get out of the marketplace.’ This is due to high interest rates, Section 24, and the abolishment of the mortgage interest relief, as well as the impending regulation
- Rent arrears. Landlords don’t want to go to court, they just want their property back
- Antisocial behaviour. There could be a whole load of reports by neighbours or disturbances and they just want the property back, because you have to give evidence and a lot of tenants and neighbours are understandably fearful of giving evidence
- Council telling the tenants to stay put. Paul says this is ‘really common’, as tenants are still being told to stay put in a property, so they can be rehoused by the council. If they leave the property, they’re voluntarily going to make themselves homeless.
Paul added, ‘I can tell you now, the split of instructions we get at Landlord Action – and we do the best part of two and a half thousand instructions a year, we’re the busiest we’ve ever been in 23 years – 60% are Section 21 instructions, only 40% are Section 8 instructions. It’s never been that way round. ‘
Why is Section 21 changing?
Clearly something has shifted to make landlords change the way they do things to such a significant extent. Cleary there are good reasons as to why landlords are using Section 21, but Section 8s also have the provision to accommodate many of these issues. Are there any theories as to why landlords are choosing to use Section 21 over and above Section 8?
Unfortunately now landlords are selling their properties, and the big losers in all of this are the tenants.
‘You have to look back at what happened in 2017, the abolishment of mortgage interest relief. In what business does someone get taxed on turnover rather than profit? Well, landlords do, which is ridiculous. And then of course, you had the additional 3% stamp duty. A lot of landlords were incorporating and using company structures which did make sense, and does make sense.’
‘The reality is we do have a short memory, we’ve had 0% interest for the best part of ten years. But in the last fourteen months, interest rates have gone up. Plus many landlords are coming out of their fixed terms, going from 2-3%, up to 6-6.5%. It’s just not worth it and, of course, tenants now are paying the price. Many tenants are paying up to 39% of their wages in rent, it’s unsustainable. That’s an issue.’
The picture Paul paints isn’t a pretty one, in all honesty. With the foolproof way of regaining possession being handed its own eviction papers, it’s hardly surprising that people are feeling nervous. But we still keep hearing that it’s the best time to be a landlord? HOW??
You know, if you run this like a business, it’s a great time to be a landlord if you can foolproof your business because, of course, you’ve got a massive pool of tenants. We are in a rental stock crisis’.
‘Many landlords have got good tenants that have been good tenants in the property for a long time. Lots of tenants have never known anything different. The fact is, the fear of getting a Section 21 is obvious when I speak to a lot of tenants. I’ve even got staff at Landlord Action who have been given a Section 21, and it’s been really stressful for them.’
‘Many landlords want to get out, for multiple reasons. Being a self-managed landlord can be really challenging naturally, but maybe the straw that broke the camel’s back is the mortgage rates.’
Are Section 21’s becoming more common now the end is nigh?
‘Absolutely. We did a recent survey at Landlord Action. We’ve seen a 41% increase of landlords instructing us to serve more Section 21s. The telling factor on this stat is a 91% increase from April 2022 to April 2023’, said Paul.
‘When the deadline happens – and it normally happens in an April or October time – what will happen is you will naturally get landlord panic.’
Landlording can be a good business, and one thing we are in this industry is very adaptable. So, I think that the prediction will be that when the law comes in, I would say that you’ll get a lot of landlords that will be serving tenants Section 21s when they don’t really need to.’
‘Right now, no news is good news. If you got a good tenant paying the rent on time looking after a property, why would you want to evict them?’
Change is clearly on the horizon, but the key message is don’t panic. Just because change is coming, it doesn’t mean you need to freak out and start evicting tenants purely because there’s a deadline looming (at some point in the future)!
‘I would say you need to do a business review. Have you got one property, three properties, five properties? Are you looking to scale up? How are you going to manage that? Get experts to help you. Look where you’re going, and what do you want to do,’ stressed Paul.
‘I’ve got some landlords that are looking at their portfolio and thinking “actually that’s the worst performing property because my base rate or wherever, I’m going to sell that”. The reality is that the housing market prices will naturally come down. They’ve been sky high for a long time, and the days of cheap money have ended to a certain extent. I’m old enough to remember the 90’s recession, and I remember those days at 14-15% percent.’
So, let’s gaze into our crystal ball for a moment. Let’s put ourselves into the future (some point into the future!) and imagine Section 21 has gone. You’ve got a problem tenant or need to sell up, and need to regain possession of your property. What’s the process?
‘Once the change happens, there’s going to be a transitional period, explained Paul. ‘It’s important to have a really robust tenancy agreement. You’re going to have to rely on Section 8 and the Section 8 grounds. At the moment they’re 17 grounds, but you might have end up having 22/23 grounds. There needs to be more mandatory grounds and I’ve been on loads of working groups looking at this.’
‘I worked on a paper with the Lettings Industry Council and the London School of Economics. We said look, you can’t ban Section 21 until you strengthen the grounds of Section 8. Landlords have faith in the court system, but we’re told that housing court has gone off the radar and you have to have mediation, and judges and bailiffs do a lot more online.’
‘If you want to sell your property, that will be a ground, but you must come up with evidence, and it’ll be strict evidence; you can’t pretend you’re going to sell the property and then take it off the market. There’ll be there’ll be provisions in place that you must adhere to, to be able to qualify under that ground to serve a notice. Bear in mind selling a property with a tenant in situ as well, because of course you know, landlords want good tenants.’
‘If you want to move back into the property or your primary family wants to move back in, that’s going be another ground. Circumstances change. You could go for divorce could end up moving. You need to be able to cash in and take the equity out, circumstances change so you will be able to do that.’
‘I’ve also suggested a ground for antisocial behaviour. We’re still waiting to hear on that. How is that going to work, what type of evidence is going to be needed?’
‘Access is a big issue as well. As you know, some tenants don’t give landlords access to be able to carry out vital checks like gas safety, so that’s a real issue. They need to update all the grounds to bring it up to date.’
Are landlords going to struggle?
On paper, it seems like a solid plan. But what is the reality? The theoretical simplicity of Section 21 appeals to most people, there’s no wiggle room and no need to compile reams of evidence. Are the changes going to mean lots of landlords find themselves getting their requests kicked back?
‘Everything’s changed, compared to 15/20 years ago. The game’s changed, the type of renter has changed’, said Paul.
‘The whole point of the Renters Reform Bill that came in is to have decent standard properties. They’re saying that 21% of the properties in the private rental sector don’t meet the Decent Home Standard. I’m saying that the social housing sector is far worse than the private rental sector. I think we’ve got to really dampen down the anti-landlord rhetoric, and that has to come from the government,’ said Paul.
‘You’ve just got to watch and wait, don’t be fearful. You know if your property is making you money, ok, and you’re managing it properly and you’ve got the right people to help you. But I think what landlords do miss a trick on is they don’t put a price on their time. You have to put a price on your time.
Has this worked elsewhere?
Landlords in Scotland are already familiar with the scrapping of their equivalent of Section 21 – it disappeared from their radar back in 2017. How has it been working there, are there positive stores to show that this system really is a better option for landlords and tenants?
‘The raft of changes that have happened to Scotland have been far more extreme than they have been in England’, said Paul. ‘There’s a population of five million in Scotland, there’s a population of 60 million in England, so there’s far more stock. But there’s been a whole load of disputes that have happened in the first tier tribunal which are blocking it up’.
‘If you speak to any landlord in Scotland, I think they would turn around and say that it’s most probably hindered rather than helped. It’s most probably hindered more for tenants exactly like it will here in the short term because good tenants were asked to leave properties.’
‘Tenant organisations obviously want the Renter’s Reform bill, and I totally understand that and I have a lot of sympathy, but in the short term, you’re going see more tenants evicted, because landlords going get out which is worrying for me.’
In a nutshell…
There is no doubt that change is coming, and it is likely to have some knock-on effects to both landlords and tenants. But should those knock-on effects have us toppling like dominos, or do we need to hold fast, and ride it out (again).
‘Look at where you’re at before you make any moves’, stressed Paul.
‘As a landlord, you’re getting access to the best tenants you have ever had. Tenants now are really putting their best foot forward to impress the landlord, but many tenants are struggling so you got to weigh all up as a landlord. It is a business. Do not panic.’