Select Committee on Communities and Local Government Committee Written Evidence


Memorandum by the Law Commission (SRH 08)

INTRODUCTION

  Since 2001, the Law Commission has been engaged in a major review of the law relating to the regulation of the rented sector of the housing market. The first part of the review was completed in May 2006, with the publication of the report Renting Homes. This, with the accompanying draft Rented Homes Bill, sets out recommendations for a new legal framework designed to simplify and make more effective nearly a hundred years of increasingly complex housing legislation.

  The second part of the review, on the proportionate resolution of housing disputes, is well under way. An Issues Paper was published in April 2006, and will lead to further proposals for reform early in 2007. The third project focuses on the prevention of disputes by the encouragement of good housing management practice and tenant behaviour. It will explore the extent to which legal mechanisms can be used positively to promote good behaviour, rather than simply—as too often happens—focusing on imposing sanctions on those who break the law.

  The Law Commission notes the Terms of Reference for the Select Committee's Inquiry. This submission does not directly address any of the specific matters listed. But we believe the current archaic, complicated and counter-intuitive state of the law is a serious obstacle to increasing the supply of rented housing in both the social and private sectors. Our proposals for a modern, flexible and fair legal framework is a pre-condition for a modern, flexible and fair market in rented housing. This submission explains how this policy objective can be delivered without adding another layer of legal complexity to an already over-burdened body of law.

RENTING HOMES—THE KEY PRINCIPLES

  At the heart of the Renting Homes proposals there are two core principles, both of which relate to the supply of rented housing.

  1.  The first is "landlord-neutrality". The Rented Homes Bill creates the means for separating the identity of the landlord from the terms under which landlords rent their accommodation. Under the present law, local housing authorities can only let on secure tenancies; Registered Social Landlords (RSLs) only on assured tenancies. Although local housing authorities and RSLs are, broadly, in the same business—providing accommodation to those in need—the current law prevents them from working completely in harmony. A local authority cannot enter a partnership with an RSL to develop new housing on equal terms. The Rented Homes Bill allows just that. Indeed, it also enable private investors, should they so wish, to enter the social rented sector and let on exactly the same terms as local authorities and RSLs. (This would enhance the capacity of the private rented sector (PRS) to make a more effective contribution to meeting social housing need—one of the key points raised in the issues of concern to the Select Committee.)

  2.  The second is "consumer protection". Underlying the detail of the Law Commission's recommendations is a very straightforward proposition. Parliament has, for the best part of 100 years, sought to create rights and impose obligations, as between landlords and those who rent from them. But there has never been be any very effective mechanism for informing landlords and their contract holders about their mutual rights and obligations. It is for this reason that the Commission recommends that all landlords should provide a written copy of their agreement, which should contain a statement of those mutual rights and obligations. The detail of what is contained in the agreement is, of course, for Parliament to decide. The model agreements which have been drafted by the Commission reflect the current state of the law. They could be amended as and when Parliament decides this would be desirable. (Indeed the Housing Act 2004 already contemplates changes to the law, for example on the definition of overcrowding, on the provision of energy efficiency certificates, and schemes for protecting tenancy deposits. Information about these matters would be directed both to landlords and their contract-holders through the statutorily prescribed agreement.) Acceptance of these recommendations would be a key element in the "professionalisation" of rental housing providers, particularly in the PRS. There are strong indications that potential investors would welcome the changes in the law recommended by the Law Commission, which would help to increase their interest in making additional investment in the supply of rented housing.

RENTING HOMES AND THE SUPPLY OF HOUSING

  In relation to the issues of concern to the Select Committee, improvement in the supply of rented housing can be achieved in two ways: provision of more housing for rent; and better use of existing stock. The Law Commission's recommendations relate to these objectives in the following ways:

  1.   Investment. In relation to the provision of more housing, the ability of developers to work more closely should ensure that sources of investment, whether from the public purse or from private investors, is used more efficiently.

  2.   Professionalisation. Significant private investment in the development of new housing for rent is constrained, at least in part, by the current inadequate legal framework. [2]As mentioned above, large institutional investors have told us that the current state of the law is a serious disincentive to investment in the private sector.

  3.   Shared equity schemes. Although the Renting Homes report does not specifically consider the question of shared equity schemes, there is nothing in the legal framework for renting housing that cuts across policy developments in relation to shared equity schemes or other policies designed to assist renters to start to acquire an ownership stake in their dwellings.

  4.   Asset management. As regards the better use of existing properties, the Law Commission noted that the present law already gives social landlords (both local housing authorities and RSLs) legal powers to place tenants in suitable alternative accommodation. The fact that the powers are rarely exercised in practice does not mean they do not exist. But by making "estate management" one of two grounds on which possession may be granted by a court, the new legal framework emphasises the importance of ensuring that, as far as possible, social landlords are encouraged to match available accommodation to individual housing need. [3](There are of course constraints built into these principles—alternative accommodation much be "suitable" and it must be "reasonable" to require a person to move—the question of reasonableness ultimately being determined by a judge.)

  5.   Allocation. The levelling of the legal playing field between different social landlords also means that, in allocating accommodation, local authorities and RSLs can work in an even more co-ordinated fashion than they already do. They will be able to reassure those who might be accommodated more appropriately in, for example, an RSL property rather than a local authority dwelling, that the terms of any new letting will be on exactly the same terms. The argument, sometimes heard, that an RSL tenancy is a "second-class" form of tenancy will be a thing of the past. They will be the same.

PROGRESS WITH THE RECOMMENDATIONS

  The Commission's recommendations are currently under consideration by the Government. No response is expected before the end of November at the earliest. And given the range of activity currently in progress on the future of housing policy, the Commission would not be surprised if they received only a holding reply at that stage, with a more formal decision later.

  The Commission has been briefing Ministers and their officials about the scheme they have recommended. It is also clear that significant stakeholders in the housing market strongly support the broad thrust of the Commission's recommendations. (These include: the Housing Corporation, the National Housing Federation, the Chartered Institute of Housing, the British Property Federation and the National Consumer Council.)

CONCLUDING REMARKS

  Many aspects of current government thinking relating to housing in general and rented housing in particular are currently the subject of review. The Select Committee will be aware of Professor John Hills' assessment of social housing for the Secretary of State.

  Typically, governments develop policy and then ask how this might be made effective, and what legislation is required to deliver the policy. The timing if the current exercise is such that there is an historic opportunity to put in place a new legal framework that not only facilitates the delivery policy for the future, but also simplifies and clarifies the rights and obligations of the millions who already rent their homes. This would be a significant contribution to improving the supply of rented housing.








2   This point was strongly made in discussion at the launch of "The Future of the Private Rented Sector" essays published by the Smith Institute in June 2006. Back

3   A lot of detailed conditions are set out in the Rented Homes Bill as to when this ground may be used. These are designed to strike the appropriate balance between the needs of the current occupier and the requirement of the social landlord to get a better "fit" between accommodation and occupant. Back


 
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