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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