Communities and Local Government CommitteeFurther supplementary written evidence submitted by Shelter

The need for Shelter’s Stable Rental Contract

Private renting is becoming the new normal in England. Some 9 million people now rent from a private landlord—more than at any point since the 1960s. Almost a third of renters are families with children. Children in 1.3 million families are growing up renting privately, rarely having more than six or 12 months’ security in a home.

Shelter is concerned about this lack of stability, and has developed a new policy proposal, using the existing legal framework, to better meet the needs of long term renters: the Stable Rental Contract.

What exactly does Shelter’s Stable Rental Contract do?

Lasts for five years, giving renters the chance to put down roots and make a home for themselves.

This breaks renters from the annual cycle of worrying whether their contract will be renewed or whether they will face an unaffordable rent increase in order to stay in their home. This is at the heart of the greater stability that renters would have if they had the tenancy. Other proposals, focused on annual renewals with market rent increases would not give renters the peace of mind they need to settle in their home and their community.

Limits rent increases to an annual maximum for those five years, so that renters don’t find themselves priced out of their home, and landlords can continue to get a good return on their investment.

Research by Jones Lang LaSalle showed that landlords’ approach to raising rents is currently very mixed. Some landlords do not increase the rent for years, but then charge a substantial hike, while others increase the rent to market every year. This creates uncertainty and worry for renters.

Shelter proposes CPI as the maximum annual rent increase. Landlords would not be obliged to charge it if they felt it was above rent increases in their local market. We chose CPI over RPI and wage inflation as this was a much more stable index over the long term and had more moderate highs and lows—beneficial for both landlords and tenants.

Jones Lang LaSalle’s modelling shows that indexing rents would increase landlords’ returns by making increases more steady and predictable. This is because many landlords do not increase rents for a number of years, and then when faced with a significant rent increase, renters may leave and create the risk of a void period for landlords.

Gives renters the flexibility to give notice if they need to end the tenancy, so that they aren’t locked in to fixed term contracts like many are at present.

No renter in their right mind would sign up to a five fixed contract—our research with renting families showed that many would worry about how they would cope if their circumstances changed or they needed to move for employment. Indeed, this would be bad for the labour market too.

However, by giving renters the chance to make a home in their private rented property, they are more likely to be invested in the home and stay for the long term, reducing landlords’ risk of void periods.

Lets landlords evict tenants if they break the terms of their contract, or if the landlord sells the property.

We know that landlords’ circumstances can change, and we are clear that landlords should be able to issue a Section 21 eviction notice on proof of exchange of contracts to sell the property. This can help reassure lenders and valuers concerned about selling property without vacant possession.

The law already allows landlords to end tenancies where tenants have broken the term of their agreement during a fixed term period using “discretionary” grounds. These cases go through the court system. Not enough robust evidence is available about landlords’ experience of the court system, but we believe the emphasis should be on making sure that the court system is effective at removing non-paying or anti-social, rather than depriving the vast majority of responsible renters stability in their home.

Allows renters to do some decorating to make it a proper home.

We believe that allowing renters to do some home decorating, such as painting, will allow renters to make it feel like home. By encouraging them to invest in the place, they may be more likely to stay for the long term.

Making the Stable Rental Contract happen

Shelter knows that change will not happen on its own, despite it being legally possible. There a number of measures the government can take to remove barriers to longer tenancies.

Make sure the court system is fit for purpose so landlords and lenders don’t worry about getting stuck with a tenant who is not paying the rent or damaging the property.

Our research shows that a significant minority of landlords do still use the eviction grounds that go through the courts and that possession orders are granted at a high level overall (69%), but there is significant local variation in outcomes (ranging from 33% to 95% possession orders granted).

Encourage landlords to offer longer term tenancies by making them more attractive compared to short tenancies—this could be done through the tax system or by making longer tenancies the legal default.

Shelter has set out recommendations in “A better deal” that we believe will make longer tenancies a more financially appealing option for landlords.

We have also set out an option for making longer tenancies the legal default, while allowing shorter tenancies to be offered for those landlords that really need them. There are a range of ways of achieving this—one is to allow local authorities to license the use of short term tenancies by extending the licensing of “holiday lets” used by councils such as City of Westminster.

June 2013

Prepared 16th July 2013