Renters' Rights Bill

Written evidence submitted by Ian Stern to The Renters’ Rights Public Bill Committee (RRB20).

1. Submission presented by Ian Stern, representing himself as a co-landlord and co-owner/manager of a company whose assets include buy-to-lets.

2. I have reviewed the proposed bill and explanatory notes. My comments are based on the explanatory notes.

3. Executive summary

3.1. Superior Landlord – need to protect freeholders from sanctions and penalties where freeholders are directly or indirectly all leaseholders in a block of flats.

3.1.1. Bringing all leaseholders into this mix seems to fly in the face of the general intention to enfranchise leaseholders.

3.2. PRS database – structure needs to maximise the facilitation of regulatory enforcement of the PRS.

4. Introduction

4.1. I am a co-landlord and co-owner/manager of a company owning BTLs.

4.2. We have flats in a converted house and converted office buildings where the freehold is owned by all leaseholders via dedicated companies.

4.3. I am concerned that where certain new provisions in the bill are designed to look through convoluted tenancy arrangements and target superior landlords then this might open completely innocent 3rd parties to liabilities for sanctions and penalties.

4.3.1. And that such targeting might inadvertently undermine the drive to enfranchise leaseholders in the management and control of the buildings where they live or are landlords.

5. Superior landlord provisions

5.1. The new bill seeks to:

5.1.1. Extend provision for sanctions and penalties to bite on superior landlords.

5.1.2. Require superior landlords to be members of a redress scheme.

5.2. ‘Superior landlord’ needs to be carefully defined.

5.2.1. The freehold to many blocks of flats (whether purpose built blocks or converted houses) is owned by all leaseholders in the block, either directly or, more likely, via a Residents’ Management Company, Right to Manage company or other dedicated Special Purpose Vehicle.

5.2.1.1. Such arrangements give leaseholders control over the building in which their individual units sit, including the ability to manage service charges, extend leases for no premium at peppercorn rent, manage the buildings insurance with no commissions etc.

5.2.2. If the bill’s provisions for sanctions and penalties is intended to bite on the ultimate superior landlord, ie freeholder, then such sanctions and penalties might fall to all leaseholders, even though it is extremely unlikely that all leaseholders will have any responsibility for the transgressions leading to the sanctions and penalties.

5.2.2.1. If the freehold is owned by a corporate (on behalf of all leaseholders) then the limited liability of that corporate will not necessarily protect leaseholders.

5.2.2.1.1. Buildings insurance generally requires that the insured has no unmet liabilities, e.g. rent repayment orders, in which case the building might become uninsurable.

5.2.2.1.2. It is possible that a defaulting freeholder might impact on mortgages used by leaseholders, e.g. if the building is not insured.

5.2.2.1.3. Limited liability might not extend to the directors of such companies. Directors are typically volunteer leaseholders. Leaseholders are unlikely to agree to be directors if they are potentially at risk from sanctions and penalties incurred by a rogue leaseholder. Without directors, then the freehold ownership arrangement might collapse.

5.3. Redress scheme.

5.3.1. Requiring superior landlords who are owned by all leaseholders in the block to be members of a redress scheme will add nothing to the benefits to non-leaseholder tenants while requiring all leaseholders to incur the cost of joining and being a member of a redress scheme.

5.3.2. The freehold ownership structure is typically a not-for-profit arrangement where all costs are met through service charges levied on all leaseholders.

5.3.3. It is difficult to see where a redress scheme in such freehold ownership structures will adjudicate a dispute that leads to sanctions or penalties ultimately falling to all leaseholders.

5.3.4. Leaseholders will be put off volunteering to be directors in such structures.

5.4. Any move to extend sanctions and penalties or regulatory requirements, arising under the new bill, to freeholders owned by all leaseholders will conflict with what I’ve understood is the government’s general intention to facilitate and promote enfranchisement of leaseholders.

5.5. Recommendations.

5.5.1. Consider defining Superior Landlord to exclude entities whose ultimate beneficial owners are all, or majority of, leaseholders in a block.

5.5.1.1. Definition of Block to include houses converted to >1 flats.

5.5.1.2. Consider freehold properties comprising more than one single block.

5.5.1.3. Consider properties with mixed tenures, e.g. private ownership, social housing, shared ownership etc.

5.5.1.4. Consider interim arrangements while the leases in a new block are being sold by the developer.

5.5.1.5. Ensure companies limited by guarantee are treated the same as limited companies with shareholders.

5.5.2. Exclude such arrangements from requirements to be members of a redress scheme.

5.5.3. It might make sense to leave some of this detail to ministerial regulation as inevitably there will be scenarios that the legislation will have missed.

6. PRS database – recommendations.

6.1. This is an excellent initiative.

6.2. Many landlords own BTLs in various ways, e.g. directly in sole name, directly with co-owner(s) and indirectly via a corporate wrap which may, in turn, be solely or jointly owned etc etc.

6.3. To maximise the benefit of the database for enforcement and disseminating regulatory information to the PRS, I suggest

6.3.1. The ultimate beneficial ownership is required for each property and that this looks through, for example, corporate ownership structures.

6.3.2. The database is searchable by property address and ultimate beneficial owner, for the latter whether acting solely or with a joint ultimate beneficial owner.

6.3.2.1. ‘Ultimate beneficial ownership’ is a concept used in other regulatory environments, include banking and anti-money laundering regulations.

6.3.3. Regulators should be able to cross reference private and corporate owners with the Companies House and Land Registry databases.

6.3.4. Parliament should consider how much of this proposed functionality is not publicly accessible and open only to regulators, courts, HMRC etc.

6.4. It would probably make sense to require every property, whether owner-occupied or rented, to be registered to mitigate against loopholes being found.

6.4.1. I note this would not be unique as there is an existing requirement for all rental properties to have an EPC (already accessible on public database) and owner-occupied properties are required to have EPCs when sold.

6.4.2. Similarly, every property is on the publicly accessible Council Tax band database.

October 2024.