Renters' Rights Bill

Written evidence submitted by Grainger plc to The Renters’ Rights Public Bill Committee (RRB42).

Executive summary

1. A safe and fair private rented sector (PRS) is a crucial part of the UK’s housing market, providing homes to millions of individuals and families, while enabling workers to move across the country for new jobs, supporting economic growth and productivity.

2. However, some landlords in the PRS have failed to meet the high standards that renters have every right to expect. Action needs to be taken through this Bill to raise standards across the rental market.

3. As such, Grainger supports the overall intentions of this Bill to improve the PRS in the country and raise standards across the nation’s rental market.

4. Additionally, Grainger has plans to invest more than £1.5bn in net-additional, new, high-quality, energy-efficient, long-term rental homes over the next few years, in addition to maintaining the c.12,000 homes we provide already.

5. The Build-to-Rent (BTR) industry, as a whole, could deliver up to 30,000 net-additional new homes per annum, 10% of the Government’s housing target, according to the British Property Federation. Grainger is therefore keen that this investment aspiration is not undermined by unintended consequences caused by the Bill.

6. As a leading responsible landlord, Grainger welcomes the new Renters’ Rights Bill and has no objection to the abolition of Section 21 ‘no-fault eviction’ notices.

7. These reforms will improve the experience for the millions of people who want and need a safe and fair rental market. Moreover, Grainger supports several key reform measures in the Bill, including:

a. Applying the Decent Homes Standard and Awaab’s Law to the PRS – Grainger already exceed these standards.

b. Establishing a PRS Ombudsman to provide redress – Grainger will positively engage to help implement this.

c. Providing a right to request a pet – Grainger already have pet-friendly homes across the UK.

8. However, as a leading expert in this sector, Grainger has identified a few specific areas that will have unintended, adverse consequences for renters and for future investment in – and supply of – new, high-quality much-needed rental homes . These include:

a. the risk of increased short-term lets caused by the ability for renters to serve notice to leave as early as Day 1 of their new tenancy;

b. the risk of spurious challenges to reasonable rent increases overwhelming the First Tier Tribunal and the need to get the balance right on the new right to challenge ‘unreasonable’ rent increases; and

c. the importance of readying the courts with adequate support and resource for additional Section 8 cases

About Grainger

9. Founded in Newcastle in 1912, Grainger provides c.12,000 rental homes to over 20,000 customers representing more than £3.4bn of investment in the UK housing market. We are investing a further £1.5bn into new BTR schemes to develop a further c.5,000 homes.

10. Grainger has made a significant contribution to rental housing supply, including through major regeneration schemes delivered with public sector partners, including TfL, the MoD, and Network Rail.

11. Through our in-house registered provider of affordable housing, Grainger Trust, we have been able to provide mixed communities of market and affordable rental homes, where everyone has equal access to our shared amenities and leading customer service.

12. Grainger’s average rental customer stays for 32 months, with an overall retention rate of around 63% – forging a strong community. Grainger scores highly across all customer satisfaction metrics, with a +43 net promoter score and 9 in 10 customers saying, "they really like their Grainger home".

13. More than half of Grainger’s purpose-built rental properties are outside of London, and Grainger has been a major investor in regional towns and cities across England and Wales, including Aldershot, Southampton, Derby, Nottingham, Sheffield, Bristol, Leeds, Manchester, Birmingham and Cardiff.

14. Grainger is also an Affordable Housing Provider, providing over 1,000 Affordable Homes, through Grainger Trust, Grainger’s in-house Registered Provider.

15. The majority of Grainger’s properties provide residents with dedicated on-site resident service teams, on-site gyms, co-working space and meeting rooms, and super-fast broadband at no extra cost.

16. 94% of Grainger’s portfolio has EPC ratings between A and C, well ahead of the proposed 2030 requirement.

17. Across Grainger’s national portfolio, rental affordability is 28%, below the accepted ceiling of one third. This is also the case across Grainger’s London sites where customers spend on average 28% of their salary on rent.

18. The median income of Grainger’s rental customers nationally is £35,000, the same as the UK average. In London our average customer earns £40,000, below the city’s average income.

19. 1 in 5 Grainger residents are employed in the public or third sectors, including 17% in Education and Healthcare, in line with the national average

Raising rental standards and increasing housing supply through the Build-to-Rent sector

20. Grainger is a leading developer and operator in the BTR sector, having invested £2.5bn over recent years developing new homes across the UK, with plans to invest more than £1.5bn further.

21. The wider BTR sector has the capacity to deliver 30,000 new homes per annum (up to 10% of the Government’s housing target), equivalent of more than £50bn new investment over the next five years, whilst regenerating urban brownfield sites and bringing them back into economic use. This development is not just in major urbans hubs but includes regional cities. In Grainger’s case, we are investing in regional locations such as Aldershot, Exeter, Sheffield, Derby, Nottingham, Bury and Cardiff.

22. BTR properties are new, purpose-built residential schemes that have been constructed specifically for the rented sector, reflecting the needs and priorities of renters. BTR also provides a customer-centric experience where developments are owned and managed by a single, professional, and accountable landlord . There is a clear distinction between the BTR sector and the broader PRS.

23. Grainger believes that BTR is, and should be seen by policy-makers as, a central part of the solution to raising standards in the PRS and achieving the Government’s 1.5m housebuilding target, with the sector’s potential to contribute up to 10% of this target .

24. BTR schemes avoid many of the issues plaguing parts of the PRS, such as poor-quality homes, unscrupulous landlords, and poor value for money. BTR fosters communities within their developments by including features such as communal areas, co-working and dining spaces – and supports residents through wellbeing and community initiatives. In this respect, BTR is already contributing to solving the current issues in the PRS.

25. BTR also offers safe, energy-efficient homes available for long-term rent – at costs that local people can afford. BTR translates patient institutional investment into high-quality homes for rent which would not otherwise be delivered. With its funding derived from long-term institutional investors seeking steady, predictable returns over the long-term, BTR relies upon residents being satisfied with, and secure in, their homes, mitigating against excessive rent rises.

Ability to serve notice on Day 1 risks a rise in short-term let accommodation and will deter investment

26. Under current drafting of the Bill, renters would be able to serve a two-month notice on their landlord from Day One of their tenancy agreement, rather than after a six-month period.

27. This will have several unintended, adverse consequences for renters, while making it harder for BTR developers to invest in new homes, by increasing operational costs and the risk profile of BTR investment:

a. The ability of a renter to issue a two-month notice immediately upon commencement of a new tenancy risks opening a back-door to misusing rental homes for short-term lets (less than 6 months). If a renter can sign their tenancy and submit their notice period on the same day, renters will be able to use a property meant for long-term worker and family rental for short-term purposes.

b. The Government, the industry, and local authorities have worked hard to mitigate against the social consequences of too many short-term lets, yet this loophole risks undermining that effort. Legally, a landlord would have no ability to prevent abuse or prioritise long-term renters and families. The result would be the loss of rental homes, with fewer local homes available for local residents.

c. In coastal communities and tourist hotspots, the lack of a minimum term will lead to a loss of long-term rental homes to AirBnB-style lettings. In cities and towns, there is a risk that rental homes are lost to business stays and party flats. Across the country, the growth of short-term tenures would also lead to more transient renters who don’t lay down roots, undermining the sense of place and community that BTR fosters.

28. The short-lets market in the UK is not insignificant, with around 148,000 properties being used for short lets in 2021 – a number which has seen a dramatic increase [1] . In addition, a number of letting agents have specialist divisions dedicated to the ‘medium-term’ lettings market (less than 6 months). In large cities this market is particularly prevalent due to the large number of temporary employment contracts and/or large projects which require temporary workers. 2023 Rightmove data showed that there are around out of total of 114,605 rental listings, around 4,273 were for short lets (less than 6 months) representing c. 4% of the market.  Other empirical data we have seen suggests that short lets make up 10% of the London rental market. This shows a clear demand for rental properties for customers who only wish to stay for the short or medium term rather than lay down roots.

29. It is right that this market is catered for, however there is a distinct cost in doing so due to the higher turnover of renters and costs associated with this turnover. As such, short- and medium-term lettings tend to command a significantly higher monthly rent than that of longer-term lettings. Taking a live example, a similar two bed property within close proximity to one of Grainger’s London developments, is being advertised for £3,600 pcm as a short let, compared to the Grainger property which is being advertised for £2,490 – and where the renter also benefits from added free amenities provided in a Grainger property (broadband, gym, co-working space, communal lounge etc). This cost differential is reflective of the added cost of operating these type of properties - the NRLA recently published evidence of the turnover cost of a private lettings which equated to c.£1,750 cost to the landlord per tenant change.

30. The risk of this misuse is particularly high in the Build-to-Rent sector because of the ‘turn-key attractiveness’ of BTR homes for short-term use. BTR flats offer easy move-in, furnishings, built-in Wi-Fi, and high-quality facilities:

a. With this loophole, a landlord could not be sure if their new renter proposed to stay for 2 months or a significant period. This represents a barrier to investment in the delivery of new rental homes, as lenders and developers would have no certainty about the occupancy levels and revenue base underpinning the scheme.

b. Landlords need surety over a renter’s contract to invest, but the lack of clarity and the likely growth of short-term tenures would create a risk that landlords need to offset. The lack of a minimum term will increase renter churn and oblige landlords to factor in a higher cost margin in their appraisals.

c. The result would be a significant loss of investment in the delivery of new homes, as well as an inadvertent upwards pressure on rents, particularly cities, which will make it harder for people to find homes they can afford to rent. This will have the greatest effect in regional locations where viability is already stretched.

31. PROPOSED AMENDMENT: The BTR sector proposes that a four-month period should be introduced before a renter can serve notice. This would give confidence to investors to back net additional future rental supply and build communities.

32. To avoid any risk of renters becoming ‘trapped’, Grainger suggests that this minimum period includes exceptions for mis-selling, poor or unsafe living conditions, or breach of PRS Ombudsman regulations. These situations could be arbitrated by the new Ombudsman.

33. ADDITIONAL CONSIDERATION: Grainger would also encourage that consideration is given to exploring whether the specific impact on the BTR sector could be addressed via a specific carve-out.

Getting the balance right on the new right to challenge ‘unreasonable’ rent increases

34. The Bill ensures rent rises can only be undertaken via Section 13 notices and enables renters to challenge their increase through the First Tier Tribunal (FTT). The only constraint is that challenges must be made within the first six months of the increase. Grainger acknowledges the aim to allow renters to challenge rises that are unjustified in relation to the market. However, there is a likelihood that the sweeping nature of this new right will cause adverse consequences.

35. C LARITY REQUIRED: Grainger believes that greater clarification is needed on what constitutes an ‘unreasonable’ rise, to ensure that rent review challenges are based on legitimate reasons.

36. Without clarity about what constitutes an ‘unreasonable’ rent rise, the BTR sector is concerned that almost all PRS households will have an incentive to challenge their rent increase (at no cost or risk, and a guaranteed delay to their increase taking effect), causing an exponential increase in caseload for the FTT. Given a rent increase would not come into force until after the FTT rules, it will be a clear method to delay legitimate increases. Similarly, if the FTT cannot rule that a market rent could be higher than the landlord has proposed, a delay can be secured without risk.

37. For context, in our regulated tenancy portfolio where we regularly use the Section 13 process for rent renewals, c.18% of cases have gone to tribunal in the last 12 months. Of all cases that went to the tribunal due to appeal by either party, c.77% were deemed to have had rent set below market rate and saw the FTT increase the rents above that set by the VOA. This demonstrates a clear willingness from renters to challenge rent increases, even when they have been independently set and are below market rate. This will change under the current drafting of the Bill which does not allow the Tribunal to set rents higher. Naturally this will lead to an increase in the number of rent challenges, a proportion of which will be unwarranted, leading to an unmanageable increase in workload for the FTT. We argue that the current precedent of Section 13 (where rent increases can be back dated and the FTT can increase rent beyond the VOA’s proposal) strikes the appropriate balance, discouraging vexatious challenges.

38. The delays that would arise from widespread use of the right to challenge will undermine investor confidence in the sector and risk the BTR sector’s capacity to deliver new homes. The current drafting of the Bill will also adversely affect investment underwriting due to the fact that rent reviews can only be served 12 months after a determination from the FTT, rather than when the Section 13 notice was to take effect. With the FTT currently taking 3-6 months for each appeal, it is envisaged that landlords will no longer be able to assume annual rent increases, but 15-18 months or longer between rent increases in cases where renters challenge the increase.

39. In Scotland which introduced a similar approach, there has been a significant increase in rent challenges. If the same proportion of rent challenges took place amongst England’s 4.5m PRS households, this would see around 36,800 cases annually – a 4000% increase on current Tribunal rent hearings and would lead to the FTT becoming overwhelmed.

40. PROPOSED AMENDMENT: To make this process reasonable to all parties Grainger suggests that an amendment is inserted into the Bill that notes where challenges are unsuccessful, new rents should take effect from the date on the Section 13 notice. Where this causes the renter significant financial hardship, Grainger proposes that landlords are required to agree repayment plans for the renter.

41. PROPOSED AMENDMENT: Grainger also proposes that the FTT is given the ability to increase the rent to a level above that requested by the landlord in the Section 13 notice.

42. PROPOSED AMENDMENT: The Bill should be amended to state that a Section 13 notice must only be issued once in any 12-month period. This is a change from the current wording which would mean a notice could only be issued 12 months from the change in rent (or FTT determination) and would avoid a situation where FFT delays would mean rent increases could only take place less frequently than once yearly – as is the stated intention.

43. ADDITIONAL CONSIDERATION: To address concerns about the capacity of the Tribunal to process cases in a timely way, the Government should consider a more efficient rent setting process. Prior to the Tribunal hearing an appeal, the proposed increase and a renter’s appeal should be heard by an independent assessor, to filter out spurious appeals. In Scotland, rent appeals are heard within 21 days by Rent Services Scotland. Relatively few cases are appealed to the Tribunal; a body such as the Valuation Office Agency (VOA) could play a similar role in England.

44. ADDITIONAL CONSIDERATION: The Section 13 process, which is largely paper based, is also outdated and should be improved and streamlined, including digitalisation.

Getting the courts ready ahead of significant additional Section 8 cases

45. Without Section 21, the sector will be dependent upon issuing Section 8 notices to deal with anti-social renters. Grainger has dealt with cases where neighbours have ended their tenancies early to escape long-term anti-social neighbours whom the courts could not remove quickly. These delays harm communities and hamper our ability to deliver new rental homes. Over the last 6 months alone, Grainger has had the need to address 18 cases of significant ASB or breach of tenancy.

46. Institutional landlords, including Grainger, have found Section 8 procedures to be slow and inefficient, making swift resolution of anti-social behaviour difficult to achieve. Even after a possession order is made by the court, there can be a delay of several months before it is actioned, causing significant accrual of arrears which are invariably impossible to recover.

47. Grainger has practical experience of the damage that anti-social renters can cause in a shared BTR building, both in terms of the disruption caused to neighbours and the harm to their quality of life. However, because a BTR building includes many apartments managed by the same operator, when anti-social behaviour is prolonged and cannot be tackled quickly, it results in a loss of rental homes and significant costs to the BTR businesses which supply them.

48. In December 2021, for example, reports of anti-social behaviour began to be received within weeks of three new tenancies being granted in one of Grainger’s London buildings. Upon investigation, it was confirmed that all three apartments had been sublet, locks had been changed, and keys handed to multiple individuals who were coming and going the throughout day and night. The behaviour of these residents had a major detrimental impact on neighbours within the building. The incidents included drug use, parties, throwing lit cigarettes and glass from balconies, threatening behaviour to other renters, and a knife attack on a resident. Due to the serious nature of this activity, Grainger had to employ 24/7 security guards over the period, costing in excess of £90,000.

49. As other residents became unhappy with their living environment due to this anti-social behaviour and feeling unsafe in their own homes, Grainger agreed with six neighbouring renters to end their tenancies prematurely, citing anti-social behaviour as the reason for moving out. As these homes could not be re-let responsibly while the anti-social issues continued, this resulted in both a net loss of rental housing supply and significant void costs for Grainger as apartments remained empty.

50. Despite serving notice via Section 8 in January 2022, the courts did not award a possession order until 15th March 2022 and this was not received until 19th April 2022, 25 days later. Owing to a delay to a bailiff appointment due to lack of capacity, possession could not then be gained until 26th October 2022, nearly ten months after notice under Section 8 was first served. In the event, more than £68,000 of rent arrears had to be written off.

51. Across our portfolio nationally, we see numerous examples of anti-social behaviour. The current state of the courts and the surrounding infrastructure involved in supporting Section 8 possession proceedings, means that it takes months, and sometimes more than a year, for us to be able to tackle anti-social behaviour in our communities. This is unacceptable for those neighbours affected by the anti-social behaviour.

52. Without reform and investment, including end-to-end digitalisation and significant funding to increase the capacity of the county courts, Grainger holds concerns that Section 8 notices will not function adequately for renters or landlords.

53. The Government has committed to improving and digitising the courts system it inherited, but the BTR sector is concerned about what reform and how much investment is proposed and when this will come forward. This uncertainty is holding back supply of new homes, as institutional investors looking to support new rental homes but are unsure about when these assurances will be delivered in relation to the abolition of Section 21.

54. This risks real harm to renters. Grainger is concerned that renters in real need of genuine legal assistance will be unable to access justice against rogue landlords without sufficient capacity in the courts.

55. ASSURANCE REQUIRED: The BTR sector would be grateful for assurances on the specific and measurable reforms and investment proposed for the courts, the timescales envisaged, and the outcomes sought. Grainger suggests that reforms to create capacity are delivered swiftly and in parallel to commencement of Section 21 abolition.

October 2024