Partner Article

Labour’s rent controls: implications for landlords

In anticipation of the 2015 general election, the mainstream parties are all seeking to be “at one with working people”. For Labour, this includes targeting what they consider to be the “rogue” residential tenancy market, which they appear to perceive as taking advantage of working families and young people unable to get onto the property ownership ladder.

One way in which Labour pledges to tackle this is to impose restrictions on the way landlords deal with residential properties.

At a glance, this includes:

Prohibiting rent rises above inflation Scrapping the fees tenants are required to pay to letting agencies before they sign up to a lease Requiring landlords to sign up to minimum 3 year tenancies if a tenant requests this

There has been considerable focus on whether this will work for tenants but little on its effect on investor landlords.

All of these proposals are potential pitfalls, but is it as bad as it seems from a landlord’s perspective?

During the term of a tenancy, landlords will be prevented from increasing rents above the level of inflation.

However, Labour’s proposals do not restrict the rent levels landlords can set at the outset of a tenancy. Accordingly, shrewd landlords will set a higher rent at the outset than they otherwise would do, but-for Labour’s proposals. Tenants then may end up worse off in the long term. Further, if a tenant agrees to a 6 or 12 month tenancy, a landlord can simply continue to set the rent in the manner he or she is accustomed to now by increasing the rent on an unrestricted basis at the end of the term.

Also, there is nothing in Labour’s proposals to prevent landlords increasing rent after a fixed 3 year tenancy even if the existing tenant renews their lease. The result then, is likely to be greater increases in rent every 3 years rather than the smaller annual increases we see now.

The proposed ban on the charging of letting agents’ fees to tenants is likely to simply result in higher management charges payable by landlords. The net result is that these are likely to be passed back to tenants by higher rents from the outset of any tenancy.

Labour’s plans are not fully set-out yet therefore it remains to be seen how, and if, they will adopt them. Based on the skeleton they’ve provided so far though, it may not be as bad as it first seems for residential landlords.

Chris Morgan is a solicitor in the commercial property and corporate department.

This was posted in Bdaily's Members' News section by Samuel Phillips Law Firm .