Last updated: 18 Nov 2024
While the abolition of Section 21 has grabbed the headlines, it’s not the only significant change proposed by the Renters’ Rights Bill.
The move away from fixed-term and towards periodic tenancies also has some key implications for agencies.
Increased tenant churn is a possibility, which could result in more viewings and more admin for agents.
Agencies need to be mindful of this, given that Goodlord’s lettings industry research shows that 33% of letting agents are already citing stress as a significant issue. 42% also report they don’t have enough time to manage their workload.
Still, the changes are unlikely to have the drastic effect many fear. This is something Scottish agents can attest to, following the country’s abolition of fixed-term tenancies in 2017.
In this blog, we’ll help you prepare for the changes and suggest ways you can replace any lost revenue.
For letting agents, fixed-term tenancies are a win-win.
On the one hand, they offer the security of long-term revenue. On the other hand, they have clear end dates, triggering renewals which agencies rely on for revenue.
As a general rule of thumb, agents also charge around an 8% fee for a 12-month contract with let-only landlords, which is the equivalent of one month’s rent.
By contrast, periodic tenancies offer less value and opportunity to agents in the current landscape.
They function as a default option when a new contract between the landlord and the tenant isn’t agreed upon, but both parties want to continue their arrangement on a rolling basis.
However, the status quo is about to change…
As part of the Renters’ Rights Bill, which the Government wants to become law in the first half of 2025, fixed-term tenancies will be abolished. In other words, all tenancies will become periodic, regardless of whether tenants and landlords prefer longer-term contracts.
That means any tenancy you sign now will immediately become a periodic tenancy once this happens, rather than running for the duration agreed in the contract.
Alongside the Renters’ Rights Bill’s other reforms, including the abolition of Section 21, this makes it the most significant change to housing law since the Housing Act of 1988.
For agents in England, the changes are the biggest since the Tenant Fees Act in 2019.
According to its Guide to the Renters’ Rights Bill, the Government’s primary motivation for tenancy reform is to “end the injustice of tenants being trapped paying rent for substandard properties and offer more flexibility to both parties to respond to changing circumstances.”
But Goodlord’s data indicates that key stakeholders have mixed feelings about the proposed changes.
For example, 59.8% of letting agents believe that abolishing fixed-term tenancies will have a negative impact on the sector.
Meanwhile, 58.5% of tenants said they preferred a fixed-term, renewable tenancy agreement, and 29.7% preferred open-ended agreements with 4-12 weeks’ notice.
62.1% of tenants also disagreed that they felt trapped in their current homes by fixed-term agreement.
Despite these feelings, the legislation is still going ahead, although some tweaks could be made as the Bill progresses through parliament.
Without the revenue streams that fixed-term tenancies provide, letting agencies need to fill some big holes in their accounts. On top of that, the question of increasing agent workload looms. Here’s a look at the issues you’ll be contending with:
Under the new legislation, up to four changes of occupancy are possible in a single year.
Although most tenants will likely stay in their properties for much longer, landlords could be less willing to pay high new let fees. This places the burden onto agencies to absorb the costs.
The ability to charge landlords to process tenancy renewals has also been eliminated, as has the ability to charge let-only landlords on the contracts they sign.
If more tenant churn is a result of the incoming legislation, agents could become bogged down by viewings, while they’ll also have to re-list the same properties more frequently.
Serving Section 13 notices and processing right to rent documentation and tenant deposits will further add to their paperwork, which is a significant concern.
After all, 1 in 5 agents are already struggling with mental health challenges due to workload challenges, according to the State of the Lettings Industry report.
So far, we’ve laid out the realities agencies will have to deal with when fixed-term tenancies are abolished. But that’s not to say it’s all doom and gloom.
Landlords are also feeling the strain, and the increased admin, insecurity, and red tape means they’ll need more help from agencies.
Property Franchise Group’s Kevin Davidson-Hall emphasises this point:
“Letting agents in England must fully understand these changes to advise their clients confidently. You need to be able to ‘sell’ these new regulations. Practice having these conversations with landlords. Speak with confidence and authority - this will help you win more business and stay ahead of your competitors. Being the most knowledgeable agency on these changes will set you apart.”
Here’s how you can calm landlords’ fears and plug some of the revenue gaps caused by the shift towards periodic tenancies:
In a world with no-fault evictions, landlords were more confident to self-manage. For example, according to Government data, only 18% of landlords use an agent for management services.
However, with new legislation and more compliance requirements, this confidence is likely to drain. So not only do you have the opportunity to onboard brand new clients, but you can also upsell your existing database of let-only landlords.
If a fully managed service isn’t something they’re interested in, you can still propose rent collection services to ease the load.
Although rent renewals have been wiped out by the shift to periodic tenancies, rent reviews can help to fill the gap.
As part of Section 13, landlords can increase rents once per year in line with the market rate. And it’s likely they’ll pull this lever more often, following the abolition of Section 21.
Of course, this will result in more admin, which you can take care of for your clients.
Goodlord helps you to do this efficiently by simplifying the process of serving a Section 13 notice. Our platform automatically populates Form 4, saving you time and reducing errors that could delay the process. We remind you when rent reviews are due, while a clear audit trail also keeps you compliant.
75% of landlords feel pessimistic about the private rental sector, according to the State of the Lettings Industry report.
And the Government’s move to introduce “new protections for tenants who temporarily fall into arrears” could be the straw that breaks the camels back.
For example, the mandatory threshold for eviction due to arrears is now increasing from two-three months, with the notice period increasing from two weeks to four.
As a result, landlords will likely be out of pocket for longer. But you can offer something to stop them from selling up.
Goodlord’s Rent Protection Insurance (RPI) pays out until vacant possession is obtained and has a £100,000 limit of indemnity. We also handle the rent recovery and eviction processes for you.
Providing this to your clients allows you to add value without increasing your workload.
The shift to periodic tenancies is arguably the biggest single reform proposed by the Renters’ Rights Bill.
But it’s not all bad. Agencies that can position themselves as trusted experts stand to grow revenue from their existing client base and gain new business.
Goodlord helps you put your best foot forward in this new landscape. Our platform:
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This article is intended as a guide only and does not constitute legal advice. For more information, visit gov.uk.