What is the future of for residential tenancies?
In January 2020, the Financial Times predicted a steady rise in the residential sector and a steady rise in rental yield of between 5 to 7 per cent depending on the location in the UK.
The biggest concern was the regulatory changes and tenant’s freedom to keep pets!
Those worries would be welcome now where it is predicted by the Citizens Advice Bureau that 11 million people have already or will miss debt payments and that 2.6 million private residential tenants could be at risk of eviction.
In addition, Shelter has raised concerns about a possible second wave of Covid-19 with those most vulnerable renters on zero hours contracts under the age of 40.
In these circumstances what does a landlord do?
If you have a good tenant who has been reliable , paid rent in the past but has difficulties now, do you act as you usually would in preparing to protect your own position and at least preparing the possibility of seeking possession post 30 September 2020 when it is likely, if it is extended from June 2020, the current provision for a moratorium on possessions ends. Although there is a provision in the legislation that this could be extended beyond.
Or can you as a landlord afford a temporary variation in the terms of the tenancy and a reduction of the rent to allow the tenant time to get through the period?
The real issue is what looms beyond in that the Chancellor and most financial forecasters predict a severe recession when the country emerges from lock down .In the absence of sufficient local authority and housing association and trusts housing stock, there is every likelihood of a surge of homelessness , particularly if certain parts of the economy suffer which would usually rely on who are the most likely to be in the rental market.
Will the government intervene to prevent possible mass homelessness of will it be the market dictating the outcome?
Landlords should and may have already a plan and look forward to what strategy they can plan for and what they can afford. Rental yields are inevitably going to fall if properties are going to be unoccupied if renters cannot afford them and there may have to be a drastic revaluation of the rental market. Planning needs to be in place now to address issues with tenants and forward plan which will include the usual remedies afforded to landlords and which should become available after October but also consideration as to retaining good tenants.
The future is impossible to predict as we have seen, but the economic outcomes of this emergency are not.
Author: Paul Harrington, Property/Commercial Litigator