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Landlords and three year tenancy plans

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According to an announcement made on the 2nd of July 2018, the government is considering the introduction of legislation to for minimum three-year tenancies in the private rented sector.

Whilst landlords would be obliged to comply with any tenant’s wish to stay for a minimum of three years, tenants would be free to leave whenever they choose.

What is behind the proposal, what has been the reaction from landlords, and is there likely to be any impact on landlord insurance policies?

The purpose of the proposals

In the face of a clear housing crisis and the shortage of adequate rental accommodation, the government appears to be arguing that the right of tenants to enjoy longer-term leases needs to be protected.

Whilst enhancing the rights of tenants, the government’s proposals also argue that the measure increases landlords’ financial security over the longer term, since more tenants might be expected to extend their tenancies for three years or more.

In support of their argument, the government points to the fact that the average tenant is already staying in the same rented accommodation for four years. Yet the majority (81%) of these are on standard shorthold tenancies which last for just six months or a year (giving the landlords the right to evict after that term).

The reaction from landlords

In immediate advance of the government’s announcement some landlord organisations were already reacting with “fury” according to headlines in the Guardian newspaper on the 1st of July 2018.

The National Landlord’s Association (NLA), for example, protested that the shift in balance of rights from landlord to tenants is simply not supported by anything wanted by tenants themselves. 

According to the NLA’s research, only 40% of tenants actually want longer-term tenancies, but a further 40% definitely do not. Indeed, around half of all tenants interviewed said they were happy with the length of the tenancy they are offered and, whenever extensions are requested, they are usually granted (hence, the average four-year tenancies quoted in the government’s own figures.

In short, the NLA describes the government’s proposals as a cynical vote-winning move made for entirely political reasons.

Landlord insurance 

Any legislative moves – such as the introduction of a statutory three-year minimum tenancy – that changes the balance of rights and obligations between landlord and tenant may be expected to have a longer-term impact on landlord insurance policies. Quite simply, the risks nature and scope of the risks which landlord insurance protects are likely to change when tenants are able to insist on staying or, with little notice, choosing to go.

Here at UKinsuranceNET, we have previously discussed ways in which a more sustainable balance between the respective rights of landlord and tenant might be achieved. Instead of tightening still further the already extensive net of legislation, further consideration might be given to incentivising landlords to grant longer tenancies – if this is genuinely a problem – by granting tax breaks or introducing smarter taxation to encourage longer-term tenancies wherever there is a need (for tenants with families or the elderly, for example).