Longer tenancies among new housing market reform proposals

James Brokenshire, in his first speech as communities secretary, announced the government's preferred proposal of a three-year minimum tenancy, incorporating a break clause after six months. The government is seeking views on this model, along with action it could take to overcome the legal and behavioural barriers to landlords offering longer tenancies.

The government will also act to prevent the use of new government funding schemes for the purchase of "unjustified" new leasehold homes, Brokenshire said. This announcement builds on previous measures tackling the unjustified use of the leasehold model for new-build housing in England, following its consultation of July 2017.

Separately, the Law Commission announced that Brokenshire has asked it to look at improving the legislation around 'right to manage', which allows leaseholders to take over the management of their own properties through a dedicated management company. The Law Commission has also been asked to recommend measures which would encourage more leaseholders to take advantage of the right, which was introduced under the 2002 Commonhold and Leasehold Reform Act.

The project, which is separate from the Law Commission's pre-existing work on commonhold, will run for 12 months and a public consultation on provisional proposals will take place later this year, according to the announcement.

"This announcement is not surprising and is a further example of the government's commitment to abolishing the sale of leasehold houses, save in certain limited cases," said property disputes expert Paul Pinder of Pinsent Masons, the law firm behind Out-Law.com.

"Currently, we are not clear on what those exceptions will be - although recent indications suggest that the government may be considering exceptions for shared ownership; land subject to existing leases as at 21 December 2017, the date of the government's response; complex development sites; community land trusts; and retirement villages. We understand that the government may be planning to issue a further consultation on its proposals in the summer," he said.

Brokenshire also announced £450 million in government funding to speed up delivery of new housing on surplus public sector land sites, by encouraging SME builders and innovative construction methods such as offsite and modular construction. The government has also allocated £100m to the new 'community housing fund' which will be delivered by Homes England, and which will be used to deliver affordable housing tailored to local needs.

The government announced in January its intention to ban almost all new leasehold arrangements for new-build houses as of 21 December 2017, although it will "continue to work with the sector and other partners to consider the case for exemptions to the policy and its retrospective application". It also intends to take action on escalating ground rents, including by reducing them to zero on new long leases, and to make it easier and cheaper for leaseholders to purchase the freehold of their property.

The government is proposing the introduction of longer minimum tenancies as a means of balancing more security for tenants in the private rented sector with landlords' needs to regain their properties when their circumstances change. Over 80% of private rental contacts take the form of assured shorthold tenancies with a minimum fixed term of either six or 12 months, despite private tenants staying in rented properties for an average of nearly four years, according to government data.

Tenants and landlords can choose to agree longer terms between themselves, although the majority choose not to do so. The government, as part of its consultation, is seeking views on why this might be the case, including whether there is lack of demand on the part of tenants and whether mortgage conditions, letting fee arrangements and the need on the part of landlords to retain flexibility.

"Ensuring that landlords have the flexibility to recover their asset smoothly is vital to protect investment in the sector," the government said in its consultation.

The government is also seeking views on the best longer tenancy model, and how this could be implemented. It has proposed a three-year minimum tenancy model with a break clause, which would provide "an opportunity for the landlord and tenant to leave the agreement after the initial six months if dissatisfied". The tenant would still be able to leave the property after six months had passed, but would have to provide the landlord with a minimum of two months' notice before doing so.

Landlords would be able to recover the property after the six-month period on the same statutory "reasonable grounds" as at present, including antisocial behaviour and the tenant not paying the rent. The government would also legislate to incorporate the need to sell the property, or to move into it themselves, among the reasonable grounds. The government also intends to publish a call for evidence in the autumn to better understand the experience of landlords seeking to gain possession of their property in the courts, including consideration of the case for a specialist housing court.