Welsh residential tenancy reform: How will it affect existing tenancies and licences?

Written by Josie Edwards and Erica Williams

The Renting Homes (Wales) Act 2016 (RHWA) is due finally to be implemented on 1 December 2022.

It reforms substantially the basis on which residential property in Wales is occupied and introduces new terminology, quite different from that used until now.

The RHWA will have retrospective effect. With a limited number of exceptions, it replaces all current tenancies and licences with either a secure or standard occupation contract. These contracts set out the rights and responsibilities of both the landlord and the contract-holder (formerly a tenant, licensee or occupier).

Existing agreements affected by the RHWA will automatically ‘convert’ to the relevant occupation contract on 1 December 2022.

What arrangements will be affected by the RHWA?

The RHWA affects all existing arrangements that meet the section 7 criteria for an occupation contract in the RHWA, subject to a closed list of exclusions.

Accordingly, the majority of tenancies and licences which exist in Wales prior to 1 December 2022 will convert to occupation contracts on 1 December 2022 provided all of the following apply:

• Rent or other consideration is payable (note there is no minimum rent threshold);
• It is made between a landlord and an individual (or two or more persons, at least one of whom is an individual)
• It confers on the individual(s) the right to occupy a dwelling as a home.

The type of occupation contract to which they convert will depend on the type of tenancy or licence they were before 1 December 2022:

Note that the existing arrangements will not be brought to an end – they will ‘convert’ under the RHWA.  The existing terms of converted contracts will remain effective, provided they do not conflict with the fundamental provisions of the RHWA – see further below.

Exclusions to RHWA

Certain tenancies and licences are never occupation contracts[2]. These include:

• Rent Act arrangements:
  • A protected occupancy or statutory tenancy within the meaning of the Rent Act 1977 (RA 1977).
  • A protected occupancy or statutory tenancy within the meaning of the Rent (Agriculture) Act 1976.
• Commercial leases under Landlord and Tenant Act 1954.
• Agricultural Holdings Act 1986 tenancies.
• Farm Business Tenancies under the Agricultural Tenancies Act 1995.
• A long tenancy (for a fixed term exceeding 21 years).

Converted contracts

Schedule 12 governs the transformation of tenancies and licences in existence on 1 December 2022 into “converted occupation contracts”. The following key points arise:

1. Written statements

All occupation contracts must be in writing.

Deadline – Landlords have a maximum of six months from 1 December 2022 to issue a written statement of the converted occupation contract to their contract-holders.

If this deadline is missed, financial penalties can be imposed on landlords / compensation may become payable to the contract-holder. Landlords’ ability to serve a valid notice to regain possession will also be restricted.

Form of Written Statement – it can be issued in hardcopy or, if the contract-holder agrees, electronically.

The written statement sets out the parties’ names and the terms of the contract (discussed below).

Once a written statement has been provided to the contract-holder the terms of the converted contract may be varied, if agreed.

The Welsh Government has produced Model written statements with accompanying explanatory information: see Renting homes: model written statements.

2. Existing terms of the contract

Unlike new occupation contracts, where the default terms will be those set out in RHWA, the conversion process recognises that there may be certain terms, which exist within current tenancies and licences, which it would be unfair to replace.

The Welsh Government has produced a helpful guide for Landlords on the process of Creating a converted occupation contract: guidance for landlords, although note that it is not an exhaustive guide and provides examples only.

Conversion aims to strike a balance between the required terms necessary for the occupation contract to operate under RHWA, whilst making specific provision for some existing terms to be maintained within the converted contract.

Under the RHWA, the terms are split into 4 categories:

• Key matters:
  • e.g. the names of the parties, rent payable, address of the property, fixed term or periodic.
  • These must be inserted in every contract.
• Fundamental Terms:
  • Cover the most important aspects of the contract, including the possession procedures and repairing obligations.
  • Some may be omitted or varied by agreement, but only in favour of the contract holder.
• Supplementary Terms:
  • Deal with the more practical, day to day matters applying to the occupation contract, e.g., use of dwelling for business purposes, ability to carry out alterations.
  • They can be omitted or varied by agreement, provided that is compatible with the fundamental terms.
• Additional Terms:
  • Any other matters specifically agreed by the parties, e.g., the keeping of pets.

Terms of the former tenancy or licence agreement will remain effective as long as they do not conflict with the fundamental terms of the contract. Supplementary terms will become incorporated, unless they conflict with the existing terms of the former agreement, which will take precedence.

IMPORTANT: In addition to the above, Schedule 12 of RHWA makes special provision in relation to some fundamental terms, preserving the existing term even where it conflicts with a new fundamental term under the RHWA. A key example of this is in relation to termination.

3. Schedule 12 in practice: termination

A prime example of where Schedule 12 works to overrule the new fundamental term in the converted contract is in relation to notice periods.

In new periodic occupation contracts, the landlord is entitled to serve a no-fault notice to terminate the arrangement[3], but must give 6 months’ notice to end the tenancy. However, this is incompatible with previous notice provisions under the Housing Act 1988.

To reflect this, Schedule 12 of the RHWA will operate as follows:

• Converted periodic ASTs:
  • Section 21 of the Housing Act 1988 requires the landlord to serve a minimum of only two months’ notice.
  • Schedule 12, paragraph 25A operates to ensure that the notice period in a converted occupation contract which was previously a periodic assured shorthold tenancy will remain as 2 months. Notice cannot be given in the 4 month period after the date of occupation (cf. 6 months otherwise applicable to occupation contracts under the RHWA).
  • However, it should be noted that at the time of writing, Welsh Government were consulting on a proposal to increase the notice period to 6 months for converted ASTs, with effect from 1 June 2023. This would apply retrospectively to converted contracts, improving the contract holder’s security of tenure and bringing it in line with new occupation contracts created on or after 1 December 2022. The Consultation ends on 24 October 2022 and the results will be awaited with interest: see Renting Homes (Wales) Act 2016: improving security of tenure by increasing the period of notice
• Converted fixed term ASTs:
  • If the converted contract is still in its fixed term on 1 December 2022, a two months’ notice period is maintained during the fixed term up to the last day.  The notice cannot terminate the occupation contract before the end of the fixed term.
  • If the tenancy is a fixed term on 1 December 2022 and subsequently becomes periodic, six months’ notice is required (i.e. the standard provisions to terminate a periodic occupation contract under the RHWA will apply).
• Converted assured tenancies:
  • The additional security of tenure enjoyed by assured tenants under the Housing Act 1988 will endure – para 25 of Schedule 12 confirms that sections 173 – 180 of the RHWA, entitling landlords to serve 6 months’ notice to end the tenancy on a no-fault basis, will not apply to converted occupation contracts which were previously assured tenancies.
  • Instead, the former Housing Act 1988 Schedule 2 grounds for possession are effectively maintained[4], ensuring that assured tenants will have equivalent security of tenure following conversion.

4. Repairs

Part 4, Chapter 2 of the RHWA contains a new set of repairing obligations which will apply to occupation contracts. They contain some differences to the section 11 Landlord & Tenant Act 1985 provisions that previously applied.

In addition, the Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022 SI 2022 No. 6 (W. 4) (the FFHH Rules) will apply to converted contracts, although there is a 12-month grace period for certain requirements, e.g. mains wired smoke alarms, valid electrical inspection report: landlords must ensure compliance by 30 November 2023. See Fitness of homes for human habitation: guidance for landlords

Further detail is set out in our article Welsh residential tenancy reform: How will new lettings operate?

5. Succession

The RHWA introduces a right of succession for occupation contracts, which will apply to both new and converted contracts.

Specific provisions apply to converted contracts if, immediately before the RHWA comes into force, the tenancy was an assured tenancy, which had vested in the contract-holder under section 17 of the Housing Act 1988 or paragraph 3 of Schedule 1 of the Rent Act 1977 (see paras 20 and 21, Schedule 12, RHWA).

Further detail on the succession provisions is set out in our article Welsh residential tenancy reform: How will new lettings operate?

Service Occupiers & Assured Agricultural Occupiers

The impact of RHWA on service occupancies and assured agricultural occupancies is considered in our separate article Welsh residential tenancy reform: Agricultural workers & service occupiers

Conclusion

The RHWA heralds a significant change to housing law in Wales.

It is anticipated that the conversion process will pose navigational challenges for many, not least adjusting to the new terminology and documentation.  The requirements relating to written statements and FFHH will require careful thought and planning, and some landlords will need to consider the saving provisions that apply to less commonly encountered arrangements, such as assured tenancies.

As noted above, the Welsh Government is already consulting on further harmonisation between the rules applying to the termination of new and converted contracts. These changes could be in force by Summer 2023.  We anticipate that the rights and protections afforded to ‘new’ occupiers after 1 December 2022 will soon form the baseline for converted contracts and any differences that arise within converted contracts are likely to favour occupiers.

Further Information

The Welsh Government has a dedicated landing page containing links to various guidance notes, standard form documents, prescribed form notices and the relevant legislation: See Renting Homes: housing law is changing.

For more information, please contact Erica Williams.