Welsh residential tenancy reform: How will new lettings operate?

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

It will substantially reform the basis on which residential property in Wales is occupied, by creating two new forms of occupation contract:

1. A standard contract, modelled on the present assured shorthold tenancy (AST).
2. A secure contract, modelled on secure tenancies and assured tenancies.

If a tenancy or licence meets certain criteria it will be an “occupation contract” and subject to the provisions of the RHWA.

The parties will be known as Landlords and Contract Holders.

This article focuses on standard contracts. Secure contracts will be used by local authorities and social housing landlords, although private landlords will be able to offer a secure contract if they wish to do so.

Standard Contracts: the basics

The standard contract will be available as either a periodic or a fixed term contract.

It will replace the AST entirely – after 1 December 2022 it will not be possible to grant a new AST in Wales and the Housing Act regimes will no longer apply to Welsh residential properties.

Section 7 confirms that a tenancy or licence is an occupation contract if all of the following apply:

• It is made between a landlord and an individual (or two or more persons, at least one of whom is an individual).
• It gives the individual(s) the right to occupy a dwelling as a home.
• Rent or other consideration (such as providing a service) is payable under it.

Points to Note:

• There is no minimum or maximum rent threshold, unlike traditional ASTs.
• The section 7 test does not refer to exclusive possession, hence licences will fall within the scope of the RHWA.
• “Dwelling” as defined in section 246:

• includes any land occupied with the dwelling, unless the land is “agricultural land” which extends to more than 1.999 acres.
• excludes any structure or vehicle which can be moved (e.g. caravans, boats, mobile homes).

Many licences and common law tenancies which previously fell outside the Housing Act regime will fall within the ambit of the RHWA, conferring statutory protection on residential occupiers who have historically had precarious and limited rights.

Exclusions to RHWA

Certain tenancies and licences are not occupation contracts, unless notice is given to create one[1]. These include:

• Holiday lets
• Accommodation shared with the landlord

Further, 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 tenancy or licence if all the persons with whom it is made are below the age of 18.
• A secure tenancy that is a housing association tenancy within the meaning of section 86 of the RA 1977.
• A long tenancy (for a fixed term exceeding 21 years).

Core Content

Standard contracts will contain the following terms:

• 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.
  • Any additional terms must be fair, as required by the Consumer Rights Act 2015 and must not conflict with a key matter, fundamental term or supplementary term.

Key provisions applying to all contracts

• a written statement of the terms + prescribed explanatory information must be given to the contract holder free of charge within 14 days of the occupation date.
• failure to provide the written statement can lead to financial penalties for landlords / compensation for the contract-holder and will restrict a landlord’s ability to serve a valid notice to terminate the contract.
• A Model Contract has been published by Senedd Cymru / Welsh Government: see Renting Homes: model written statements

• A joint-contract holder can leave the contract without ending the contract entirely
• The rights of the other joint contract-holder(s) will not be affected, and they will be bound by the same terms, as before.
• New joint-contract holders can be added without having to end the current contract and start another one.

• Landlords will be entitled to increase the rent under periodic standard contracts annually, following service of two months’ notice.
• Prescribed form notices must be used.
• Rent review under fixed term contracts will be governed by the terms agreed between the parties.

• There are some differences to the section 11 Landlord & Tenant Act 1985 provisions that previously applied.
• Landlords must:
  • keep the structure and exterior of the dwelling in repair;
  • keep the installations for the supply of water, gas, electricity, sanitation, space heating and hot water in repair and good working order;
  • ensure that the property is fit for human habitation at the start of the contract and throughout its duration
    • in accordance with the Renting Homes (Fitness for Human Habitation) (Wales) Regulations 2022 SI 2022 No. 6 (W. 4) (the FFHH Rules)
    • The FFHH Rules include a requirement for working mains-wired smoke alarms, carbon monoxide detectors and valid electrical safety inspection prior to occupation commencing.
    • see Fitness of homes for human habitation: guidance for landlords​
• The repairing provisions apply to all occupation contracts except fixed term standard contracts for a term of more than seven years.  This is consistent with the applicability of the standard provisions under section 11 of the Landlord & Tenant Act 1985 previously.

• Succession rights are conferred on certain family members and carers who occupy the dwelling as their principal home at the time of a sole contract-holder’s death.
• There are two potential rights of succession.
• Whilst the succession rights under the RHWA are fundamental terms which cannot be excluded, the landlord’s right to terminate a periodic standard contract using a s.173 no-fault notice remains. On that basis, the succession rights may not have a significant impact.

Termination

• Any notices to terminate a Standard Contract will be invalid if the landlord has failed to comply with certain statutory obligations contained in Schedule 9A, RHWA.  These obligations relate to issues such as Rent Smart Wales registration and licensing; provision of a written statement; deposit protection, compliance with FFHH Regulations; supply of EPC etc.
• Prescribed form notices must be used
• If the contract holder does not leave voluntarily, landlords must obtain a possession order to enforce any termination notice they have served.

• Contract holders must give at least four weeks’ notice to terminate (sections 168 and 169)

• Landlords are entitled to serve a section 173 ‘no-fault notice’ to terminate the contract (akin to a section 21 notice to terminate ASTs) on the following basis:
  • they must give the contract-holder at least six months’ notice.
  • Section 173 no-fault notices cannot be issued before the end of the period of six months from the occupation date.
  • In practice, this means that there will be a twelve-month minimum term for periodic standard contracts under the RHWA.
  • If the contract holder does not vacate, the landlord must issue possession proceedings to enforce the s173 notice within two months of its expiry date. It will become unenforceable thereafter and the landlord cannot serve a replacement s173 notice for another six months.
  • Landlords cannot issue a new s.173 notice within six months of withdrawing an earlier s.173 notice.

• Fixed term contracts will come to an end on the term date.
• If a new fixed term contract is not agreed at the end of the term, and the contract-holder remains in occupation:
• a periodic standard contract will automatically arise at the end of the fixed term under s.184;
• the termination provisions outlined above will then apply, save that the landlord will be entitled to serve a six-month s.173 ‘no fault’ notice immediately (under s.175) to bring the new periodic arrangement to an end.
• Landlords will generally be unable to serve a notice to terminate a fixed term contract during, or at the end of the fixed term. In most cases, in the absence of a valid break clause (see below), landlords will have to wait until a new periodic contract has arisen after the end of the fixed term before they can take steps to terminate the arrangement.

• Landlord’s break clauses cannot be used if the fixed term is for less than two years.
• If the fixed term is two years or more, landlords cannot serve a break notice until at least month 18 of the fixed term contract and will have to provide at least six months’ notice.
• Break clauses in favour of the contract holder can be included in all fixed term contracts, with a minimum four week notice period.

Landlords can issue possession proceedings to terminate on short notice (in most cases on one month prior written notice) in the case of:

• Breach of contract – by contract-holder
  • A discretionary ground, meaning the court will only order possession if it considers it reasonable to do so.

• Estate Management Grounds –
  • RHWA contains nine ‘estate management’ possession grounds.
  • They are discretionary grounds.
  • Suitable alternative accommodation must be available for the contract holder.
  • Landlord will be liable to pay the contract holder’s moving expenses.

• Rent Arrears –
  • Landlords can serve a 14-day written notice to terminate
  • Contract-holder must be “seriously in arrears” with their rent:
    • Broadly RHWA requires a minimum of two months’ unpaid rent if rental period is monthly, fortnightly or weekly; and
    • Three months unpaid rent if rent paid quarterly or annually.
  • If there are serious rent arrears still outstanding at the date of the court possession hearing this is a mandatory possession ground.

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 has been a long time coming.  After significant delays in the implementation date, including a last minute, 5-month deferral earlier this year to give landlords more time to prepare, it heralds a significant change to housing law in Wales.

From 1 December 2022, occupiers of residential dwellings in Wales will have significantly more protection than their English counterparts (for the time being at least), with the introduction of rules which effectively create a 12-month minimum term for ‘contract holders’. As noted above, this will include licensees who previously had precarious rights and protections. Full details of the English Renters’ Reform Bill are awaited at the time of writing.

The RHWA further highlights the strength and reach of devolved law-making powers in Wales.

Whilst the new legislation and terminology will no doubt take a while to bed in, the Senedd’s aim is to simplify matters for all parties and consolidate a previously diverse set of rules and regimes in one place. Hopefully this will prove to be the case in practice.

Further Information

The Senedd has a dedicated landing page containing links to various guidance notes, standard form documents, prescribed form notices and the relevant legislation: see Rent Homes: housing law is changing

For more information, please contact Josie Edwards.