The Renters’ Rights Act and the Law of Unintended Consequences

If you ask any tenant what they want from the rental market, I doubt they’d tell you they want less homes to choose from, more hoops to jump through and increased rent to pay.

Yet, that is the reality many tenants are likely to face because of the Renters’ Rights Act, elements of which come into force on the 1st May 2026. For private housing providers like us, the new regulation means business is about to get riskier.

What exactly is the Renters’ Rights Act (RRA)?

The RRA is a piece of legislation designed to provide tenants renting in the UK with more security and fairness when renting, and higher quality housing. It’s very well intentioned and aims to professionalise the Private Rented Sector (PRS). Who could argue that giving people more stability and protection in their homes or improving the overall quality of the UK housing stock is a bad thing?

Although several aspects of the Act will contribute towards its intended purpose and help some renters, lots of aspects of the Act will do the opposite. This is because there are various unintended consequences which haven’t been adequately thought through and the supporting infrastructure to address how landlords will (rationally) respond to it have not been put in place.

To keep up to date with the RRA, I rely on The Independent Landlord (TIL). Suzanne Smith who runs TIL is a former General Counsel and Company Secretary of a PLC and a portfolio landlord herself. She is brilliant – check her out here.

In this article I consider the following aspects of the Act:

• the abolition of section 21

• the removal of fixed term tenancies

• the increase in the rent arrears threshold

• the removal of rental payments in advance

I outline how we at Classhouse have decided to respond to these measures, why we're doing what we're doing and what the impacts will be for tenants, particularly future tenants.

1.     Section 21 (“no fault evictions”) will be abolished.

Section 21 is the notice landlords serve tenants when they seek repossession of their property. Although we've been operating as a private housing provider for over a decade, we’ve never used Section 21.

No sensible business owner wants to get rid of a good, paying customer on a whim - there is always a reason why a landlord seeks repossession of a property. Under the current system, landlords don’t need to make the reason known to tenants. Maybe the tenants have stopped paying their rent and have racked up significant arrears, maybe they’re being anti-social towards neighbours or have caused significant damage to the property. Maybe the landlord wants to renovate the property, or sell it and retire.

The latter examples are why Section 21 has been dubbed as a “no fault” eviction. The tenant hasn’t breached their tenancy contract and is therefore not “at fault” in any way. Landlords use it as a means to reclaim their property when needed because it’s the quickest and simplest way to get possession.

Another mechanism exists too called Section 8. However, it takes longer. Whereas Section 21 is a paperwork based possession process, Section 8 is a dispute that must be proven in court. Hence why landlords use Section 21 rather than Section 8.

The problem with the RRA isn’t that Section 21 is being abolished. The problem is that the remaining Section 8 mechanism will not be effective under the current court system, which does not have the capacity to deal with them and has not been reformed in preparation for the RRA coming into force.

County Courts, who process repossession claims, are already operating under significant pressure, with shortages of judges and bailiffs and ageing infrastructure contributing to delays. This has created a backlog in repossession claims that currently leaves landlords waiting for over six months to regain possession of their own property – in some parts of the country it’s a lot longer, but it’s pot luck as to what timescale local County Courts are working to.

This is the problem.

Landlords won’t have certainty on when they’ll be able to get their properties back when needed. Long waits cause significant financial strain, especially on smaller landlords who only have a handful of properties and can’t cushion losses against a large portfolio.

When Section 21 is abolished and all repossession claims must go via Section 8, additional pressure is likely to increase backlogs, extend waiting times and increase the financial exposure landlords face during possession proceedings.

 

The effects of the upcoming removal of Section 21 are already being felt as landlords are exiting the market and issuing Section 21s to tenants before their ability to use it is removed. Evictions specialists Landlord Action cite a 62% increase in landlords serving Section 21 notices year on year ahead of the RRA implementation.

 

How are we responding to the abolition of Section 21 and what does this mean for tenants?

Based on current repossession timelines and lack of evidence of investment into fixing the problem, we have limited confidence in the court system’s ability to deliver timely possession outcomes. As such, we’ve put mitigations in place to reduce our reliance on the court system altogether, should the worst happen.

A mandatory home owning guarantor requirement is a policy we’ve had in place for years and, alongside being very selective with tenants, it’s one of our strongest risk mitigations.

Why is this necessary even if the tenant meets the affordability criteria and passes credit checks? Because anyone can lose their job at any time and surveys suggest that half of people who rent privately have no savings to fall back on if that should happen.

Guarantors aren't just beneficial for us as the landlord, they're beneficial to our tenants too. As well as making sure we’re paid on time and in full (good for us), guarantors ensure the tenancy is sustained should the tenant find themselves in a precarious financial situation (good for the tenant).  

Guarantors are even more important in an uncertain economic climate where job security isn’t guaranteed and employers have frozen hiring or made redundancies. In the wake of higher employer national insurance contributions and likely because of the rapid proliferation of AI technologies, unemployment is currently at its highest rate for 5 years (source: ONS).

Unfortunately, this means that we will not grant tenancy to anyone who cannot provide a home owning guarantor. We’re well aware a large proportion of people are therefore unable to access our services through no fault of their own, but through systemic failures in the housing system.  

However, because of the lack of protections landlords now have, it is not a policy we are likely to reverse. In our view, legislation intended to help renters is making access harder for those unable to provide a home-owning guarantor.

2.     Fixed term tenancies will no longer be allowed.

For new tenants, we currently issue a 12-month fixed term contract as standard, which reverts to a rolling periodic tenancy once the fixed term ends.

Many tenants like a fixed term period as it gives them certainty over their location and their housing costs for a set period of time. This isn’t particularly applicable to our tenants however as our promise to anyone who rents with us is that, provided they’re responsible tenants and stick to the terms of their agreement, we’ll not seek possession and they’ll have a home with us long term. Indeed, we’ve never served an eviction notice in the whole time we’ve been operating.

It’s also our policy to only review rents once a year. For sitting tenants, we increase rents incrementally in line with inflation and the local market - gradual incremental increases annually are better than huge increases every few years in helping tenants manage their finances. Like every other business, our costs also increase every year. This needs to be reflected in the rent we charge in order for us to continue operating for the long term.

In that respect, our tenants have always had certainty of housing stability and clarity over their annual housing costs anyway.

From an operational perspective, fixed terms provide certainty over cash flow, reduce reletting costs during the tenancy period, and allow us to focus on strategic growth rather than repeated operational turnover.

That changes on the 1st May however when fixed term tenancies will be removed and all tenancies will become periodic from day one. This means landlords will carry additional operating risk as cash-flow predictability reduces, the risk of void periods increases, and reletting costs may rise if tenant turnover becomes more frequent.

How are we responding to the removal of fixed terms and what does this mean for tenants?

Whether tenant change overs will actually be more frequent and we’ll see Airbnb like operations by the back door remains to be seen. However, the fact that there exists the risk of this happening means that we need to price this risk into the rent we charge.

This means that from the 1st May, we will set higher starting rents for new tenancies to price the increased void/reletting risk we expect under periodic-from-day-one tenancies.

In our view, legislation intended to support renters is likely to place upward pressure on the cost of accessing housing. We’re increasing rents to price increased risks, so it’s likely other housing providers will do the same and rents will increase across the market.

3.     Tenants will be able to accumulate 3 months’ rent arrears (up from 2 months) before an eviction notice can be served.

The rent arrears threshold is about to increase and landlords are expected to carry the financial burden of a non-paying tenant for longer before they can issue an eviction notice for rent arrears.

Guard rails to support tenants with financial discipline should always be applied and incentives for early involvement when arrears accumulate should not be weakened. This applies across society as a whole, and isn’t just applicable to people renting. Not only do policies that extend arrears exposure increase the financial risk borne by housing providers, the impact to tenants of allowing them to get into more debt is also morally questionable.

As housing providers our role is to provide accommodation, not unsecured lines of credit. The cost of business for housing providers is already high enough without having to carry additional financial burdens.

How are we responding to the increased rent arrears threshold and what does this mean for tenants?

 

Our solution here is robust referencing to reduce the likelihood of rent arrears in the first place. By selecting applicants demonstrating the most financial resilience (always backed by a home owning guarantor) the risk of rent arrears is significantly reduced.

Under the RRA private landlords will have yet more regulatory costs to comply with too. Notably, registering to a Private Rented Sector database and joining a new ombudsmen scheme. The costs of this are as yet unknown however any new regulatory costs we incur will be reflected in our pricing over time. If the cost of doing business increases, so does the cost of the goods or services that business provides to the end user. This is common across every industry, not just housing.

As a direct result of the RRA, we’ve therefore increased our income requirements for applicants and made amendments to how we assess affordability and stress test financial robustness. This makes it harder for applicants who are less financial stable - those who have low incomes, higher debt levels or weak credit histories - to access our housing services.

4.     Rent will not be able to be taken in advance.

Where a landlord assesses an applicant as higher risk, for example due to adverse credit history or a lack of credit history, rent is sometimes requested in advance to mitigate payment risk – for example, 6 months’ payment upfront.

The ability for landlords to do this will be removed when the RRA comes into force, and landlords will be restricted to accepting no more than one month’s rent in advance, even where a tenant wishes to pay more upfront.

How are we responding to the removal of advanced rent payments and what is the impact on tenants?

The practical consequence of this is that we won’t take on any tenants we’ve assessed as high risk because they’re in a precarious situation when it comes to debt or credit history. In the past, we may have exercised discretion where an applicant had, for example, a County Court Judgment for consumer debt but was otherwise a strong candidate. We’re less likely to do this going forward.

Again, the legislation meant to help renters doesn’t help a subset of them. It removes the ability for applicants with limited or adverse credit histories to access our housing services when previously we may have accommodated them if they were able to pay in advance.

Summary

Although the RRA does provide stronger security for tenants who are already renting, it creates barriers to entry for those wanting to rent. As operational risk increases in the PRS, tenant selection becomes more important for the landlords who decide to stay in the market.  

For our small business to survive and to continue to serve our existing tenants, one of the most important priorities is effective risk management. That means maintaining high standards, being selective with tenants and being comfortable making the unpopular decisions necessary for long-term continuity.

With many landlords exiting the market because of the regulatory changes and the remaining landlords becoming more selective, who is going to rent to people who are deemed as high-risk tenants, when there isn’t enough social housing? 

We could choose to exit the sector and redeploy our capital elsewhere, as many landlords are now doing. However, we remain committed to providing housing within our local community and intend to continue investing and operating for the long term.

So, if you’re a tenant, rest assured we’re sticking around.

And if you’re a local landlord, we’re always open to help relieve you of your properties if you're looking for an easy exit – so consider connecting with us before you go to an estate agent because we’re always in the market to buy.

We assess all applications for tenancy on a case-by-case basis. If you’re interested in renting with us, or have any questions about our rental criteria, you can register here.