Intro 0:01
Welcome to the London property podcast, your go to source for navigating the complex and ever changing London real estate market. Our digital marketplace provides informative and educational content from industry leaders. Through podcasts and videos. We cover various aspects of the real estate experience, including buying and selling finance, law, tax construction, design, and more. Join us as we delve into the latest trends and developments in the market and gain valuable insights from our panel of experts.

Farnaz Fazaipour 0:34
Hello, and welcome to London property, the home of super prime, I am your host Farnaz Fazaipour. And we’re pleased to welcome David Smith back to the show. Welcome back to the show, David. Thank you. David is an expert lawyer in landlord and tenant act and has paid played an active role in the recent changes of the rent bill. And I’m gonna let you take over here and tell us a little bit about your background. Please, David.

David Smith 1:00
Okay, expert work. Wow, I hope. I’m a head of property litigation for the London office of JMW Solicitors, which is probably the biggest firm you’ve never heard of in the sense that it’s huge in Manchester but as opened in London, only four years ago, but has gone in that period from from not people to 200. So we’re growing fast in London. And my specialty although my property litigation team covers quite a wide range of stuff. My primary specialty is residential property, and particularly residential let property. And I’ve worked in that pretty much since I qualified in various contexts. I am currently the legal counsel for the National residential landlords Association. And before that I was the policy director for the residential landlords Association, which was one of the two groups that led into it side work both as a frontline lawyer as it were also quite some time in in, in sort of lobbying government over and around this kind of legislation. And obviously we’ve we’ve been talking about this this renders reform bill since about 2019. It’s not spent quite a lot of time discussing it in various contexts.

Farnaz Fazaipour 2:24
Fantastic. So couldn’t be speaking to a better person about the rent bill. Can you just summarise the rent bill for us?

David Smith 2:31
Yes. So so the renters open brackets for full on closed brackets bill to give it its full title. Is is sort of does several things. I mean, obviously the big ticket item that everyone talks about is it gets rid of section 21. But actually, in my view, that’s that’s not that surprising or even that that serious there are much more substantial aspects to the bill. So the other thing does, which I think is in practice more concerning is that it removes Assured Shorthold tenancies altogether, and all tenancies are fully assured and indeed, with no fixed term. So that means that all tenancies are periodic from the start if they fall within within the remit of the Housing Act 28, which means that tenants can leave after giving two months notice at any time, but landlords can only evict on the basis of a specific ground for possession. So in practice, you have no certainty as to how long your tenants will remain in your property, it could be as little as two months. But equally landlords have no way of encouraging tenants to leave it in practice, section 21 wasn’t used as much as people think most tenants tended to leave at the end of the agreed fixed term, it will not be possible to agree on a fixed term, and seeking to do so will be an offence under the new bill. So that’s not possible, then other sort of big ticket items is rent, you will only be able to increase rent using a statutory rent increase mechanism under Section 13. So you can’t agree a rent increase. And rents must also only be paid monthly. So there’s a provision there as well. And then there’s a whole screen of new grounds possession, which I’m sure we’ll get on to but there’s lots of them. So I’m not going to run through them all right now. And then there are various things around pets as well. Wow. Well, the

Farnaz Fazaipour 4:25
one thing that comes to me when you when you say all of that is that when the tenant can break the contract at any time, you’re going to have to really take measures for people taking a long lease and leaving after two months and having always intended to do that, which usually would take different different rent mounts. So the market

David Smith 4:43
so the short term market, actually in real trouble, because why would you pay the uplift that you would normally pay on a short lead property? When you could just say, well, I’ll just take on a standard lead and then just immediately give notice, and then of course, at the same time time we’ve got the levelling up and regeneration bill, which will social route pass through Parliament, which has already got consultations running on a short lead register. So, the short that Mark is likely to face to substantial shocks in, in, in sort of quick succession as the Charlotte register kicks in, which will which almost certainly mean greater enforcement, the shoreline restrictions in London, for example. And also potentially a loss of money as people simply don’t take properties on short lands.

Farnaz Fazaipour 5:32
And will the legislation not allow a landlord to say that if you break the contract, you know, before the six month period, the rent will be a different amount?

David Smith 5:42
No, because it because they wouldn’t be breaking the contract. And it’s because tenants can leave at any point that any attempt to place a fixed term tenancy is an offence.

Farnaz Fazaipour 5:51
Wow. Okay, so So in your

David Smith 5:56
work, but you could have a rent that dropped over periods of time. So you could say the rent for the first six months is x, second, six months is why and from third, six months is that you could do that. But it’s debatable.

Farnaz Fazaipour 6:11
Right, gosh, and in your opinion, what are the points on the rent bill that need further attention to be practical,

David Smith 6:21
almost all of them in practice. And one of the things that’s really frustrating about this bill is that the government’s made perfectly clear intends to make substantial alterations to it. So I think we’ve all started talking about it on the very frustrating elements is that we all know that a second reading, which will probably happen as timber, the bills likely to get quite a substantial read cutting over the government. And so, in a sense, we’re still talking about something that we don’t don’t really know me. So it’s a bit of a frustrating position in the sense that the government’s it’s put out a bill that looks like a piece of my homework from school half finished and not very good. So they sort of thrown out this half finished piece of legislation in order just to get something on the table.

Farnaz Fazaipour 7:09
Right. And I suppose that that helps getting people’s reactions from from within the industry to try and influence what they do next one hopes.

David Smith 7:18
Yeah, but traditionally, that would have been done.

Farnaz Fazaipour 7:24
Yeah. But

David Smith 7:25
I think there’s an aspect in which they felt that they weren’t advocating to get everyone into into a level of agreements, they just went for it, that there’s quite a lot of issues around around the grounds possession, particularly which I think we’re going to see tweaks up and down and, and issue issues around pets, which I think we see a lot of adjustment as well. So pets used to be allowed

Farnaz Fazaipour 7:48
under the sort of European laws as part of human rights, weren’t they, if I remember correctly, and

David Smith 7:55
there was no definitive position on that. I mean, it’s possible to advertise a property as being not suitable for pets. There was always a very old piece of legislation from the 1950s called the allotments Act, which said that a no pets clause didn’t apply to rabbits and chickens. So tenants could always keep rabbits and chickens but they the intention of the act was not really to do with pets, quite frankly, it was to do with keeping rabbits and chickens for food value, which probably is a little bit different for what most people who want pets are thinking of, I don’t imagine they’re going to eat their dogs. The government’s now produced a position that that doesn’t stop you advertising of property as being not suitable for pets. But it does mean that when a tenants in place they can request the pet and it’s difficult for a landlord to say no, they have to have a reasonable ground for doing so it’s quite it’s quite unclear what that means. There’s no case there’s not a lot of case law on what the case by case there is a constant commercial properties. So it’s difficult for us to set the stage what would be reasonable in respect to refusing a pet

Farnaz Fazaipour 9:05
right and I suppose the you know, depending on the actual leases on the lease holder who’s subletting is going to make things even more complicated,

David Smith 9:13
but one of the one of the situations where it is always reasonable to refuse a pet is where you have a superior landlord that says no pets you’re required to go and ask the superior landlord if a spirit animal then says no, you’re entitled to say no to your to your occupy your tenants. But the other problem of course is what do I mean by PET? The legislation merely says pets and I’m waiting for people to like my pet llamas or pet micro pigs and say, well, that’s okay. And and you know, I was watching a show, I was at home working from home and my wife had the daytime TV on there was someone with a pet duck. So I was wondering what what what the government intended when it said pets, I mean, everyone always thinks cats and dogs but there are some people who have a different view of that. It deals with a situation where you have to give consent, but there’s nothing in there about withdrawing the consent later. It says the consent has to be can be made subject to reasonable conditions, which of course, could be that the dogs not a nuisance, but there’s no practical means at that point of, of asking the tenant to leave, and there’s no ground for possession that links to cyber. So the legislation does allow you to demand the tenant pays for pet insurance and as amended tenant fees Act to allow for that, but there’s nothing to enforce this where for example, attend to says, well, Sal pay for pet insurance then just doesn’t pay you. So there are lots of things that that are not really sorted out in this area, but that need tidying up around?

Farnaz Fazaipour 10:47
And would you say there is anything that’s the best part of this bill? I think I was going to ask you what are the best and worst parts of this bill? So what is your snap answer to that?

David Smith 11:01
I think it depends on your point of view, of course. I mean, obviously, talent groups are very pleased about renewal of section 21. But but the reality is, no one’s terribly happy with it. Most landlords, landlords and Agent groups are very unhappy about the big no minimum fixed term. Most tenant groups think that because there are grounds possession that they think are too powerful, that it’s actually quite weak source for tenants as well. So so the reality is, I think the worst part of this is that no one’s walking away terribly satisfied with it. I mean, there’s another argument, it says, of course, if no one’s satisfied, that means that you’ve got, you’ve got the balance about right. But as things stand, there’s no particular group turning around and saying that this is a great, a great piece of work.

Farnaz Fazaipour 11:48
Yeah. And together with all the other attacks that are happening in the rental market, we will which we won’t get into it’s it’s difficult times at the moment for investment landlords especially,

David Smith 11:58
I think it’s more of a general tenor of how things have been for quite some time, and it just feels like one thing after another. And, you know, I get it, if I was a bit older, and, you know, thinking about retiring, I might eventually say, Well, you know, this is just enough, I’ll just sell the rental properties and walk away. What Why Why bother carrying on? I think, because the government was, for example, to introduce a CGT break that was effective for landlords, you might see a massive exodus. If people thought that they could, they could avoid some capital gains tax, for example, but that’s not not something that governments in any way suggest it is. And

Farnaz Fazaipour 12:36
yeah, so when would you say was the last big change that happened before the rent bill?

David Smith 12:43
of this size? Yeah, probably the Housing Act 2004 tenancy deposit protection and property licencing so it’s, it’s big and then prior to that, probably the Housing Act 1988. The other day, bear in mind that Housing Act 1988 introduces a short, much shorter shorthold tenancies, the renters formula is getting rid of Assured Shorthold tenancies and effectively making all tenancies fully insured. So there’s a there’s a massive rollback in terms of the overall construction, you know, in terms of how we think about tenancies, which seems antithetical in some ways to the way things have moved, tenancies have generally got shorter. But that’s not just landlords making tenancy shorter tenants in as a rule tend to want shorter tenancies. And I think one of the troubling aspects of the renters formula is it’s still trying to achieve the thing that never really works, which is assuming the entire rental sector is the same. Yeah, a group of young professionals renting in central London is just not the same as a group of a single family renting in outlying rural Yorkshire that their needs and wants and desires are totally different than this bill doesn’t really still doesn’t really address age.

Farnaz Fazaipour 14:01
I always think that markets will find a way but I guess if we didn’t have a full understanding of the rent bill, it’s quite difficult for markets to find a way but do you see any any hope on the horizon for using some aspects of this this flow to find some solutions?

David Smith 14:21
I think the main solutions will come from from the market changing. I mean, I mean, the bigger problem in a sense is all the all the site problems The reality is that most landlords don’t ask tenants to leave tenants asked to leave so it won’t really matter to most landlords if, if there’s no fixed term tenancy is it they just have to accept the changing the fact they have less certainty that they previously had. But I don’t think that’s necessarily a problem for many landlords. And I think the reality is that once landlords get used to the changes, many of them won’t be that fast. I think the bigger problems then cut into things like courts and things like that, and the solutions when things go wrong, which is still very problematic. And the renter’s form bill increases those problems in the sense that it will become more difficult and expensive to get tenants to go because you will need more specialist advice. So I think that’s the problem and the direction that the we need to look at and whether we can make improvements to the court system as much as

Farnaz Fazaipour 15:34
is that not something that they also talked about having faster proceedings as a result of the rent bill?

David Smith 15:40
Well, mh DL UHC has promised that but that’s not really their promise. That’s the Ministry of Justice thing to deal with. And the Ministry of Justice has been conspicuously quiet throughout this. And frankly, I’ll believe it when I see

Farnaz Fazaipour 15:53
it. Right. So the lessons business has obviously been under attack from many angles over the last decade. What do you think the legal changes have?

David Smith 16:05
I think it’s just just yet another push. And the reality is that the lettings business has got nothing to do with the problems in a sense, the problem is, is associated with the fact that we have insufficient housing. So the government really needs to start putting some serious housing on the ground very quickly, and provide confidence the letting sector I think it by rethinking the manner of taxation, which is a bit of a bit of a dog’s dinner, and also, frankly, treats landlords as businesses when we feel like it, but not businesses when we don’t want to. So you need to go, you need to make a decision and treat them as businesses or don’t treat them as businesses be consumers, businesses, they need the tax breaks that businesses get, which would mean restoration of things like mortgage interest rate relief, benefits and things like that. And then I think the government needs to do something about the court system, there needs to be confidence for landlords that where there is a problem, that problem will be resolved. I think if you do those things that will go a long way towards improving the situation, and then the rhetoric needs to be dialled down a little bit, I don’t think there’s much point in Tory MPs going around talking about rent control, and suggesting that landlords are the problem and need to be a bit more honest about what the problems actually are.

Farnaz Fazaipour 17:23
Ya know, I couldn’t agree more. And I think that if you actually, you could also differentiate between landlord and landlord, if somebody’s actually proving that they’ve been dedicated to the business for a set number of years and, you know, have provided housing for a set number of years or amount of housing, then there should be some kind of difference between how you give them relief and you know, the way things are going at the moment, certainly for Prime central London, you know, soon, you know, the choice is going to be for the very wealthy, because there’s so little stock, and people are gonna have to start moving out into all the build to rent, you know, in the kind of different zones, I think,

David Smith 18:01
yeah, and the exodus from London, I think will continue. And in some senses, that’s not entirely a bad thing. I mean, the idea of levelling up, I mean, ideally, you want them to move a bit further and just the surrounding counties. But the whole concept of levelling up was to try and get get the wealth spread out of London. So that’s not necessarily the worst thing in the world, as long as you have the infrastructure and support so the economy doesn’t suffer. But I think one of the problems is that landlords will continue to incorporate, so that creates complexity and challenge throughout the system as well. And then, I mean, the bizarre scenario is, if you’re a landlord, you’ve always traditionally voted conservative. But ironically, the Labour Party is not necessarily a terribly bad choice, the Conservative Party’s tended towards the view and as to at least I feel as taken actions based on the fact that landlords will always just vote conservative. But given that the Labour Party has explicitly said that they wouldn’t support rent control schemes, you know, and that they’re taking incense, quite pro business line, they wouldn’t have to say very much and I think to be to be a preferred option from from your average landlord. No,

Farnaz Fazaipour 19:15
I couldn’t agree more any worse. Yeah. So on the subject of incorporating, what is what is the best advice that you have for landlords about the bill, if they want to try and stick it out and make the right decisions?

David Smith 19:31
Um, look at your portfolio. Look at who you’re renting to. I mean, the reality is we also verify one of the nice things about renting in a sense is that is that there’s a shortage of tenants and the need for housing as acute. So the business model is fundamentally sound. But I would look at your portfolio. Consider how it stacks up against expected for example, energy performance changes and things like that. Look at who you’re renting to Who and what the market is likely to continue to be. And then and then start making adjustments. Now before you have your room, you’re up against the wall. And if you need to adjust your portfolio by selling off some properties, start doing that now and then replacing them with alternative properties. And then also focused portfolio don’t have a lot of everything, try and keep it quite focused on a particular sector.

Farnaz Fazaipour 20:26
So when I was asking when I was mentioning and cooperating, it’s because I have heard and I have yet to understand how it’s done. And I don’t know whether you can shed any light on this. But for private landlords to actually go for incorporation relief, so they could try and move their portfolios, from their personal names into corporate names without being subjected to stamp duty,

David Smith 20:46
then my advice is to go and take some tax advice that I mean, the most important advice is actually not not a lawyer, it’s an accountant who specialises in capital gains and statute. It is possible to defer both stamp duty and capital gains as I understand it, but I’m not a specialist. And I would advise you to speak to someone who specialises in that from tax point of view. Yeah, so the tax is the most important that.

Farnaz Fazaipour 21:11
Yeah, yeah. And hopefully, there will be a way to do this, because there are landlords who only hold numbers of rental units, and it wouldn’t be practical for them to try and move it into a company pay stamp gene.

David Smith 21:23
Yeah. But the point I should make, though, is that I haven’t mentioned that the rents reform bill also includes a property register affected a PRs database, and also a requirement for landlords to join a Redress Scheme. So one of the things we’ve seen in Wales that has been problematic is landlords getting themselves mixed up when registering with the Welsh national database. And if you own properties in lots of different ways, if you own you know, some yourself, some are owned by your spouse, summer owned by you and your spouse jointly somewhere into the company. Those are all separate registrations for the purposes of the IRS database. Because each database requires an individual to register, and then to register all the property of that person or that entity owns. So it’s important to bear in mind that if you’re going to, if you’re going to incorporate it’s a lot easier to do the whole thing. It’s much it’s much, it’s more complicated for you and be more expensive and risky for you to have properties and lots of different ownership structures, because you will have to register each of those entities separately with the PRS database and get them right. And when is that a requirement from I don’t know yet part of the renter’s reform bill. So we’ll have to wait to see what how that

Farnaz Fazaipour 22:34
sounds like we’re gonna have to try and squeeze ourselves in for another appointment with you in the months to come.

David Smith 22:40
So before we can walk, because I understand there’s rumours now going around that Michael Gove might get reshuffled to another department. So we just don’t know whether it’s his reform bill will be up to this. And this putative successor,

Farnaz Fazaipour 22:52
oh, my goodness, oh, my goodness, well, we will be keeping a close eye on it. But before we thank you and say goodbye, and really appreciate your time again, can you just for our listeners, tell us about? What is your absolute area of speciality what you do day in day out? And what are the services that our listeners can can look to you for help and advice.

David Smith 23:14
John W is a full service law firm, I run a proxy litigation team that covers a an incredibly wide range of specialisms from quite unusual things like basement extensions and party walls, to the more the more general, sort of run of property litigation work, my specialty is short Residential Tenancies, and the regulation of them so licencing prosecution, civil penalties, evicting tenants, all of those kinds of things.

Farnaz Fazaipour 23:42
Brilliant. Always have to go to the man who knows in order to get things done fast and and waste as little money as possible. So

David Smith 23:50
I’m not the cheapest, but I do try to be the one of the best.

Farnaz Fazaipour 23:54
Well, yes, no, I don’t necessarily mean being the cheapest. But sometimes you win. If you go to the wrong people, things take way longer than they should. So not only are you losing rent and not relaxing, but you know, you’re in this whole kind of wrangle. So you go into the people who can actually get the job done efficiently and effectively. You know, my opinion is always always the best route.

David Smith 24:14
Never. Yeah. That’s great. Brilliant.

Farnaz Fazaipour 24:17
Well, thank you so much, David. And as I say, we will keep a close eye on on the rent bill, and we look forward to speaking to you again, welcome you back to the show.

David Smith 24:25
Thank you very much.

Outro 24:27
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