My Lords, I will speak to the government amendments which are largely technical in nature and stem from issues that have been raised with us. The amendments seek to improve the drafting of the Bill and ensure that the policy can be implemented smoothly. We also intend that they will be helpful to social housing providers. I am aware that my noble friend had helpful meetings with your Lordships before Christmas to explain the purpose of these amendments. I will now seek to put that forward to the House.
Amendment 104BC is a minor technical amendment. It closes a small gap in the drafting of the provisions to bring into the scope of Clause 21 any tenancies that began at,
“the beginning of 8 July 2015 but less than 12 months before the beginning of the first relevant year”.
Under Clause 22, we have set out some exceptions to the policy. The purpose of the exceptions in Clause 22(2) and (3), and the equivalents in Schedule 2, is to protect the value of stock held by social sector landlords, to provide confidence to the financial sector and to ensure that providers can continue to use their stock as security for borrowing.
Amendments 108B to 108D and Amendments 110C to 110E improve the drafting of those exceptions and clarify that they apply to the registered provider’s interest in the property only if the relevant steps are taken for the purpose of enforcing the lender’s rights under the security as intended. They also clarify that for the purpose of these exceptions, where a registered provider appoints an administrator, this is a step to enforce security.
We have brought forward Amendment 110F in response to concerns regarding the potential for practical implementation difficulties in certain circumstances. The new clause, “Implied terms”, is intended to help social housing providers to comply more easily with the requirement for rent reductions for social tenants. The amendment overrides any provision of individual tenancy agreements that may prevent providers varying the tenancy agreement to reduce rents on the most appropriate annual timescales. This is a somewhat technical amendment, so it may help if I provide some background in order that its purpose, which is to assist providers, can be better understood.
The Bill requires social providers to reduce by at least 1% the rents payable by their individual tenants over each of four relevant years. Each provider has a single relevant year, which, as a general rule, will run from April to March. However, a private registered provider with an established practice of co-ordinated rent years for the majority of its tenants may choose instead to use that period as its relevant year. If there is no clear majority the default is that the provider must use 1 April.
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Many providers have in place at least some tenancy agreements that will be out of step with their relevant years because the agreements would not ordinarily allow the necessary reduction at the beginning of the relevant years. This has the potential to create practical implementation difficulties for a provider who would be faced with either taking on the administrative burden of negotiating the variation of the agreement to provide for a new rent review date or waiting to reduce the rent for such tenancies until the review date specified in those tenancy agreements. The latter option would require the provider to implement deeper reductions at that point in order to comply with the requirement to secure a 1% reduction over the course of the year. The purpose of this new clause is to overcome these difficulties by overriding any provision of individual tenancy agreements that may prevent providers varying the tenancy agreement to reduce rents on the most appropriate annual date.
Amendment 104DA is a related consequential amendment to Clause 21, which is needed because the new clause, “Implied terms”, potentially changes a
provider’s rent review cycle, which is relevant to whether a provider may operate a relevant year that does not start on 1 April. The relevant provision is Clause 21(6), which provides that a private registered provider may operate a relevant year that does not start on 1 April if its,
“practice as regards the greater number of its tenancies is to change rent payable no more than once a year and with effect from”,
another date. The consequential amendment sets out that the provider’s practice with regard to rent reviews should be determined with regard to the year to 31 March 2016. It also clarifies that a provider’s practice with regard to rent reviews relates to its practice in relation to its social housing.
We have also brought forward a new clause under Amendment 110G which will set out how the rent reduction policy applies if there is a transfer of housing stock from one provider to another: for example, as part of a merger or if one provider sells housing stock to another. Our aim in bringing forward the amendment is to provide for smoother transfers of housing stock which take account of the rent reduction policy, thus reducing administrative burdens on the new provider. The new clause puts in place a clear rule for how the rent reductions should be calculated when property is transferred and provides that the former provider’s relevant years should continue to apply. The four years of rent reductions will apply to a particular tenancy whether or not the providers have corresponding relevant years.
It may be helpful to clarify that any exemption under Clause 23 would be granted in respect of a particular provider and therefore would fall away when stock is transferred. This new clause modifies that basic position. It provides that where housing stock subject to an exemption is transferred to a new provider, the exemption will continue to apply to the housing in question until the end of the relevant year. Amendment 110J is a consequential amendment to Clause 27 which simply ensures that the powers of the social housing regulator to set and revise standards relating to levels of rent also extend to the new clause.
We have brought forward Amendment 110H to address potential concerns that the rent reductions may have an unintended extended impact for some providers. The new clause, “Transitional provision”, seeks to prevent this by making provision allowing providers, if they wish, to review rents immediately after the end of the rent reduction period, rather than waiting to do so until whatever rent review date is provided for in individual tenancy agreements. This could otherwise be some time after the end of the rent reduction period.
The intention of the amendment is to allow providers flexibility in choosing how to transition from the rent reductions. Providers may bring forward their first post-restriction rent review to any date between the end of the rent reduction period and the normal contractual rent review date. Where the agreement provides for rent reviews that are approximately annual, or less frequent, the provider thereafter has the option to shift all its subsequent rent reviews forward to maintain its normal rent review intervals or to revert to its original rent review cycle. This amendment is
intended to assist the sector to ensure a smooth transition at the end of this measure in a manner that provides a fair degree of flexibility.
Amendments 110K, 110L and 110M are small but important amendments. The Secretary of State has taken a power in the Bill to issue consents to the use, by a provider, of an alternative permitted review date as the reference point when setting rent in the first relevant year. Importantly, these amendments ensure that these powers come into force on Royal Assent. If such a consent is not granted, the reference point for rent reductions under Clause 21 and assumed rent under paragraph 1 of Schedule 2 is the rate of rent applied on 8 July 2015. By commencing these powers on Royal Assent, the Secretary of State will be able to issue such consents before the main provisions come into force, which will enable providers to plan for setting rents at a higher level than they would otherwise have been able to do.
The provisions allow the Secretary of State to grant a consent which covers a particular case or a description of cases. It is our intention to issue a general consent to enable a provider that, on 8 July 2015, had not implemented its 2015-16 rent increase to use a later date as the reference date. Our intention is that the general consent will cover the majority of providers that need consent for an alternative permitted review date. If, exceptionally, any providers need an individual consent, an application will need to be submitted to the Secretary of State which will be considered on its individual merits. Our aim is to issue a general consent as soon as feasible after the Bill receives Royal Assent.
I apologise to the House for the length of these opening remarks, but, as I said, these are technical amendments and I wanted to ensure that the House had our rationale for them. On that basis, I beg to move the amendment standing in my noble friend’s name on the Order Paper.