This article outlines the key changes introduced by the Act and considers the practical implications for lenders, particularly in relation to enforcement strategy, vacant possession and borrower risk.
The key reforms
Abolition of Assured Shorthold Tenancy (AST) agreements
Most tenancies in the private rented sector are currently granted as assured shorthold tenancies, typically for a fixed term of six or 12 months, before becoming periodic.
From 1 May 2026, all new tenancies must be periodic and fixed-term tenancies will no longer be permitted. These new periodic tenancies (referred to as ‘section 4A tenancies’) must run for the same period as the rent payment cycle – for example, monthly or a period of less than 28 days.
All existing ASTs will automatically convert to section 4A tenancies once the reforms come fully into force.
Abolition of section 21 notices
Currently, landlords may recover possession of a property at the end of an AST by serving a section 21 notice, provided at least two months’ notice is given. No reason for possession is required.
The Act abolishes the use of section 21 notices entirely. Going forward, landlords will only be able to recover possession through the section 8 procedure, relying on one of the statutory grounds for possession.
Changes to the section 8 possession grounds
To compensate for the removal of section 21, the Act expands and amends the section 8 grounds for possession. Key changes include:
- Sale of the property: A new ground allowing possession where the landlord intends to sell their freehold or long-leasehold interest. The tenancy must have been in place for at least 12 months, and a minimum four-month notice period applies.
- Redevelopment: The notice period has been extended from two months to four months.
- Rent arrears: The mandatory ground now requires a minimum of 13 weeks’ unpaid rent, increased from the current threshold of eight weeks.
- Occupation by the landlord or close family: The definition of ‘close family’ has been widened to include partners, parents, grandparents, siblings, children and grandchildren.
Decent Homes Standard
The Decent Homes Standard will be extended to the private rented sector for the first time. The Act enables further regulations to set out the detailed requirements, with enforcement powers granted to local authorities.
Where a landlord fails to comply, a local authority may serve an improvement notice requiring remedial works within a specified timeframe. Non-compliance may result in civil penalties or criminal prosecution.
In addition, where a landlord fails to take reasonably practicable steps to keep a property free from serious hazards, local authorities will have the power to impose civil penalties of up to £7,000.
Implications for lenders
1. Delays in obtaining vacant possession
Lenders enforcing security or funding purchases of tenanted properties should anticipate longer timescales for obtaining vacant possession. Possession will now require court proceedings under section 8, combined with longer notice periods, increasing enforcement risk, cost and timelines.
2. Reduced certainty at the start of tenancies
While fixed terms have been abolished, tenants benefit from a 12-month protected period at the start of a tenancy during which landlords cannot recover possession to sell or occupy the property. This may impact exit strategies and enforcement planning.
3. Increased regulatory and financial risk
Compliance with the Decent Homes Standard introduces additional regulatory obligations for landlords. Lenders should ensure borrowers are aware of these requirements, as fines or enforcement action may affect borrower solvency and overall covenant strength.
Market outlook
The Renters’ Rights Act 2025 represents a significant shift in the balance between tenant protection and landlord flexibility. While intended to improve security and standards in the private rented sector, the reforms introduce increased complexity, longer enforcement timelines and additional regulatory risk.
For lenders, careful due diligence, borrower education and enforcement planning will be essential to mitigate the impact of these changes as the new regime comes into force.
How TWM can help
Our Lending team supports banks, specialist lenders, and secured investors with due diligence, enforcement strategy, and borrower compliance reviews, helping clients navigate longer possession timelines, increased regulatory exposure, and the shift to periodic tenancies. We work closely with lenders to assess covenant strength, anticipate enforcement challenges, and protect security positions in light of the new statutory framework.
If you would like advice on how the Renters’ Rights Act 2025 may affect your lending portfolio, enforcement planning, or borrower risk, please contact our Lending team for clear, commercially focused guidance.
