Safeguarding residential assets and yield ahead of the Renters’ Rights Bill

For those managing long-income strategies, residential REITs, or buy-to-let portfolios, the implications are far-reaching. The abolition of Section 21 evictions, revised rent arrears thresholds, and automatic conversion of fixed-term tenancies to periodic agreements will introduce new layers of complexity, risk, and compliance burden. These changes will not only affect asset performance but also the strategy around enforceability of security, valuation assumptions, and borrower behaviour.

Navigating the new landscape

One of the most immediate concerns, in particular for lenders, is the impact on possession and enforcement. With Section 21 removed, landlords — and by extension, their lenders — will rely solely on updated Section 8 grounds. This means longer notice periods, increased reliance on court proceedings, and a 12-month protected tenancy window that may delay recovery. For lenders, this translates into extended enforcement timelines and reduced certainty around asset liquidity.

Yield compression is another emerging risk. Rent caps, reduced flexibility for landlords, and heightened compliance obligations are likely to erode returns, particularly for smaller landlords. Some investors are already exiting the market, softening demand and pricing for tenant-occupied assets. For REITs and pension schemes, this may affect dividend cover and long-term income planning.

Operationally, borrowers will face increased responsibilities — from Private Rented Sector Database  (PRS) registration and deposit protection to safety certifications and compliance with the Decent Homes Standard. Non-compliance could result in greater enforcement action against landlords, increased risks of reputational damage, and rental income disruption. Lenders may find themselves indirectly exposed, especially as local authorities gain powers to request information from financial institutions during enforcement activity.

Strategic response for lenders and investors

In light of these developments, lenders should consider recalibrating underwriting assumptions to reflect longer recovery timelines and potential rent voids. Evidence of tenancy terms, PRS registration, and compliance with safety standards should become standard at origination. Legal documentation may need to include borrower covenants requiring notification of enforcement action or compliance breaches. Legal documentation may need to be more robust in its handling of breaches and trigger enforceability earlier given the heightened chances of a knock on effect of reputational risk to lenders as a result of certain types of breaches.

Valuation methodologies may also evolve. Applying yield discounts to tenant-occupied assets and stress-testing rent assumptions will help build resilience into portfolio pricing. Monitoring frameworks are likely to be enhanced to detect emerging compliance issues early and track exposure to properties at risk of enforcement penalties or Rent Repayment Orders.

For those reviewing strategic lending focus, asset classes outside the scope of the Bill — such as purpose-built student accommodation (PBSA), corporate lets, and tenancies exceeding £100,000 per annum — may offer a more stable regulatory environment and reduced compliance burden.

Tax and structuring considerations

While the Bill does not directly amend tax legislation, its operational impact may have indirect consequences. REITs should assess whether reduced rental income could affect the 90% distribution requirement. Longer void periods may influence eligibility for capital allowances, and changes in tenancy structure could affect how leases are assessed for SDLT purposes in bulk acquisitions.

Take away actions

1. Reassess underwriting criteria

Review and adjust loan-to-value (LTV) assumptions and stress-test recovery timelines. With longer possession delays and rent arrears thresholds, traditional risk models may understate exposure.

2. Embed compliance checks at origination

Require borrowers to provide evidence of:

• PRS registration
• Deposit protection
• Safety certifications This ensures regulatory alignment from day one and reduces downstream enforcement risk.

3. Strengthen legal documentation

Introduce covenants obliging borrowers to:

• Notify lenders of enforcement action or compliance breaches
• Maintain tenancy documentation in line with the new regime
  This enhances oversight and enables proactive risk management.

4. Refine valuation methodologies

Apply yield discounts to tenant-occupied assets and incorporate rent recovery risk into valuation models. This will support more resilient pricing and better reflect emerging market dynamics.

5. Enhance portfolio monitoring

Track exposure to properties at risk of Rent Repayment Orders (RROs) or non-compliance penalties. Periodic borrower check-ins and property inspections can help detect issues early and preserve asset quality.

Summary

The Renters’ Rights Bill is more than a regulatory update — it’s a structural shift in how residential property is owned, managed, and financed. For institutional stakeholders, the challenge lies in adapting early, engaging proactively with borrowers, and embedding resilience into lending and investment strategies.

If you would like tailored advice on how these changes may affect your portfolio or lending position, or support in implementing readiness measures, we would be pleased to assist.

Donna Goldsworthy is a partner in Fieldfisher's Dispute Resolution team specialising in banking and finance litigation and Jayne Backett is a partner in the Banking and Finance team.