Renters' Rights Act through a lending lens

With its most significant reforms taking effect from 1 May 2026, the Renters' Rights Act 2025 introduces wide‑ranging changes to the private rented sector (PRS), strengthening tenant protections while reducing the certainty on which landlords, lenders and borrowers have traditionally relied.

Its measures are numerous and include the abolition and conversion of assured shorthold tenancies (ASTs) to assured periodic tenancies (APTs), restrictions on rent increases, the establishment of a new landlord database and the removal of a landlord's right to serve a 'no-fault' eviction notice on a tenant.

This legislative shift reshapes the assumptions on which residential property-backed lending has historically been based and alters its risk profile, demanding a review and update of loan documentation.

This article explores each Renters' Rights Act provision that impacts real estate finance loans and offers practical drafting advice for those operating in this sector. 

The Renters’ Rights Act provides that:

• APTs are to be periodic with periods of no longer than one month
• the tenancy period must correspond with the rent period, which also may not exceed one month
• any provision intending to create a longer rent period will be of no effect.

Removing tenancy end dates signifies a clear departure from how the real estate finance market has operated in recent decades in the PRS.

Fixed-term ASTs afforded a degree of predictability, in the form of defined endpoints to landlords, enabling them to manage occupation. Lenders and borrower landlords were able to make clearer assumptions on continuity of income and of possession strategies.

In contrast, periodic APTs are open-ended by design. Tenants may remain in occupation indefinitely, subject only to compliance with their obligations and the landlord establishing a statutory ground for possession.

Lenders and borrowers should therefore consider the following.

• Tenancy references: lenders and borrowers will need to consider any references to tenancies under the existing regime in facility agreements, security documents and ancillaries and update them to reflect the new framework.
• Consent to let/letting conditions: standard lender consent to let clauses, which often reference AST terms (as well as section 21 notices and fixed-term minimum periods as discussed below), will need to be examined and revised.
• Conditions precedent: where vacant possession or the existence of an AST is a condition precedent to drawdown, these conditions may need to be redrafted. Lenders will need to consider whether a periodic tenancy on Renters’ Rights Act-compliant terms is acceptable security.

From 1 May, this will be abolished, meaning possession can only be obtained by serving notice under section 8 of the 1988 Act or by relying on one or more statutory grounds in Schedule 2 of the 1988 Act (as amended by the Renters’ Rights Act).

Establishing section 8 grounds requires tenant breaches such as rent arrears, property damage or antisocial behaviour, but receiving an order for possession has often taken longer than the notice period a landlord might stipulate.

The presence of tenants who are in default or otherwise failing to meet their rental obligations over time is one of several factors that can have a significant impact on the value of a lender's security and a borrower landlord's ability to service its debt efficiently.

Other section 8 grounds – such as sale of the property or landlord occupation – have mandatory minimum notice periods and restrictions on use, e.g. a 12-month 'no eviction' period at the start of a tenancy for sale or occupation grounds.

Lenders and borrowers should therefore consider the following.

• Loan-to-value (LTV) covenants: where LTV is tested by reference to vacant possession or tenanted value, lenders should ensure that valuers are instructed to assess value under Renters’ Rights Act-compliant tenancy terms. The inability to obtain quick vacant possession may affect tenanted and vacant possession values.
• Enforcement provisions: any security enforcement provisions or receiver's powers that rely on a borrower landlord's/lender's right to obtain vacant possession by serving a section 21 notice will become redundant and should be removed or replaced with references to the available grounds and notice periods under the Renters’ Rights Act. A lender exercising its power of sale with vacant possession will face new constraints. 
• Representations and warranties: lenders should review and update representations given by borrower landlords as to the nature and terms of existing tenancies. Any warranty that vacant possession can be obtained by a specified date via a section 21 notice will need to be removed or replaced.
• Material adverse change (MAC) clauses: depending on the drafting, the inability to regain possession via section 21 may constitute a MAC in relation to security value; MAC definitions should be reviewed to ensure they are not inadvertently triggered by the Renters’ Rights Act's reforms.
• 12-month restriction: the 12-month 'no eviction' ground may affect a lender's ability to enforce and sell with vacant possession in the early life of a tenancy. Lenders should assess whether standard enforcement timelines will therefore remain achievable post enforcement of the Renters’ Rights Act.

Both the property and its landlord must be registered before marketing that property for letting, and adverts must reference the corresponding registration numbers.

Landlords who are not registered will not be able to serve valid possession notices or rely on certain possession grounds, except on grounds 7A (criminal/anti-social behaviour) or 14 (nuisance or annoyance).

Lenders may, as part of their due diligence investigations into borrower landlords, now start to look at their track record in terms of compliance with the requirements of the PRS Database.

Any failure to register correctly could affect the enforceability of lenders' security given a court may not make an order for possession.

Lenders and borrowers should therefore consider the following.

• Conditions precedent: registration on the database, once operational, should be a condition precedent to drawdown (or a condition subsequent with a short cure period) for buy-to-let transactions.
• Representations and warranties: borrower landlords should warrant that all relevant properties are registered on the database and that all required information is accurate and up to date.
• Undertakings: borrower landlords should be subject to an ongoing covenant to maintain registration and to promptly update the database with any changes.
• Events of default: failure to maintain registration should be made an event of default, given the direct impact on security enforceability.

The Renters’ Rights Act will also require all private landlords to be members of a new independent PRS Landlord Ombudsman scheme that will establish a complaints procedure against landlords by former, current and prospective tenants.

The scheme is expected to be introduced in Phase 2, with the criteria for approving or designating a scheme anticipated to be established by the secretary of state in late 2026. Landlords will be required to register as members once the scheme is sufficiently operational in 2028.

Notably, its decisions may be enforced as if they were court orders, potentially resulting in impairment to cash flows from the borrower landlord and reputational risk on the part of the lender.

Lenders and borrowers should therefore consider the following.

• Representations and warranties: repeating representations may be sought from borrower landlords confirming they are and continue to be members of the PRS Landlord Ombudsman scheme.
• Undertakings: borrower landlords should be subject to ongoing covenants to maintain their membership of the PRS Landlord Ombudsman scheme and to notify the lender of any complaint or determination made against them that could affect the security package or their ability to let the property.
• Events of default: failure to register within a set period, or persistent non-compliance with or removal from the PRS Landlord Ombudsman scheme could be included as events of default or triggers for a cash sweep event.

Rent can be increased only once per year, and any increases require the use of a prescribed notice (the new section 13 notice procedure) with a minimum of two months' notice (replacing the one-month under the previous regime). Landlords cannot contract out of this mechanism.

Tenants will have the right to challenge proposed increases by the landlord at the First-tier Tribunal. Where a challenge is made, the increased rent is not payable unless and until the tribunal has determined the appropriate market rent.

This may be determined to be lower than that proposed by the landlord, based on the tribunal's assessment of the applicable open-market rent, and the period required for determination is not yet clear.

Historically, lenders have used contractual rent review mechanisms to support income forecasting and serviceability assumptions, particularly in inflationary periods.

The Renters’ Rights Act introduces more variability around income growth and removes a degree of control for landlords (including potential downward adjustments), although in practice outcomes will still depend on market conditions and tenant dynamics.

For both lenders and borrower landlords, these changes necessitate a reassessment of representations, undertakings and financial covenants.

Income projections will need to reflect the possibility of frozen or reduced (rather than upward-only) rents during tribunal proceedings and the inability to accelerate cash inflows through advance payments, as discussed further below.

Lenders and borrowers should therefore consider the following.

• Income and debt service coverage ratio (DSCR) assumptions: rental income projections used in underwriting and LTV/interest cover ratio (ICR) testing should be updated to reflect that rent increases are limited in timing and process. Lenders should ensure that financial models assume compliant rent review processes.
• Financial covenants: DSCR covenants and ICR definitions should be reviewed to ensure that they reflect realistically achievable rental income streams given the Renters’ Rights Act’s impact, particularly in an environment with rising interest rates.
• Information covenants: borrower landlords should be required to notify the lender promptly of any rent increase notices served or received and the outcome of any First-tier Tribunal proceedings relating to rent.
• Valuation provisions: valuations in respect of lender's security assets will need to be conducted based on Renters’ Rights Act-compliant tenancy terms.

The Renters’ Rights Act also restricts landlords from requiring more than one month's rent in advance and caps tenancy deposits. It also prohibits 'bidding wars' for rental properties. Given the impact on rental income predictability, lenders and borrowers should consider the following.

• Representations and warranties: representations may be sought from borrower landlords confirming their compliance with the restrictions on advance rent and deposits. A breach could expose the borrower landlord to liability, adversely affecting the borrower landlord's financial position and the value of the security.
• Undertakings/covenants: covenants should be included requiring the borrower landlord to comply with all applicable restrictions on advance rent and deposits throughout the life of the loan.
• Financial covenant structuring: where rental income forms the basis of DSCR testing, lenders should note that the prohibition on advance rent may affect cash flow timing. DSCR definitions and testing dates should be reviewed accordingly.

The Decent Homes Standard will also be extended to the PRS and is currently proposed to be implemented in either 2035 or 2037.

Lenders will want to ensure borrower landlords are compliant and note the potential effect of non-compliance on the value of its security.

Lenders and borrowers should therefore consider the following.

• Representations: borrower landlords should warrant that letting policies and practices comply with the anti-discrimination provisions of the Renters’ Rights Act and represent that the property meets the Decent Homes Standard (once implemented).
• Undertakings: ongoing covenants should prohibit the borrower from adopting letting policies that would breach the Renters’ Rights Act and require borrower landlords to maintain the property to the express Decent Homes Standard (updating previous 'good repair' language).
• Capital expenditure/reserves: where the lender is assessing rental income on a net basis, the potential cost of bringing properties up to the Decent Homes Standard should be factored into underwriting. Lenders therefore may wish to require a maintenance/capex reserve account.
• Valuation: valuers should have regard to the Decent Homes Standard (once implemented) where required remedial works are considered to have a material impact on the value of the security, supported by market evidence.
• Reputational/regulatory risk: lenders should consider whether their standard environmental, social and governance (ESG) or reputational risk representations capture compliance with the extended social housing and tenant protection legislation.

A few additional considerations apply to lenders to borrower-landlords with portfolios of buy-to-let properties as security.

• Cross-collateralisation: portfolio loan documentation should be reviewed to ensure that non-compliance at one property does not disproportionately trigger cross-default provisions across a portfolio. To deal with this, tiered or default thresholds could be introduced.
• Portfolio ICR testing: given rent increase constraints and the potential for increased void periods (due to difficulties in recovering possession), portfolio ICR covenants should be stress-tested under the new regime.
• Asset management reporting: information covenants should require regular reporting on tenancy details, compliance status, ombudsman scheme membership, and PRS Database registration for each property in the portfolio.

For lenders and developers active in the PBSA market, the Renters’ Rights Act introduces both reassurance and risk, depending on how assets are structured and operated in practice.

University-owned accommodation and student licences will remain outside the scope of the Renters’ Rights Act. PBSA providers who are members of government-approved codes of practice such as the ANUK/Unipol National Code will largely sidestep the tenure reforms.

They will be able to grant common law tenancies rather than APTs, allowing them to continue offering fixed-term agreements aligned with the academic year and to require advance rent payments. However, this exemption applies only to new tenancies granted after the changes come into force on 1 May 2026.

Existing ASTs will undergo a transitional period, converting to APTs until they can be ended through either section 21 notices (issued before implementation) or the new ground 4A possession proceedings, but time is tight for such a change to be made prior to 1 May. 

Most breaches will result in a civil penalty of up to £7,000 for initial non-compliance but repeated breaches or offences can result in civil penalties of up to £40,000.

Further, there is scope for criminal prosecution including summary conviction or a fine, depending on the severity of non-compliance. The negative consequences of this for a borrower landlord and their lender are self-evident.

Lenders and borrower landlords are advised to act promptly to review and update their loan documentation to reflect the new legislative landscape.

A version of this article was previously published by Taylor Wessing in March 2026. The article reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to any specific matter.