Renters' Rights Act – phase 1 reforms to private rental sector are now in force in England

The first phase of reforms under the Renters' Rights Act 2025 took effect on 1 May 2026, introducing a swathe of significant changes to tenancy rules and procedures for the private rented sector in England.  

Core changes include the abolition of fixed term assured and assured shorthold tenancies (for both new and existing tenancies), revised grounds for possession, restrictions on annual rent increases and bans on rental bidding and advance rent payments. 

Critically for many residential operators, the Act has significant consequences for pre-existing ownership, management and lending structures. A landlord's ability to grant leases may be constrained by arrangements with superior landlords, lenders, insurers or under section 106 agreements. Those arrangements will need to be reconsidered in light of the Act. This is particularly relevant for those operating within the residential development, build to rent and real estate financing sectors.

Key reforms affecting investment and financing  

No more fixed terms

Assured shorthold tenancies (ASTs) can no longer be granted. All new assured tenancies must be granted as assured periodic tenancies (APTs), with no fixed term and running for successive periods of up to one month, until terminated in accordance with the Act. 

Existing private sector ASTs automatically converted to APTs on 1 May 2026, without the need for a new written tenancy agreement, with any conflicting provisions overwritten by the Act. This is subject to transitional provisions for tenancies with ongoing possession claims. 

The abolition of fixed terms creates greater uncertainty around lease expiries, vacancies and income gaps, particularly as tenants can exit on short notice (just two months). For build to rent operators and large residential portfolio holders, this may prompt a reassessment of income modelling, vacancy risk and asset management strategy. This uncertainty around income streams could affect property valuations and investor appetite and could also have implications for lenders with the impact of lender covenants or financial assumptions tied to fixed-term income streams.

Rent reforms

The reforms regulating payment of rent are also important for investors, landlords and their lenders. Rents can only be increased to market levels once every 12 months, overriding any contractual rent review provisions, and the removal of fixed expiry dates removes the opportunity to negotiate a new rent on renewal. 

Landlords must give at least two months' prior written notice in accordance with the Act, creating an additional administrative burden for those managing large portfolios. As things stand, tenants can challenge increases in the First-tier Tribunal, with any uplift suspended until determination (with no backdating). Tribunals can only confirm or reduce the proposed rent, even where market levels have risen in the interim.

Ending a tenancy

Tenants can end their tenancy by giving two months’ notice. By contrast, landlords will only be able to end a tenancy by obtaining a court order and proving one or more of the reformed statutory grounds for possession.

The statutory notice periods differ depending on the ground being relied upon, some of which have changed since 1 May 2026.  This is likely to increase procedural complexity, cost and delay.  For large portfolios, the removal of section 21 and extended notice periods significantly reduces operational flexibility, so many landlords will need to adjust their asset management approach.

Transitional provisions: existing restrictions on granting new tenancies

Parties seeking to grant residential tenancies will also need to understand how the Act affects their relationships with other parties, such as superior landlords, lenders or insurers. 

Many arrangements restrict ability to grant leases, or only permit the grant of permitted leases within defined terms – for example, requiring any tenancy to be an AST, imposing minimum or maximum terms, or prescribing rent levels, which could now contradict the requirements of the Act.

Transitional provisions: 'relevant pre-application instruments'

The Act contains transitional provisions that apply to "relevant pre-application instruments" relating to residential premises. This covers leases, mortgage arrangements, insurance contracts and section 106 obligations each entered into before the commencement date, or pursuant to an agreement or offer (as applicable) made before that date.

Provisions in those documents which relate to a party's ability (or impose a requirement) to grant residential leases must now be interpreted in light of the Act. For example, a headlease may only permit subletting by way of AST, which now no longer exists. In that case, the headlease will be treated as permitting subletting under a "relevant assured tenancy" (essentially an assured monthly periodic tenancy). The same prescribed terms under the headlease will continue to apply, but subject to any inconsistency with the Act. Similarly, if the headlease provisions already envisage subletting by way of a "relevant assured tenancy", those terms must also be interpreted in accordance with the Act.

For residential developers and build to rent operators, this means that headlease structures that previously defined permitted residential leases by reference to ASTs will need to be read as permitting APTs. In practice, this may make it harder for intermediate tenants to give vacant possession of sublet units, although the Act ensures this will not breach the headlease. A new statutory ground for possession has also been introduced where a fixed-term headlease of over 21 years is expiring and not being renewed. These changes are likely to affect asset management strategies, with potential knock-on effects for institutional investors and lenders. 

Parties to existing loan documentation should also consider whether their security arrangements remain adequate in light of these reforms. Additionally, a lender enforcing security over let residential property could find it more difficult to obtain vacant possession quickly, affecting its ability to enforce its security and potentially the underlying value of it.

Where the transitional provisions do not apply

The transitional provisions do not cover all arrangements, such as restrictions contained in management agreements or restrictive covenants on a title, which in many cases will not have been drafted with the Act in mind. Parties who rely on or are bound by these restrictions will need to assess whether the Act has made them more onerous than originally intended, and whether the automatic conversion of ASTs to APTs has resulted in any breach of their existing arrangements.

New lettings of qualifying purpose-built student accommodation (PBSA) will be common law tenancies, exempt from the Act, and can therefore continue to be granted on a fixed-term basis. The transitional provisions will therefore not apply in this context. However, existing ASTs of PBSA will remain within the regime and automatically converted to APTs on 1 May 2026. Further detail on the impact of the Act on PBSA is provided in this Insight.

Osborne Clarke comment

These reforms represent a fundamental shift in the regulation of the private rented sector. The Act offers tenants enhanced protections to remain in their rented homes unless the landlord has a valid legal reason to retake possession.  

For landlords, investors and operators, the removal of fixed‑term tenancies has the potential to change how properties are managed, and the new rules on when and how rent can be paid or increased may affect income and property values. Furthermore, lenders enforcing security over residential property may find it harder to obtain vacant possession quickly, which could have an impact on both their ability to enforce security and the underlying value of that security.

The updated rules on ending tenancies may also affect disposal strategies. This could discourage investment in the sector or lead to landlords pricing in risk through higher initial rents, although initial rents can be challenged at the tribunal within the first six months.

Landlords and their managers will need to review their wider processes in light of the Act, as procedural failures can have significant implications for landlords' ability to increase rents or obtain possession. Stakeholders should also review any intermediate leasehold structures and financing arrangements to assess whether alienation provisions and subletting restrictions operate effectively under the Act's transitional provisions, and identify any gaps requiring renegotiation.

With Phase 2 of the Act expected to begin later this year , including the roll out of the new PRS Database and Landlord Ombudsman Scheme, many parties will be preparing for further reforms on top of these changes.