Shares in London estate agent Foxtons plummeted £3 million this week amidst the introduction of the Renters' Rights Act and a prolonged slump in the sales market. The firm cited both factors for the significant hit, which follows the company's already substantial first-half operating profit drop.
The share price has slid by 27 per cent to 32p, a nearly 50 per cent reduction in stock value since January this year. Foxtons' financial challenges are multifaceted, with its lettings revenue impacted by landlords terminating tenancies ahead of the new regulations taking hold. The company's first-half operating profit fell by almost a third to £8.5 million, attributed not only to the Renters' Rights Act but also ongoing political uncertainty and macroeconomic difficulties.
The Renters' Rights Act has reshaped the UK private rental sector with sweeping changes. Key provisions include automatic rolling contracts for all tenancies, giving tenants more flexibility to end their tenancy with just two months' notice. The Act has banned 'no-fault' evictions (previously known as Section 21) and now requires landlords to provide a legally recognised reason or grounds for possession to regain their property.
Labour Housing Minister Matthew Pennycook highlighted the issue of arbitrary evictions under previous rules, where tenants raising concerns about damp or mould were often unfairly ousted. Under the new regime, landlords must give at least four months' notice for eviction and apply to the courts if a tenant refuses to leave, adding significant time and cost.
The Act also imposes restrictions on rent increases, with landlords allowed only one annual hike, requiring two months' notice. Tenants can challenge proposed hikes they deem above market rate through the First Tier Tribunal (FTT), which may defer rent rises by two months in hardship cases but cannot propose a higher initial rate.
Foxtons is attempting to mitigate financial pressures with cost savings totalling £4.5 million, including £1.5 million from downsizing its head office and £3 million from broader cuts. With the sales market expected to remain subdued, Foxtons' lettings division's performance will be crucial to its overall health.