London estate agency Foxtons has pointed to the Renters' Rights Act as a key factor behind a sharp decline in first-half earnings, warning that the new tenant protections triggered a wave of early tenancy cancellations in May and June.

The London-listed firm told shareholders that the legislation led to a higher number of tenants terminating their rental agreements early, resulting in approximately £3m in lost expected rental income. As a result, pre-tax profit fell 57 per cent to £4.4m for the six months to June.

"A small proportion of tenants exercised the additional flexibility afforded by the legislation, leading to higher termination levels in May and June," the board said. "The impact was greatest immediately following implementation of the legislation in May, as some tenants took the opportunity to serve early notice."

The Renters' Rights Act, championed by Housing Secretary Angela Rayner, outlawed no-fault evictions and abolished fixed-term tenancies. The reforms represent the most sweeping overhaul of England's private rental sector in decades, ending Section 21 repossession powers that landlords had relied on since the Housing Act 1988.

Despite the immediate financial impact, Foxtons said it sees "significant medium-term opportunities" in the new framework once the initial volatility subsides. The company noted that landlords now face greater demand for professional advice on complying with their updated obligations — a dynamic that tends to favour large, well-resourced agencies over smaller independent operators who may struggle with the added compliance burden.

Foxtons also reported a 13 per cent decline in sales revenue for the first half, attributing the drop to uncertainty surrounding Prime Minister Andy Burnham's property tax regime and higher-than-expected interest rates linked to the Iran conflict.

"The London sales market remains challenging, with buyer activity continuing to be held back by weak consumer confidence and higher interest rates," the group said.

House prices in the capital have been declining throughout the year, even as broader national price growth has continued. Property experts have pointed to stamp duty as a contributing factor, noting that it disproportionately affects buyers in London and the South East due to the regions' higher property values. Temporary stamp duty relief measures introduced in 2022 have been rolling off, restoring higher effective rates for many purchasers.

Stockbroker Panmure Liberum said the UK's lettings and sales market has "deteriorated" since Foxtons last updated investors in April. Analysts noted that the London and South East property markets have been "particularly vulnerable to ongoing political uncertainty, both in the UK and the Middle East."

However, Panmure Liberum described the current volatility and the market disruption from the Renters' Rights Act as "temporary" headwinds, positioning Foxtons as "well placed to benefit" from the legislation over the medium term.

Earlier this year, Foxtons criticised the "strain" imposed by "government-driven" cost increases, including national insurance contributions and wage hikes, which the firm said were adversely affecting its profitability.

Shares in Foxtons rose two per cent to 40p in early trading.