A tenancy is a contract on mutually agreed terms between a landlord and a tenant. Landlords or prospective landlords should understand the various types of tenancies, which have different rights and obligations.
Assured and Assured Shorthold Tenancies
These types of tenancies are governed by the statutory code set up in the Housing Act 1988, which was amended slightly by the Housing Act 1996.
The vast majority of tenancies today will be assured shorthold tenancies. Both assured and assured shorthold tenancies can charge a market rent for the property.
The Main Differences Between an Assured and an Assured Shorthold Tenancy
Assured Shorthold Tenancies
“Assured shorthold tenancies (ASTs) are now the “default” type of tenancy. If a property is let, and it does not fall into one of the exceptions outlined below, it will automatically be an AST. If a property is let without a written agreement, which is most unwise, then that too will be an AST.
An AST can be for any term (the rule requiring them to be for a minimum term of six months was abolished by the Housing Act 1996), although in fact the vast majority of tenancies are for terms of at least six months.
The main benefit of ASTs for landlords is that they can recover possession of the property without needing a reason, provided any fixed term has expired and the proper form of notice has been properly served. The notice is known as a section 21 notice, as the landlord’s right to recover possession and the notice procedure is set out in section 21 of the Housing Act 1988. The notice must be served on the tenant at least two months before the landlord wants the tenancy to end. A notice issued on or before the end of the fixed term must last at least two months but may end on any given date. The notice must be in writing but does not have to be in a particular form.
Assured Tenancies
The non-shorthold version of the assured tenancy gives tenants long-term security of tenure, and tenants are entitled to stay in the property until either they choose to go, or the landlord can gain possession on one of the 17 grounds listed in Schedule 2 of the Housing Act 1988. Possession under the ‘no fault’ section 21 procedure is not available for assured tenancies.
Before 28 February 1997 assured tenancies were the ‘default’ type of tenancy, and some of the assured tenancies in existence today were created by mistake, through landlords not following the proper procedure required at that time, to create an assured shorthold tenancy. Landlords should seek advice if they are unsure which type of tenancy applies.
Choosing an Assured or an Assured Shorthold Tenancy
The vast majority of landlords will wish to create an assured shorthold tenancy. If the property is subject to a mortgage, most mortgage companies will also insist that all tenancies are assured shorthold tenancies. A landlord might consider letting a property under an assured (not shorthold) tenancy, where recovery of possession will not be required, and the landlord wishes the tenant to have security of tenure (for example a tenancy agreement with a family member or former employee).
Landlords should proceed with care and seek legal advice before agreeing an assured tenancy, as it will entail loss of the right to recover possession, perhaps during the landlord’s lifetime, as these tenancies can be passed to spouses.
Setting up an Assured Tenancy
If a landlord wishes to create an assured tenancy, this can be done by giving notice to the tenant, clearly stating that the tenancy being created is an assured tenancy rather than an AST. There is no prescribed format for this. It is best done as part of the tenancy agreement, but can also be a separate form of notice, served either before or after the tenancy has been entered into.
Tenancies Which Cannot be Assured or Assured Shorthold Tenancies
In some circumstances the statutory codes set up by the Housing Act 1988 will not apply. The tenancy may be governed by some other Act of Parliament, or simply be subject to the agreed terms of the contract (usually called contractual tenancies) and/or the underlying ‘common law’.
Tenancies excluded from being assured or assured shorthold tenancies include:
• where the tenancy began, or which was agreed, before 15 January 1989 (this will normally be governed by the provisions of the Rent Act 1977);
• where the property is not the only or principle home of the tenants;
• where the rent is more than £25,000 a year;
• where the rent is £250 or less a year (£1,000 or less in Greater London);
• a company let;
• the tenancy has been granted to a full time student by an educational body such as a university or college;
• a holiday let; or
• a letting by a resident landlord (i.e. where the landlord and tenant live in the same building as originally constructed, most commonly where landlord and tenant share some part of the accommodation, this is usually a licence/lodger situation not a tenancy).
In the circumstances set out above the tenancy will be governed by the contractual agreement or if there is no agreement, the common law.
Note that the chief significance of a property not being an assured or an AST is that the procedures for recovery of possession are different.
Tenancies Which Can be Assured, but not Assured Shorthold, Tenancies
The following tenancies cannot be assured shorthold tenancies:
• those where there is an existing tenant with an assured tenancy. An existing assured tenancy cannot be converted into an AST, for example by issuing a new form of tenancy agreement. This applies whether or not the fixed term in the tenancy agreement has expired;
• an assured tenancy which the tenant has succeeded to on the death of the previous regulated (pre 1989) tenant under the ‘succession’ rules;
• an assured tenancy following a secure tenancy as a result of the transfer of the tenancy from a public sector landlord to a private landlord;
• an assured tenancy arising automatically when a long leasehold tenancy expires.
Fixed Term Tenancies
An assured or assured shorthold tenancy may be a fixed term tenancy, which lasts for a fixed number of weeks, months or years. The length of the fixed term will be set out in the tenancy agreement.
Most tenancies have a fixed term of either six months or a year, but the fixed term can be of any length although advice should be sought if agreeing a fixed term of more than three years as particular procedures apply. After a fixed term has expired it can be allowed to run on [see section 3.1.8 below] or a new fixed-term agreement can be entered into.
Periodic Tenancies
An assured or assured shorthold tenancy may be a periodic tenancy that runs indefinitely from one rent period to the next. (This is sometimes known as a rolling tenancy). There are two types of periodic tenancy.
The contractual periodic tenancy is one that is periodic because the contract says it is periodic, typically because the initial letting was set up as a periodic tenancy.
The second type is a statutory periodic tenancy and this exists because a fixed term tenancy has expired, the tenant has remained in the property and no new agreement has been set up.
Periodic tenancies can exist either from the start of the tenancy, or after the fixed term in a tenancy expires. The periods of the tenancy are defined by the rent payment periods. This is the period of time for which the tenant pays rent, typically a week or a month. If the tenant moves in on the 15th of the month and then pays the rent in advance on the 15th of each month, the periods will be the 15th of one month to the 14th of the next month.
It is important when setting up an AST that landlords clearly identify what dates the rent is payable, and whether rent is payable in advance (the norm) or in arrears (the exception). This clarity ensures that if a fixed term AST does roll over into a statutory periodic tenancy, both landlords and tenants know what the periods of the tenancy are, and can give the correct periods of notice.
If tenants remain after the fixed term they do not become ‘squatters’. They do not acquire additional rights if they stay as a periodic tenant for a long time.
Notices to end a Periodic Tenancy must be given for at least two months, end on an end date of a period of the tenancy and specify that possession is required by virtue of Section 21 (4) of the 1988 Housing Act.
Initial Period of an Assured Shorthold Tenancy
An AST tenancy can be set up as a periodic tenancy from the outset, but more usually the landlord and the tenant will agree an initial fixed term.
There is no minimum fixed term prescribed by law, but regardless of what the landlord and tenant agree, assured shorthold tenants have a right to stay in the premises for a minimum period of six months. Under the section 21 possession procedure, a judge cannot grant an order for possession to take effect during the first six months of an AST. This means that even if a fixed term of less than six months or a periodic tenancy is agreed from the outset, there is not a guaranteed right for the landlord to recover possession until the initial six months has expired. (If the initial term was less than 6 months there is no reason why proceedings for possession cannot be commenced before the six months is up but the possession order will not take effect till the end of the six months).
Possession can also be sought during this initial period, or during a fixed term under some of the statutory grounds for possession in Schedule 2 of the Housing Act 1988. The most important of these is for non-payment of rent, but for more information on this see the separate section on possession claims [see Ending a Tenancy].
These rules do not apply to non-Housing Act 1988 tenants (see Types of Tenancies). Non-Housing Act 1988 tenants can be evicted at the end of a fixed term, by serving notice to quit to end a periodic tenancy, or for breach of tenancy (including non payment of rent), by applying to the court. Comparatively few tenancies are non-Housing Act 1988 tenancies and they can only be created in the special circumstances set out Types of Tenancies.
Regulated Tenancies
Most lettings by private landlords which began before 15th January 1989 are regulated tenancies under the Rent Act 1977 unless the landlord and tenant live in the same house.
Regulated tenants have greater security of tenure and are subject to rent control.
A tenant whose tenancy is regulated by the Rent Act 1977 is unlikely to be evicted unless significant rent arrears have been accumulated or the landlord is able to provide suitable alternative accommodation. More information can be found in the Communities & Local Government leaflet ‘Regulated Tenancies’.
Licences
A licence is where someone is allowed to occupy property but does not have a tenancy. The ‘licence’ or permission of the owner prevents the occupier from being a trespasser. Some of the protective legislation for occupiers does not apply to licences.
The three main tests for a tenancy are:
1. exclusive possession;
2. a fixed or periodic term;
3. the payment of rent.
If these three factors are present, there will be a tenancy.
If the occupier does not have exclusive possession, i.e. they share, say, the bedroom, then they will only be a licensee. The essential difference between a tenant and a licensee will be having exclusive possession. A person who has exclusive possession of residential premises for a definite period is a tenant unless there are exceptional circumstances. The rules around how much of the property they have to have exclusive occupation of differ between Housing Act 1988 tenancies and non-Housing Act 1988 tenancies.
Other circumstances where a tenancy will not occur are ‘serviced’ accommodation where the landlord needs to have frequent access for cleaning and meals are provided, such as in a hotel, and where the occupier shares living accommodation with the landlord (here the occupier is normally referred to as a lodger).
Simply calling a document a licence does not mean that it is not a tenancy.
The Courts are careful to ensure that sham licences are not used to deprive an occupant of their rights as a tenant.
Subletting/Assigning Tenancies
A landlord who has taken care to select a tenant by proper referencing and verification of suitability is unlikely to allow that chosen tenant to sublet (assign or transfer the tenancy) to another, without the landlord’s permission. In the past, tenancy agreements always tended to prohibit subletting or assignment.
Now, standard terms in residential tenancy agreements are subject to the Unfair Terms in Consumer Contracts Regulations 1999, administered by the Office of Fair Trading (OFT). The OFT has issued guidance to the effect that absolute prohibitions on assignment and subletting could be considered unfair and, therefore, void in terms of the Regulations.
Landlords wishing to retain a degree of control over assignment and subletting are advised to ensure that the tenancy agreement allows assignment or subletting only upon landlord’s consent (which cannot, by law, be unreasonably withheld). Alternatively, the tenancy agreement should be framed in such a way as to allow the tenant to terminate it easily if they are unable to recommend to the landlord a suitable person to take over the tenancy.
Even if the tenancy agreement does not provide for it, it is suggested that the landlord should always agree to re-let the property to a suitable new tenant, allowing the original tenant to terminate their agreement early if they wish.
If the tenancy is a contractual periodic tenancy, or a statutory periodic tenancy that has arisen at the end of a fixed term, the tenant cannot by law give the tenancy or sublet to someone else unless the landlord agrees that he or she can. A periodic tenant can end their tenancy by serving notice to quit.
If the tenant has paid a premium for the property (a lump sum, possibly in addition to a small rental payment or a sum paid as a deposit which is greater than two month’s rent), the tenant is able to sublet unless there is a term in the tenancy agreement preventing this.
Joint and Several Tenancies
Joint tenancies can be agreed with two or more people from the outset of the tenancy. Each can then be responsible jointly and severally (individually) for meeting the terms of the tenancy in full, including paying the rent. This is known as ‘joint and several liability’. Joint and several liability only arises where it is agreed. If nothing is agreed they will simply be jointly liable.
For example, if a property is let jointly and severally to four tenants A, B, C and D for a monthly rent of £400 (with each agreeing to pay £100 each), and C decides to leave, they will all each still remain liable under the contract for all the rent. So C is still liable for rent even though s/he may not be living there, and A, B and D will each be liable to the landlord, for all the rent, including the £100 share from C. This situation will continue until either vacant possession is given back to the landlord or a new tenancy is signed, for example with A, B, D and perhaps E.
If one of the joint tenants wishes to vacate, it is best to regularise the situation as soon as possible by signing a new tenancy agreement with the remaining and new tenant(s), so long as any replacement tenants can be referenced satisfactorily. A landlord should not allow the situation to drift.
Instead, a proactive approach should be taken to ensure the remaining tenants sign a new tenancy agreement. Failure to do so could cause the landlord difficulties in repossessing the property. If the tenants provided a guarantee with the original tenancy, the landlord should ensure that a new guarantee is provided with any new tenancy, or that the old guarantee will apply to any new tenancy granted to the same tenant.
Technically a tenancy can only be in the names of four tenants, as in land law only four people can hold a legal interest in land. However, if there are more than four tenants who wish to share, the additional tenants will still be liable for the rent and everything else under the contract, and their cotenants will be deemed to be holding the tenancy on trust for themselves and the others. Practically therefore the four name rule is not a problem.
Succession Rights and Rights of Survivorship
If a joint tenant dies, the remaining joint tenant(s) are entitled to remain in the property (having a right of survivorship). They become liable for the rent.
If a sole tenant dies, the right to succeed to the tenancy will depend on whether the tenant had a fixed term or periodic tenancy.
For fixed term tenancies where the term has not expired, the position is, in theory, that the executors will arrange for the tenancy to be passed-on to the person to whom it is left in the will (or whoever inherits it under the intestacy rules if there is no will). In practice, the executors will usually agree to surrender the property, and the landlord will agree to seek another tenant.
If a periodic tenancy, the tenant’s spouse or a person who lived with the tenant as husband or wife, has an automatic right to succeed to a periodic assured tenancy unless the tenant who died had already succeeded to the tenancy. Only one succession is allowed. No one else in the family has an automatic right to succession (section 17 Housing Act 1988).
In a periodic assured tenancy, if someone is living in the property who does not have a right to succeed to the tenancy, the landlord can claim repossession under Ground seven, provided the proceedings for recovery of possession are commenced within a year of the death of the original tenant.
In a shorthold tenancy, the landlord is entitled to repossess the property at the end of any fixed term, or at the end of a period of a periodic tenancy, even if the tenant is entitled to succeed, provided that the landlord gives the proper form of two month’s notice under Section 21.
Quick Links:
The Business Directory - Solicitors
The Business Directory - Tenant Issues