Updated 23rd June 2016
Many landlords have commented, usually whilst holding their heads in their hands, that the formalities and bureaucracy surrounding tenancies are incomprehensibly complex.
Here at Cover4LetProperty it’s hard not to have some sympathy with that view and others like it but here we will try to focus on the core issues associated with Assured and Assured Shorthold Tenancies.
The nature of a given tenancy may have important legal ramifications for you as a landlord.
What follows is a general discussion and not qualified legal advice. If you are in any doubt as to a course of action, you should consider seeking expert and qualified legal input.
Please note that the information is based on our understanding of current legislation as at the date of writing, but legislation may change.
What is a tenancy?
This, in theory, is the easy bit!
It is a framework of rules and regulations that governs the relationship between you and your tenants.
Although there may technically be legal differences between a tenant and someone lodging in your home (who may be termed a licensee) the fact is that the relationship between you and someone paying you any sort of rent will be governed by law.
That law might be expressed in one of three ways:
- as enshrined in legislation and which, as such, you cannot vary even if you and your tenant agree otherwise in writing;
- the interpretation of what is written down in some form of tenancy agreement;
- as above but applying to verbal agreements.
So, even if you have tenants in your property and not a single piece of paper exists to govern the relationship between you, they will still have a significant number of legal rights as laid down in the law.
The tenancy agreement
Unfortunately, the question as to whether or not you need a tenancy agreement has become much more complicated over recent years:
- in Scotland, landlords must register with their local authorities and in most cases you will have a legal obligation to provide your tenant with a written tenancy agreement;
- in England and Wales, there is no legal obligation to put a tenancy agreement in place (unless the agreement is longer than 3 years) though there may be certain exceptions for certain categories of social housing.Note though that some local authorities are piloting schemes making landlord registration mandatory in their area and some, as part of that, may be insisting upon the production of a written tenancy agreement;
- in Northern Ireland, social housing landlords must provide a written tenancy agreement.
Regrettably, it’s impossible to be succinct and definitive in this area at the present time as there appears to be so much variation around the United Kingdom.
The only solution may be to check with your own local authority as to current regulations but you might also wish to question why you would not put a tenancy agreement in place.
It may be at least as much in your interests as those of your tenants.
You can also refer to the Government website for general information on private tenants agreements.
Types of tenancy
Yet again, it’s necessary to start off with an apology because there are a large number of variables here which might make the position for an individual landlord somewhat different:
- the date the tenancy commenced.
Broadly speaking, if your tenants have been with you since before the 1990s or from before 1989, the nature of their tenancies may be different. As this will be a minority of cases, for the sake of brevity we won’t be discussing these further here;
- your own place of residence.
If you share the same living spaces as someone paying rent to you and they have no area that is clearly and distinctly their own (where you have no right of entry), a different category of legal framework will apply. These situations might be termed by some as having a lodger and again won’t be considered further here;
- the country your property is in.
Even if the types of tenancies have the same name, what that means in legal terms may differ depending upon which country of the United Kingdom your property is in;
- the amount of annual rent you are charging
If the figure is above or below specified annual limits, it may directly affect the type of tenancy agreement you can use.
This is just a small sample of some of the issues that may decide what type of tenancy agreement you must use or which is likely to be most appropriate.
In what follows we will be commenting on the most commonplace type of tenancies – i.e. those commonly called an Assured or Assured Shorthold tenancy.
If you would like to know more detail about other forms of tenancies an excellent guide is available on the government’s website.
Assured and Assured Shorthold tenancies
These are by far the most common forms of tenancy today and in the absence of any tenancy agreement statement to the contrary, it will be presumed that the basis of the letting is that of an Assured Shorthold tenancy.
The difference between the two types of letting has its origins in government efforts in the late 1980s and throughout the 1990s, to try and increase the stock of affordable properties available for renting.
Essentially, the objective was to try and make it easier for landlords to let their properties to tenants on a manageable commitment basis, meaning that they could gain access to their property again within reasonable time frames.
- Assured tenancies
This type of tenancy essentially means that you will not be able to regain possession of your property unless your tenant breaks the terms of the tenancy agreement. That might be in terms of things such as becoming a social nuisance to others around them or failing to pay the rent;
- Assured Shorthold tenancies
The main difference between this type of tenancy and the assured tenancy is that the landlord has the right to take their property back after six months, providing two months’ notice is given.
This flexibility is very attractive to many landlords.
Points to note on Assured and Assured Shorthold tenancies
- Assured tenancies of either type do not apply to holiday let type commercial arrangements;
- If your tenant has an existing assured tenancy, you cannot change over to a shorthold tenancy;
- If you do have any tenants that have been in place since before 1997, by default they will probably be deemed to hold an assured tenancy and not an assured shorthold tenancy;
- If you wish to set up an assured tenancy with a tenant, you must declare it in writing to them. In the absence of such, it will be presumed to be a shorthold tenancy;
- It’s important not to confuse the concepts of a shorthold tenancy with the term of the letting contract. You can agree a fixed period for the letting as part of the contract discussion but even if this is less than an initial six months, you will not be able to force the tenant to depart in a shorter period of time if they change their mind;
- It is typically a requirement for you to seek the permission of the freeholder of your property or your mortgage provider, prior to using it for rental income purposes. In both cases, their permission may be explicitly or implicitly given on the assumption that you are offering standard shorthold tenancies rather than assured tenancies.
As is often the case with efforts aimed at simplifying things, changes to the law over the last 15 or 20 years have made the situation considerably more complicated than it had been previously!
The good news for most landlords is that for the majority of lettings, the assured shorthold tenancy is simple to apply and one that provides them with the degree of flexibility they will require in order to progress their business satisfactorily.
However, do keep in mind that there are very numerous exceptions to the generalities of what’s stated above and there is no substitute for sitting down and reading the guidelines in detail yourself.
It is a very good idea to do this before you start letting property rather than only once you have run into difficulties – unless you enjoy the prospect of paying out large sums of money to solicitors!