Housing Law – the bigger picture – longer fixed terms (3)

Earlier in this series on housing law, I suggested that there are two types of tenant –

• Those who want long term security of tenure, and
• Those who do not want to be tied down, and want the option to move after a few months

On the whole older tenants and families fall into the first category. Younger people tend to fall into the second.

Those in the first category are mainly the people who about 20 years ago would have opted to buy their own property but who are now unable to do so. So how can we accommodate them and their needs in the private rented sector?

There are two main obstacles to long fixed terms:

• The fear of being unable to evict bad tenants and
• The terms of the landlords mortgage deed

I have looked at the problem of evicting bad tenants in previous posts. If the system were changed to allow easier eviction in rent arrears cases, then not only would it mean that landlords would be less worried about this, it would also mean that there was less reason for banks and other mortgage lenders to raise any objection.

So assuming this was the case, how could the system work?

There are two ways you can get long term security of tenure.

1. Automatically extend tenancies. This is the method used in the Rent Act 1977 and in the Housing Act 1988 for assured tenancies. Tenancies run on automatically on a statutory periodic basis after the end of any fixed term, and it is impossible to evict other than for bad tenant grounds or what are known as ‘estate management’ grounds – e.g. moving the tenant to another property.

2. Give a longer fixed term. Although note that if the fixed term is more than seven years, the landlords repairing obligations will no longer apply and the tenancy will need to be registered at the Land Registry.

The main difference (at the moment) between the two is that the ‘statutory periodic tenancy’ only protects the named tenant. If the tenant moves out, for example after subletting the property to someone else, the tenancy will revert to a common law one which the landlord can end easily under a Notice to Quit.

However a long fixed term tenancy will not end automatically if the tenant moves out and it can more easily be assigned to another tenant. Particularly if the tenant has paid a premium.

So how best to grant long term security to tenants who want it?

I suspect that once the fear of not being able to evict non paying tenants is removed, a consensus will develop. Here are some suggestions:

Purchased long fixed terms

Some landlords may be open to granting long fixed terms for a premium.

They could be protected from assignment to unsuitable tenants by having in place a requirement for consultation and the right to object to assignment if this is reasonable.

Return to the protected periodic tenancy

Alternatively, there could be a change in the law, maybe to give tenants automatic long term tenancy rights (where landlords cannot use section 21) after a probationary period (say one year) unless the landlord applies to the court to extend the probationary period, or restore it later, if the tenant proves unsatisfactory.

Similar to the introductory and demoted tenancies used in social letting.

The problem with any change in the law along these lines is the shadow of the Rent Act 1977 and its predecessors, which had such a destructive effect on the private rented sector in this country between about 1918 and 1995. Landlords, understandably, do not want a return to this.

There is also the prospect of landlords routinely evicting tenants at the end of the first year to prevent them obtaining any security.

A tenants right to purchase a long fixed term

An alternate, and possibly better, way to ‘force’ landlords to grant a longer term security of tenure (eg two years or more) would be for tenants to have the right to apply to buy a longer fixed term after a set period of time.

If the premium fee could not be agreed the amount could be set by the Residential Property Tribunal. No doubt there could be a formula based on (for example) the size of the property, the rent, and the length of fixed term asked for.

This may be more popular in the landlord community as it would allow them to earn some extra income as well as the regular rent – which would carry on as before – plus the landlord could protect his position by including a rent review clause.

If the tenant did not apply to buy a longer fixed term, then the current rules would remain.

This would be more affordable than buying the freehold of a property, and would allow ordinary people to have reasonable security of tenure. Particularly if they then had the right to renew the fixed term (upon payment of a further premium) when it came to an end.

What do people think about this?