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

September 17, 2012 by Tessa J Shepperson

houses to rentEarlier 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?

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Filed Under: The bigger picture

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IMPORTANT: Please check the date of the post above - remember, if it is an old post, the law may have changed since it was written.

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About Tessa J Shepperson

Tessa is a specialist landlord & tenant lawyer and the creator of this site! She is a director of Landlord Law Services which runs Landlord Law and Easy Law Training.

« Landlord Law Blog roundup from 10 September
What is the validity of a subtenancy if the landlord is not allowed to sublet? »

Comments

  1. Ben Reeve Lewis says

    September 17, 2012 at 8:36 AM

    I like all your ideas here Tessa but rents are crippling already without adding extra costs to increase security.

    I am one of those older tenants who doesnt want to have to keep moving but my rent is currently 71% of my take home pay. I simply couldnt afford to buy any more security. I think many are in the same boat in London.

    I think the key is in, as you suggest, firming up the fault grounds. Landlrods prefer ASTs in case they get a nightmare tenant but if eviction on fault was easier they could get rid of the no fault ground altogether.

    To my mind it goes beyond being a mere expedient, I think it harms the relationship between landlords and tenants and increases the mistrust. Tenants get angry with landlords because they can lose their home through no fault of their own, simply because it suits the landlord’s business model. I dont think many tenants would have a problem with the idea that they would lose their home if they were at fault. That is the same for anyone with a mortgage.

  2. Jamiet says

    September 17, 2012 at 11:03 AM

    Landlords and Tenants should also be concerned by significant Stamp Duty implications of offering longer tenancies (either through a longer initial term or renewals that HMRC might consider ‘linked transactions’).

    Imagine the implications if a tenant suddenly finds themselves responsible for paying stap duty?

    I think this needs to be incorporated in to your ideas.

  3. Tessa Shepperson says

    September 17, 2012 at 11:08 AM

    Thank you Jamiet, yes that is a very valid point.

    I don’t do conveyancing so don’t know the details of stamp duty charges. What sort of cost would tenants be looking at do you think?

  4. Jamiet says

    September 17, 2012 at 11:48 AM

    This article provides quite a good starting point:

    http://www.letlink.co.uk/letting-factsheets/factsheets/factsheet-32-stamp-duty-land-tax-sdlt.html

    You can see that if you let a relatively expensive property, you could quite easily run into stamp duty after a number of years, whether via a long inital fixed term or renewals/rollovers (as they are treated as the same tenancy for the purpose of calculatiny SDLT liability).

    I bet there are lots of properties in the South East that would soon be eligible for SDLT.

  5. ML says

    September 17, 2012 at 1:57 PM

    If we are talking longer terms, then there is a certain logic to considering T taking on some repairing obligations, as in Germany (I think).

    In practice I do this already on some ASTs – I may do something structural, and T may redecorate, or enhance something (eg conservatory) and the rent goes up by less than would cover the betterment if T does the interior fit out, depending on what formal and informal agreements exist.

    Speculating, is there potential to partly defuse the “don’t repair anything because the rent will have to go up” problem in long term secure tenancies?

    Rgds

    ML

  6. Mark Alexander says

    September 21, 2012 at 1:07 PM

    Hi Tessa

    I know thousands of landlords who want tenants to stay long term but they can’t offer anything other than 6 or 12 month AST’s without being in breach of their mortgage terms. You have also elequently explained why both landlords and tenants might not want to tie themselves into 5 year contracts too – circumstances change!

    In the news today Shelter are calling for landlords to offer 5 year AST’s which, as we know, are theoretically possible but only if a landlord is not restricted by BTL mortgage conditions.

    However, I believe I’ve found a solution to the problem whereby a landlord will be able to offer a long term commitment to tenants without breaching mortgage conditions.

    I will hopefully be in a position to reveal the details on the Property118 forum within the next few weeks. I will then Tweet, Facebook and LinkedIn share. As we are a Google News feed, anybody who is interested in receiving details within an hour of publication should create a Google News Alert for the phrase “GOOD Landlords Campaign”.

    I need your assistance to complete one part of the jigsaw so I will call you shortly.

    Regards

    Mark Alexander
    Founder of Property118.com
    Twitter: @iAmAlandlord

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