When the new Welsh legislation comes into force on 1 December 2022, there will be two types of contract (for private Welsh landlords)
- Fixed term, and
- Periodic
Most landlords are used to using fixed-term contracts. The ‘renewal’ gives them an opportunity to set a new rent, and the fixed term gives both landlords and tenants a period of security.
Letting agents also like fixed-term contracts. As dealing with the ‘renewal’ contract is normally a trigger for them to charge a renewal fee.
But what happens (after 1 December 2022) to a Welsh occupation contract if no renewal document is signed before the end of the fixed term?
If no renewal contract document is signed
As in England now with assured shorthold tenancies, if the contract holder remains in the property after the fixed term ends, a new statutory periodic contract will take its place. Assuming there is no new fixed-term contract already signed up
The rules are set out in section 184 of the Renting Homes (Wales) Act 2016 and are as follows:
(3) The new contract—
(a) has an occupation date falling immediately after the end of the fixed term, and
(b) has rental periods that are the same as those for which rent was last payable under the fixed term contract.
(4) The fundamental and supplementary provisions applicable to periodic standard contracts are incorporated as terms of the new contract without modification.
(5) Subject to subsections (3) and (4), the new contract has the same terms as the fixed-term contract immediately before it ended.
So this seems similar to the situation in England. However, there are some differences.
Amended fundamental and supplementary terms
One big difference is that the fundamental and supplementary terms will be incorporated ‘without modification’. So, where does that leave you if you have modified these terms in your fixed-term contract?
Remember that it is possible to modify fundamental terms marked (F+) and Supplementary terms (S) in the model contracts. So long as you do this properly. But according to s184, these changes will not carry over to a statutory periodic.
Your carefully amended terms will be replaced by all of the fundamental and supplementary terms which apply to periodic contracts.
Service of written statement
You also need to remember that Welsh landlords must serve a written statement of the occupation contract on their contract holders. Which must be served within 14 days of the ‘occupation date’ under s31(1).
I suspect that some of you may assume that, as the contract holders will have been living there for some months or years, the occupation date will be the date when they first moved in. So a new written statement is not necessary.
However, looking at s185, it seems this is wrong. The ‘occupation date’ means the occupation date for THAT contact. Not the preceding one.
Because, section 185(1) says that, effectively, you can say in your fixed-term written statement, what the terms of any subsequent contact (which the legislation calls the ‘potential contract’) will be.
AND if you do this, then (s185(2)(b)) says you will be treated as having complied with s31(1). Meaning you won’t have to serve a new written statement of contract. So presumably, if you don’t do this, you WILL have to serve the written statement.
There are a few conclusions to draw from all this:
If you want to amend your fundamental or supplementary terms – you should
- either use a periodic contract (where these problems will not arise as the contract will just run on indefinitely) or
- Include all the terms of any future statutory periodic occupation contract in your fixed term contract. Or you can just set out the terms which have changed. This will make your statement even longer, but it means you won’t have to serve a new written contract at the start of the new statutory periodic. Plus any amended fundamental and supplementary terms will carry over, or
- Make sure you get a new fixed-term contract signed up before the end of your fixed term
Remember,
- if a statutory periodic arises which you have not provided for in your preceding fixed term agreement, and
- if you do not serve a new written statement on your contract holders within 14 days of this happening –
- you will be in breach of the rules and your contract holders will be able to claim the penalty.
Which is up to 2 months’ worth of rent, depending on how late you eventually serve the written statement, which they can offset against their rent.
And finally
Remember also that you cannot force contract holders to sign a new contract. They will be perfectly within their rights to refuse.
Indeed, they may well decide that it is against their interests to sign a new contract. Bearing in mind that if they refuse, the terms of their contract will change. Probably in a way which is more favourable to them!
In view of these issues, landlords may want to consider using periodic contracts from the start, as this will avoid these problems. Or use a form of fixed term contract which includes all the terms of the ‘potential’ periodic contract.
Otherwise, I suspect there will be a few angry landlords and happy contract holders if no written contract is provided and the penalty becomes payable.