These are tenancies that fall outside the scope of the Housing Acts (1988, 1996, 2004), including the Regulated Tenancies, Assured Tenancies (AT) and Assured Shorthold Tenancies ASTs.
In the case of a common law residential tenancy, the tenant’s rights and obligations are mainly dependent on the terms agreed between the parties (written into the agreement), and therefore similar to a commercial lease; they are contractual or “non-statutory contractual tenancies” as opposed to those being regulated by statute.
Commercial (business tenancies) are similar, but businesses have the added protection of the Landlord and Tenant Act 1954, which affords some security of tenure (succession rights) for a businesses on renewal – when the fixed term comes to an end.
Any residential tenancy where the rent equates to an annual rate in excess of £100,000 pa (previously £25,000 set in 1990 and increased in October 2010) is excluded from the Housing Act Tenancy (AT or AST) rules and therefore must be a common law tenancy.
Alternatively, where a limited company rents a residential property (usually for their employees) the tenancy will fall outside the scope of the Housing Acts – again it’s a common law tenancy.
Often, companies rent residential accommodation and let the property to their employees, usually under a licence agreement (as opposed to a tenancy). Often the employee pays rent and other costs to the landlord, but ultimately the company is liable.
Joint Tenancies and The Common Law Tenancy
A rental rate of £100,000 pa may seem quite a lot, but this also applies to join tenancies where the combined rent of all the sharers (such as students) is included in this total – £8333.33 per month is the limit.
Note: A tenancy for 6 months can still be a high-rent tenancy if the rent exceeds the rate of £8333.33 per month.
Implications for Landlords – Common Law Tenancies
The implications of common law tenancies are:
(1) a different tenancy agreement from the usual AST will be required, and
(2) any deposit taken is not subject to the requirements of the Deposit Protection Scheme under the Housing Act 2004.
(3) the rules governing re-possession under the Housing Acts do not apply.
Stamp Duty or Stamp Duty Land Tax (SDLT) as it’s now called, is not payable unless the the lease Net Present Value exceeds the SDLT a certain threshold (see the SDLT rules). Below this threshold, the vast majority of private tenancies escape SDLT.
Security of Tenure – Common Law Tenancies
Common Law Tenancies do not afford tenants the same protection regarding security of tenure and statutory continuation as do Assured Tenancies (including Shorthold Assured Tenancies).
Therefore the AST section 21 and section 8 notices and possession procedures do not apply, and the letting operates on the literal wording of the Tenancy Agreement. Similarly, the Deposit Protection (DPS Scheme) rules do not apply.
However, the Protection from Eviction Act 1977 still applies, meaning that in the case of a common law residential tenant refusing to leave, a court order will be required.
Ending an Assured Shorthold Tenancy
With an Assured Shorthold Tenancy (AST) the landlord is entitled to a possession order at the end of a tenancy fixed-term if he has correctly served 2 months’ notice by way of a s.21 notice.
In the case of a breach of contract during the fixed-term the landlord would need to prove at least one or more of the prescribed reasons (grounds for possession) laid down in Housing Acts 1988 and 1996, and seek action by way of a s.8 notice. To evict successfully under s.8 (which can be difficult) the landlord must obtain a possession order from the local county court.
Bringing a Common Law Tenancy to an End
With a Common Law tenancy the landlord is entitled to possession at the end of the fixed-term. In theory the landlord is not required to serve a notice to quit to bring the tenancy to an end as the tenancy ends at the agreed date, but in practice the landlord should serve a notice if he wishes the tenant to vacate.
Also, if there are problems during the tenancy, the landlord can bring the common law tenancy to an end where there has been a breach of any of the specified terms in the tenancy agreement. He is not restricted to the prescribed terms (grounds) laid down in Housing Acts.
Statutory Protection for Common Law Tenants
A residential common law tenant still has some statutory protection in that they cannot be evicted against their will unless the landlord obtains a court order (Protection from Eviction Act 1977).
Common Law Tenants will also get protection under the Unfair Terms in Consumer Contracts Regulations 1999, where they have entered into a standard form (pre-printed) tenancy agreement.
They will also benefit from some other statutory provisions including the landlord’s repairing obligations under the Landlord and Tenant Act 1985.
Common Law Tenancy Agrements
Landlords or Agents letting to high-rent tenants (above £100,000) or company residential tenants should use the correct type of agreement and not the more common Assured Shorthold Tenancy (AST) ones. All types of letting agreements can be obtained through reputable suppliers such as LegalHelpers or they should be custom prepared by an experienced property solicitor.