Should landlord insist on renewing fixed term tenancies or allow them to lapse into periodic tenancies?
In essence a tenancy is the right to possess and occupy land belonging to another. A tenancy gives the occupier a legal interest in the land for a defined period of time.
A relationship of landlord and tenant is created by a contract expressed or implied, under which one person who has legal title (the landlord or lessor) confers on another person (the tenant or lessee) the right to exclusive possession of the real property, or some part of it, for a period of time which is can be defined by either party, usually in consideration of a periodical payment of rent, either in money or equivalent.
Exclusive possession means the tenant can exclude everyone from the property, including the landlord. Conversely, a licensee (lodger) does not have exclusive possession as he shares the property with the landlord and therefore cannot exclude the landlord.
Landlords renting to lodgers should take care that their lodger does not have exclusive (locked room) possession, but the landlord has access for cleaning etc.
These guidelines are based on English law and are not a definitive interpretation of the law, every case is different and only a court can decide, so if in doubt seek expert advice.
Most Assured Shorthold Tenancies (AST) start off with an agreed fixed-term. 6-months is common, which is the minimum term for a shorthold tenancy (AST) before a landlord can apply for possession under section 21 of the Housing Act 1988.
AST fixed terms should not normally exceed 3 years as other legal considerations become involved. They can be drawn up for any period including for less than six months, but the landlord cannot enforce possession proceeding until a minimum of six months has elapsed.
Otherwise fixed-term ASTs can be of any length or they can be periodic (monthly or weekly etc) from the start. A periodic tenancy means that the period of the tenancy is the same as the rent payment period.
Under English law tenancy periods are calculated on the basis of calendar months. So, when the period prescribed is a calendar month, the period expires with the day in the succeeding month immediately preceding the day corresponding to the date upon which the period starts. However, should the period start at the end of a calendar month, which contains more days than the next succeeding month, the period then expires at the end of the later month.”
For example, a 6-month AST commencing on the 1st of July would expire on the 31st of December. If this tenancy was not formally renewed as another fixed-term, then a statutory periodic tenancy would automatically follow on, starting 1st of January and running month to month (assuming the rent is paid monthly) until either party brings it to an end.
The commencement of a periodic tenancy is automatic if no new tenancy agreement is signed, and all the same terms as the original tenancy apply, including the original agreement istelf.
However, an important point made in the case of Superstrike Ltd vs. Marino Rodrigues (2013) is that, and it was made clear, that an AST on becoming statutory periodic is in fact a new tenancy and the deposit protection rules must be complied with again.
Advantages of Fixed-Term Tenancies
The fixed-term gives both parties some surety as to the length of time the tenancy will last. The landlord can rest safe in the knowledge (all things being equal) that he will have rent payments being made for the whole fixed-term period. Conversely, the tenant can rest safe in the knowledge that he has security of tenure (providing he meets his contractual obligations) for the full tenancy period, whatever that may be.
In practice of course (worst case scenario) a tenant, provided he meets his tenancy obligations, can be sure of a much longer period that the fixed-term. This is because if the landlord decided to seek possession at the end of the term, with a 2-month notice period, and a court application, the whole process can take several months before a tenant would be forced to leave.
Advantages of Periodic Tenancies
Most experience landlords let their properties initially on a 6-month fixed-term. Unless there are exceptional circumstances most would feel it is not wise to let for longer than this minimum period until the tenant (usually a complete stranger and an unknown quantity) has proved herself. Only, after this would the experienced landlord consider a longer term, say 12 months or more.
When the initial fixed-term ends many landlords prefer to allow the tenancy to lapse into a statutory periodic one, rather than have the tenant sign up for another fixed-term. One reason for this is, asking the tenant to commit to another full term will result in him seriously considering his position and may just trigger a move. The last thing the landlord wants is to lose a good tenant, so leaving the tenant alone and allowing the tenancy to become periodic can often be the best strategy.
This also benefits the tenant: landlords with long term tenants often leave the rent at the original amount for extended periods, again in the belief that increasing the rent may result in a good tenant leaving them. Landlords often take the view that losing a little each month on a lower rent, not only encourages the good tenant to stay-on long-term, it is far less of a loss than the loss, expense and risk involved in finding a new unknown quantity tenant.
The periodic tenancy allows a degree of flexibility on both sides: the tenant can leave with a nominal notice period of 1 month and likewise the landlord can re-possess the property with a nominal notice period of 2 months, plus the court possession process time if this becomes necessary.
Letting agents will often resist allowing tenancies to lapse into periodic ones; they like to renew because their contract states they charge another fee on renewal.
Increasing Rent with a Periodic Tenancy
With a long term periodic tenancy there will eventually come a time when a rent increase is needed. The tenancy agreement may provide for this, and increases can be implemented following mutual agreement. Failing this, if there is no mention of a rent increase in the agreement and the tenant is unwilling to mutually agree the increase then the landlord may fall back on the procedure laid out in section 13 of the Housing Act 1988. This involves giving the tenant notice of an increase by serving on them a section 13 notice.
The other option is for the landlord to simply renew the tenancy with a new fixed-term at a higher rent. The tenant then has the option of agreeing to the new rent or leaving the tenancy.
Disadvantages of Periodic Tenancies
The main disadvantage to landlords with tenants on periodic tenancies is the fact the tenant can up and leave fairly quickly; there is no longer-term surety of income for the landlord.
Also, with a tenancy that’s been periodic for some years, the terms of the original agreement, which could be affected by subsequent legislation, such as for example the deposit protection rules which have changed several times, could be out of date.
It’s Your Choice
In all cases, whether you as a landlord always allow tenancies to lapse into periodic ones, or you like to renew the tenancy agreement for a further fixed term, perhaps with a rent increase, it is a matter of choice and business judgement.
In either event, don’t forget to deal with the Deposit renewal process as highlighted in the Superstrike Ltd vs. Marino Rodrigues (2013) Appeal case. Guidelines published here: www.depositprotection.com/documents/superstrike-vs-rodrigues-guidance-on-implications.pdf
By Tom Entwistle, LandlordZONE®
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©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.