Residential Tenancies: The Long & the Short (term) of it

“There is no need to legislate for longer tenancies”, argues Mishcon de Reya’s Alison Taylor; “there cannot be a one-size fits all approach to residential tenancies”

At the end of last year the government issued its response to what it considered to be unfair practices in the leasehold market. It intended to reduce all ground rents to a peppercorn and ban the sale of leasehold houses. We await the details but in the meantime, the government has now turned its attention to short term tenancies. The consultation “Overcoming the barriers to longer tenancies in the private rented sector” has recently closed.

The percentage of the population living in private rented accommodation is increasing. A focus on the private rental market is essential to provide stable housing for those unable or who do not wish to buy a property. Since 2006, local authorities have been able to introduce licensing requirements to improve standards of rented accommodation in some areas and since 2007 tenants’ deposits have been protected by the deposit scheme legislation. Now, to help renters put down roots and give landlords longer-term financial security, the government proposes to introduce a minimum 3 year tenancy term with a 6 month break clause. Some limit or regulation of rent increases is also being considered.

Is such a proposal really necessary? What effects will that have on the market? Has there been too much focus on a particular type of tenant, e.g. young families, to the detriment of others?

There is no need to legislate for longer tenancies. There is currently no limit on the length of term for which an assured-shorthold tenancy (AST) may be granted. The market norm is for an initial term of 6-12 months but parties are free to agree whatever term they like. Once the AST has been granted the tenant has security for the term and may continue to occupy the property on a periodic basis after the term has expired until the landlord serves a section 21 notice to terminate it.

Setting a minimum term will discourage both landlords & tenants looking to make use of empty properties for a shorter term

Setting a minimum term will discourage both landlords and tenants looking to make use of empty properties for a shorter term – e.g. retirees taking a year out and renting out the family home or tenants requiring greater flexibility.

Conversely, there is no doubt that young families would benefit from longer term tenancies and, given the certainty that a long term will deliver to a landlord, there must be landlords willing to grant such tenancies.  But why don’t they?

Standard mortgage conditions usually prevent the grant of tenancies for terms of more than one year. A change to the mortgage conditions (rather than to the law) would give private landlords greater flexibility to grant longer tenancies. But cynics might argue that properties are usually managed by agents who generally receive an annual renewal fee for a 12 month tenancy. It would not be in their interests to advocate longer tenancies.

The Tenant Fees Bill is currently making its way through parliament. Highlights include capping rent deposits at 6 weeks’ rent and preventing payments such as renewal fees being paid by tenants to the agent. Where prohibited payments have been made and not yet refunded, the landlord will be prevented from serving a section 21 notice to terminate the AST at the end of the term. Perhaps the restriction on payments to agents will remove some of the incentive to recommend annual tenancies? Alternatively increased management fees and therefore higher rents could be the result.

The government proposes that there should be little or no change to the current ability of the landlord to terminate the tenancy on the mandatory grounds already existing in relation to ASTs (e.g. rent arrears, unreasonable behavior etc.) but has suggested that, once a tenant has been in occupation for a minimum period, landlords should have the ability to terminate a tenancy on the sale of the property. Surely this defeats the object of providing certainty to the tenant?

Residential tenants are individuals with differing requirements. There cannot be a one-size fits all approach to residential tenancies.