Common law tenancy changes on 1 October 2010
As you should be aware by now, on 1 October (unless the coalition government decide to change things) all non regulated/common law tenancies where the rent is between £25,000 and £100,000 will convert automatically to assured shorthold tenancies.
Except that some of them won’t.
As pointed out by the PainSmith blog, in some circumstances, the tenancy will become an assured tenancy. Which will be very serious, because assured tenants have long term security of tenure. This means it is very difficult to evict them.
So a tenant who now can be evicted after service of a 4 week Notice to Quit, will then only be vulnerable to eviction if they fall into arrears of rent, or if the landlord is able to find them suitable alternative accommodation.
When a common law tenancy will convert to an assured tenancy
The situations where tenancies will convert to assured tenancies are:
- Where the tenancy was an assured tenancy originally but turned into a common law tenancy after the rent was increased to more than £25,000, or
- If the tenancy was created before 27 February 1997. The reason for this is that for a tenancy created before 27 February 1997 to be an assured shorthold tenancy, the landlord had to serve a section 20 notice, properly drafted, on the tenant before the tenancy agreement was signed. If all parties thought that the tenancy was to be unregulated, it is most unlikely that this will have been done.
This rule change will not affect many properties, but where it does, it will be a very significant change and will substantially affect the value of the property.
Solutions
If you are a landlord of a long running high value tenancy you need to consider whether this is likely to happen to you. If so, there are two courses of action you can take.
- Evict the tenants as soon as possible This is the safest course of action.
- Sign a deed of surrender and then re-let as an AST. This is suggested by PainSmith on their blog post. It is better to do this than nothing. However you would run the risk that if you later wanted to evict the tenants, they might be able to challenge the validity of the surrender, if in fact they continued to live in the property uninterrupted.
What do you think? Do you think a surrender and re-grant will be effective or do you think all landlords should play safe and evict?
Related posts:
Tessa,
Well done for explaining this – I did originally read the Painsmith Blog, but it is aimed at other lawyers so your explanation is much easier on the eye for us common folk.
Surely eviction is the only option? Pre the 1996 Act you could only have an AST if you served a Section 21 Memorandum (Did I get the right number or was it S22?) prior to signing the agreement. If you hadn’t issued that, it was a Assured Tenancy regardless of what the Tenancy Agreement said. So surely you cannot now create an AST for a tenant who moved in prior to 1997?
It was a section 20 notice. And yes, eviction is the only safe course of action that I can see. But it would be a very harsh action to take against blameless tenants who will have been living at the property for a long time.
I think that eviction will be essential if you think that you will want the tenants to go some time soon. But if they are good long term tenants who you like, respect and trust, it is probably worth taking a chance on the Deed of Surrender.
I don’t know if this is a moot point – are there really many tenants who entered into a £25000 tenancy at 90s prices?
Is there a point to the Deed of Surrender if you know that the AST won’t be valid? You make a powerful argument for just leaving things.
Would evicting them & then reletting to them the following day be seen as a sham?
BTW – thanks for the number, I was sure it was twenty something, but couldn’t find it on the internet which puzzled me. I guess the WWW didn’t exist when this legislation was written!
Remember also that creating a new tenancy agreement with a person in occupation amounts to a surrender by operation of law in relation to any existing tenancy. This doesn’t apply to tenants with security under the Housing Act, but of course these tenants are not currently in that security category.
Thus, whilst eviction proceedings are one way of looking at this, a simpler way would be to grant a new AST now, whilst the existing tenancy is still unprotected. This would require cooperation from the tenant, but if they are faced with a Notice to Quit and the threat of possession procedings there may well be a willingness to cooperate, especially if they are offered a long period of tenancy with an option to renew
Offering an AST would though presumably mean giving them a tenancy with a rent of of less than £25K pa now. Perhaps with a rent review clause increasing it to a higher figure after 1 October.
Note that the government has now confirmed that this change will be going ahead (unlike the landlords registration scheme etc).
Yes – you are correct in that an AST cannot be created now at the high rent level but the key is to create a tenancy which will become an AST, not an assured tenancy.
A new Tenancy now at the same rent doesn’t require a s20 Notice, so once protection applies from 1st October it will apply as from the date of creation and thus will operate to create an AST. I don’t see why this could not be built into the wording of a new agreement – so as to include something along the lines that the tenancy is specifically not intetnded to become an Assuered Tenancy if it ever qualifies for protection of the Housing Acts
We have many properties let above the £25k threshold which will all be subject to the change in legislation on 01/10/10.
I am right in thinking that we could re-grant a new AST for the remainder of the term on the Common Law tenancy assuming you are not periodic.
By virtue of doing of re-granting a tenancy should’nt that automatically make the last one redundant and therefore no need to use notice to quit???
Also I assume at that point we would need to ensure the deposit which has not been mentioned in the above comments will need to be protected.
As always great blog Tessa :)
You only need to worry about tenancies which started before February 1997. The ones which would have been ASTs at the time, if the limit then had been £100,000. Or those which were originally assured tenancies before the rent went over the limit.
So it will only affect tenants who have been living at the property for over 13 years.
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