Over the course of this housing law series I have been considering our current private rented sector (PRS) in the light of new statistics.
These indicate that the private rented sector is set to become the norm for many more middle income tenants and families than was previously the case.
One criticism of the current PRS is the lack of security for tenants. Lets take a look at the issues:
Longer fixed terms – the problem
Under the current system most fixed terms are for a period of six months.
As tenants can be evicted after a mere two months notice (so long as it does not expire before the end of the fixed term) their security can never be more than either the end of their fixed term or two to three months away (depending on when the exact expiry date of their notice is).
The problem with this is that tenants are often unable to put down roots into the community as they are constantly at risk of being ‘moved on’.
This is not good for families and is arguably not good for the local community either.
However it is not all bad
The advantages
- It means that landlords will not be stuck for long periods of time (and by this I mean in excess of six months to a year) with unsatisfactory tenants. In the way that they were under the old Rent Act 1977 regime.
- It offers a degree of flexibility to tenants who may not want to stay in one place for long, either because they are saving up to buy, or because they expect to be moved elsewhere by their job. Or just because they expect to be able to afford somewhere better in a year or so’s time.
Also
- From a letting agent point of view, it means that they are able to earn more commission due to the need to find new tenants every few years for the same property (and maybe their business would be unsustainable without this). Although only agents will consider this to be in any way an advantage!
There are quite a few conflicting interests here. Lets take a look at them:
Landlords:
- Most landlords would like long term tenants staying in the property so they have a regular income with no voids
- However if they give a long fixed term there is the risk that they will be stuck with an unsatisfactory tenant they cannot evict
- Short fixed terms allow landlords to use s21 to evict bad tenants instead of the s8 notice/statutory grounds in schedule 2 route which tends to be more difficult and take longer
- Even if landlords would like to give longer fixed terms, if they hold the property on mortgage they are normally forbidden to give a fixed term longer than 12 months by the terms of their mortgage deed.
Tenants
- Some tenants, particularly older tenants and those with families, would like more security of tenure so they can put down roots into the community, however
- Others do not want to be tied down and prefer to have the option to move after a few months.
So, to summarise
From the landlords point of view, the main reason they fail to give long terms is fear of not being able to get rid of bad tenants and the terms of their mortgage deeds.
From the tenants point of view there are two types – those that want long term security of tenure and those who do not.
There are also the needs of the mortgage lenders who provide the finance which has allowed the private rented sector to develop. And also the letting agents who manage the vast majority of buy to let properties.
How can all these needs be reconciled in a system which satisfies them all?
I’ll be looking at this topic again next week, but in the meantime, do you have any suggestions?
Replying on this topic 2 weeks ago Westminster (the blogger not the government) came up with what I thought was a fantastic idea.
Drop the no fault ground that creates the lack of security for tenants and boost the fault grounds into mandatory orders to make it easier for landlrods to get rid of bad tenants for rent arrears and anti-social behaviour.
This is of course a very simplistic idea and would need a massive amount of legal work to change the system in practice but in principle I thought that was fantastic because it provides the safety net that landlrods currently want from S21, whilst at the same time giving security to decent tenants.
Landlords often complain that licensing and regulation is making the decent ones pay for the rogues but the same is true of S21, decent tenants are being kept in insecure positions because of bad tenants
Far too good an idea. The thinking is still Rachmanian – evil landlords.
The question is, or should be, why would a Landlord, making money out of renting a property, want to evict a tenant who causes no problems, pays the rent without fuss, and keeps the property immaculate (like mine do) unless there is a very very good reason – need the cash desperately and have to sell, say.
The idea of treating the good guys better than the bad guys is deemed unacceptable for some reason these days.
It doesn’t seem to me that impossible to come up with a system where non-payers, trashers or antisocial people can be chucked at short notice. The problem is the mentality of some that if people don’t pay the rent then it’s “not their fault” and the cost should be borne by the Landlord.
Solution is simple Tessa for tenants wanting longer terms – have them but with a break clause that operates on a window basis i.e. not open ended once given but that can only be operated on a set date, for say a month. Then the window closes until it then reopens say a year later for anther month.
I have no idea where all these tenants wanting long terms are, but I have never come across many of them. In 20+ years I think I have done 3 tenancies by Deed. In fact I know very few Landlords who want longer terms they cannot at some point get out of either.
Tenants like flexibility too. Still Ben is right it will never happen the Govt needs to save the economy not find Parliamentary time for massive amending legislation.
Westminster’s idea is an old one. The Commission looking into reducing the number of tenancy types looked at Assured Longhold years ago with longer terms and notice in exchange for accepting repairing obligations, as in commercial leases.
As a good tenant I like Westminster’s idea as described by Ben in his comment above.
Paul, I’ve been a tenant is this current tenancy for several years, now on a periodic tenancy. As it’s managed by an agent I’ve never had any direct contact with my landlord so I do not know his financial circumstances and if or when he plans to sell. So even though as it turned out he has let me stay for a long time I’ve never had security as I didn’t know up front that would be the case. So I didn’t put down roots in the community, I didn’t even unpack fully. I get the impression he will sell when the market picks up.
Industry Observer, I’m a tenant who would would have wanted a long term let. However the most I was offered was 6 months, followed by 12 and then a periodic tenancy. So you would not have needed to draw up a Deed here, but I would have liked to be offered that opportunity once I’d done the first fixed term to prove I was OK and seen the landlord was OK. However it’s just not on offer! Your break clause window doesn’t help as a tenant won’t know if it will be exercised so that’s not adding much more security than signing a new agreement every 12 months.
I wonder how many of your older established families would like to move with two months notice at a time to suit someone else. Tessa, think of all those books you would have to pack and move and it may come at a time when you’ve holiday booked or are busy with important work commitments!
We have a number of tenants that have stayed on periodic tenancies, some of them have been in properties for over 4 years. They are good tenants who pay their rent on time and look after the property.
Landlords have asked me to write up 12 month tenancies but I usually advise against it. When taking on a new tenant despite passing references you still don’t know this person. They can always go on to periodic and remain in the property.
If you go for a job then you are usually on a trial period. Your employment becomes more secure the longer you are there. If you misbehave then you can lose your job, you even have a grievance procedure against your employer.
Perhaps a similar idea might work for tenancies?
I agree and have always thought periodic tenancies have a lot to recommend them, including the availability of a s13(2) rent increase being forced on the tenant every 12 months to keep the rent at local market level.
The only downside is the tenant’s ability to give a month’s notice at any time (subject to the correct end of notice period date being applied) so if a tenant wants to leave mid December that is a bit of a downer.
But given that normally it will be at least 5 or 6 weeks notice to the end of period date, and with demand so high it should be possible to re-let most sensibly priced and decently located properties in a month surely – even in winter?
Sandra I assume that the probationary rules would apply to Landlords as well to make sure they discharged their contractual (and Statutory) obligations?
I get Industry Observer’s suggestion that periodic tenancies are no bad thing. Social housing land has probationary and introductory tenancies and as Sandra points out, you have these elements in an employment contract but as I/O also points out why not landlords’ too? It’s a bit of a one-way street don’t you think? And to leave tenants on a periodic tenancy is to leave them with a constant worry. I know, I am in that position myself.
As an older tenant I’m not looking for that flexibility, I don’t want to move. We like our home, we like the area but I am fully aware that any day I could come home to a letter on the doormat telling us we have to relocate simply because the landlord is adjusting their assets.
This is no way to live when the ultimate sanction is always in the landlord’s hands.
In our first letting Frazzy and I were told the landlord was abroad and we would have at least a 2 year contract. Because of my relationship breakdown neither of us had furniture so the furnished place was perfect as a starter home, but 4 months in the landlord returned and invoked the pre-issued S21 and the break clause and, not wanting to drive him through the whole S21 debacle we desperately sought new accommodation in a market where 8-10 people were chasing each property. We had to take the first thing available which was unfurnished.
It cost us an arm and a leg to move because that is what the landlord wanted and we couldn’t afford the furniture so sat on an airbed for 9 months while we rebuilt our finances that had been depleted by the enforced move.
To add insult to injury although there was no dispute over the deposit the landlord held onto it for the full 10 days allowed, so we had to borrow in order to relocate, which with the standard London 6 weeks deposit cost us getting for £3,000 in total.
I am sympathetic to landlords with nightmare tenants but my sympathy runs out when I hear landlords bleat that the law is all on the tenant’s side. While there is a ‘No fault’ ground you can be the best tenant in the world but still lose your home simply because it suits the landlord.
I agree a landlord should be on probation as well.
I’ve been a tenant long before I became a landlord. We had to endure damp courses put into the property while we were living there with the plaster cut of the walls and then replaced because rising damp was identified in one room I even did my own decoration as they refused to spend anymore money. Another landlord was prone to letting himself into the property and rummaging through our belongings.
So yes landlords need to be on probation too.
Is the ‘no fault’ ground mainly for landlords or the banks, in case something goes wrong with the mortgage? If this was removed would the banks stop lending for buy to lets?
I’m sure a much fairer system could be agreed along the lines of an employment contract with probation and then a warnings system if things started to deteriorate on either side
“I have no idea where all these tenants wanting long terms are, but I have never come across many of them. In 20+ years I think I have done 3 tenancies by Deed.”
Perhaps it’s the demographic of your tenants or that they never bother to ask becuase they know most agents only offer 6 month ASTs?
It is no exageration to say we have thousands of tenants on Assured Tenancies or 2-6 year ASTs. Students and young professionals probably don’t want or need longer terms but there are plenty of people out there who do.
Jamiet
You must be unique. I have dealt with thousands of Landlords and tenants through offices I have supported with legal advice over the past 20 years and it is very rare that either the Landlord suggests, or the Tenant requests, a term longer than three years.
Maybe you are dealing exclusively with very long term landlords and maybe you have built yourself a reputation as the agent to go to for tenants wanting a longer tenancy.I could have recommended tenants to such agents when I worked in Basingstoke 15 years ago as I knew several land agents for local estates etc.
In my experience they are the main sources of long term tenancies.
If you have “thousands” of tenants on AT you are a rare animal and if you have thousands of tenants you are a massive letting agent.
Or maybe you are a land agent or even a local authority? Whatever you are in my experience unique – I assume all these 2-6 years tenancies have break clauses in them?
Thanks for all your comments everyone.
I’ll be taking them all into account when I have a stab at making a few suggestions in a future post in this series.
We’re private sector, but I suppose we are quite unique.
Most of our Assured Tenancies (aprox 2000) are properties owned by institutional investors looking for a long term investment. The remaining privately owned properties are predominatly let on ASTs but we won’t accept them unless they are prepared to offer at least a 2 year fixed term so we know tenants have a minimum level of security. We also only offer fully-managed terms to landlords so that we can stay in relative control, ensuring that landlords fulfil their obligations and that tenants are treated fairly.
Most of our tenants are the older demographic and we therefore take our duty of care very seriously. We don’t think it is right to leave potentialy vulnerable people in the hands of amature landlords.
Our standard AST agreements have break clauses (for tenants only) after 12 months, although a very small number of landlords refuse this. On our Assured Tenancies, tenants have a minimum contract period of 12 months after which they can give a months notice.
The sector will never have stability until either a)mortgage companies allow longer term tenancies or b) there are more institutional investors and fewer amature, buy to let landlords.