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AST vs. Periodic Tenancy - Advice please!


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Hey Hubbers,

 

Looking for a little advice on the difference between AST and periodic tenancy's and which might be better to use.

 

I've just taken on a property in a new area to me, and the agent I'm using has, as standard, a AST that ticks over to a periodic tenancy after 6 months. This is something I've not come across before as typically all the agreements I've had (as a landlord and a tenant) are 12 month ASTs with 6 month break clauses and two month notices either side.

 

The agent says tenants in the area prefer this level of flexibility, and I've no reason to doubt this is true. But something is nagging at the back of my brain that periodic tenancy's aren't good...I just can't remember why I think that!

 

So, firstly, are periodic tenancys a bad thing?

 

Secondly, if they're good in certain situations what should I have in place contractually wise? Do I need to have an additional contract after the 6 month AST expires, or are the terms the same, just that there isn't a contracted length of tenancy?

 

Thanks in advance for any help, it'll be a weight off my mind :)

 

Chris

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Chris

 

Hi - I think your agent should have been able to assist your query in this matter as it is relatively straightforward to solve.  You have probably misunderstood the technical names for tenancy agreements.  The Assured Shorthold Tenancy Agreement (AST) come predominantly in two variants:  The Fixed Term Tenancy and the Statutory Periodic Tenancy commonly referred to as the Periodic Tenancy although technically Periodic Tenancies can be either Statutory or Contractually Periodic but the latter is not used too often and is often forgotten when tenancies are discussed.

 

The Fixed Term (FT) is pretty much what is says on the tin; the start and end dates are specified and both tenant and landlord know how long they have signed up to live at the property and there is a high degree of certainty for both sides.  The landlord knows that the earliest he can get the property back is the end date of the tenancy agreement (unless they have major fall down on contractual agreement - like unpaid rent for 2+  - and you go to court and persuade a judge to give you possession back) and the tenant has certainty of a minimum length of stay.  Interestingly, despite the Labour Party's and Generation Rent's insistence that all tenancies should be 3 years minimum my experience is that there are a high number of tenants who want to break long agreements early which can cause problems if a landlord tries to stick to the agreement as they then end up with grumpy tenants who do not want to be there and increase the risk of abuse to the property.  Landlords like long tenancies as it cost them less to administer.  The landlord still has to give notice of wanting the property back at the end of the fixed term but a tenant can just hand over the keys if they so choose - most will co-operate and tell you their intentions.

 

A Statutory Periodic Tenancy Agreement (SPT) (sometimes referred to as a rolling tenancy) occurs when the fixed term comes to an end and the tenant remains in the property and carries on paying the rent as before.  This automatically occurs and no additional paperwork is required.  The original tenancy agreement remains in place with the exception that the end date becomes indeterminate and can be ended by either party although tenants only have to give one month's notice but a landlord has to give 2 months in the form of a Section 21 Notice which is to do with the Housing Act 2004.  It has just changed in October and a unified notice was created from 1 Oct 2015 as previously there were 2 formats depending on which sort of AST a tenant was on FT or SPT (explanation not for this post).  

The SPT has the advantage that both landlord and tenant have a lot of flexibility of length of tenure but the disadvantage is that neither has any certainty of how long it will last.  We have tenants that have been on ASTs for over 10 years but many are under 18 months as today's population is highly mobile.maintained property   A well priced, well maintained property is likely to encourage a tenant to stay for extended periods as the hassle of moving is too great and the cost also is not insignificant as they would have to find all the new fees from the next agent and also stump up for a deposit before they got the last one back.  I prefer this set up as neither party feels trapped and if a good tenancy turns sour it can be ended far sooner having to try and ride out a fixed term that gets ever more stressed.  The other advantage of an SPT is that no additional agreements are required to be signed and so agents should not charge any renewal fees etc (which is sometimes why they are keen for landlords not to do this as it limits an income stream!).  The initial agreement remains valid and also the deposit all remains the same.  The only thing that is required is that the deposit scheme needs to be notified of the change to SPT from FT.

A lot of agency contracts have an initial fixed term of 6 months which provides a level of certainty for both sides and is almost a trial period for both to see if the tenancy is going to work ok.  Once this is drawing to an end then a new set up needs to be agreed.  If you choose the FT route it might be prudent to offer the tenants a longer FT as it gives both sides a permanency but it may not suit one side.  Remember that the maximum time for an AST is 3 years otherwise a whole different agreement is required that does not have the same protections as an AST.

You can make an active selection to go down the SPT route, however, if you do nothing other than collect the next rent then you have automatically slipped into a SPT.  The main reason 6 months is chosen as the default start of a tenancy length is that the Freedom From Eviction Act 1977 prevents a tenant from being evicted for 6 months is most circumstances and it is very rare to shorten this time which can only be done by a court.

This is why the contractually periodic tenancy (CPT)is rarely used as even if a landlord wanted to end a 2 month agreement as originally signed up for they would not be able to evict a tenant who chose not to move until the 6 month point even if they stopped paying rent or similar so most choose the protection of the FT 6 months that rolls forward after then into periodic as it is then contractually agreed that the rent will be paid to this point.  And AST can be for any period and sometimes 3 or 3 months is useful for people between tenancies or house sales but it is expensive on repeat fees for the landlord and high on admin burden for the agent and so a relative rarity.

 

I hope this helps?

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Tim this is awesome, thank you so much!!

 

So it looks as though what the agent has set-up is fairly standard, with a Fixed Term agreement for 6 months and then rolling into a Statutory Periodic Tenancy thereafter. The AST we have both signed details this, as well as the notice period you reference above, so looks like they have it covered.

 

My concern was that a SPT somehow gave the tenant additional rights, and if something goes wrong it would be harder to get them to vacate the property (not that I'm thinking it will, but you never know :)). But from what you say it's no different from a FT, just that the certainty of tenancy is reduced to 1 month on the landlords side and 2 months on the tenants.

 

Obviously my preference would be to keep to larger lengths of agreement, but I'll play it by ear with this tenant and when we get close to the end of the initial FT see if we can come to an agreement to sign-up for another 6 months. I don't think the agent is charging for this, so could be a win-win situation for myself and my tenant.

 

Out of interest is it part of the Housing Act that the tenant only has to give 1 months notice? Or could you ask that they also had to give 2 months? Again not planning on doing this, just interested, and given how much I've just learnt form your post I feel I should ask many, many more questions! :)

 

Thanks again Tim, your input has enlightened me.

 

Chris

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Chris

Thank you for your comments - I am pleased that they helped.  I am also pleased that you feel your agent has supported rather than hindered you and by the sounds of it what you have signed is pretty standard.  All landlords want good tenants to stay for as long as possible and that is everyone's aspiration.  The reason for the 6 month term is that it gives both a degree of stability without holding both to extended periods in an agreement that is not working.  Once you get to 6 months both sides will have a reasonable idea if it is going to work - as mentioned before it is also a convenient point because the tenants are protected by law until that point provided that they have adhered to the agreement - ie paid the rent and not caused a major breach of their tenancy agreement.

 

There are many reasons why a tenant would prefer a SPT including they are not too certain about their circumstances and may have to move sooner than a longer agreement would enable them to - a change in personal circumstances (work, family, relational etc) and many prefer the ability to be able to jump ship if they want to but in reality stay for years.  If you are a good landlord, provide a reasonable to good property and do not charge high rents or put them up at the earliest opportunity then most tenants do not want the hassle and costs of moving.  Personally I would not see it as a threat to your business plan, but it is not unreasonable to offer them a fixed term of up to 3 years and many tenants may appreciate this.

 

As mentioned above it is a bit of a loaded gun as the law would hold you absolutely to it but if you have a tenant who wants to walk away from it - the law would support you if you wanted to absorb the cost of this - but you would end up with a grumpy tenant who may leave anyway and is less likely to look after the property and may even exhibit their displeasure by causing damage.  IF a tenant asks to jump ship it is better to find a pragmatic way to do so - we charge the tenants the landlords costs to re-let and also charge them the rent etc until a new tenant is found which works and costs the tenant.

 

With regard to having equal rights of notice time unfortunately you summise is correct - its the law - I think it is in the 1988 Housing Act but cannot recall from where I am sitting. The times are dependant on the period that rent is paid weekly, monthly, quarterly, annually etc.  AS most landlords use monthly contracts this is what I have commented on.

 

You can write such clauses into your contract but in a court of law it would be meaningless as a landlord cannot override statute law!  Landlords (and sadly agents who should know better) often do write clauses into their contracts believing that they can hold tenants to them because they have a signature but these are not legal and cannot be enforced.  I regularly advise tenants to offer a landlord a "I'll see you in court" type response because of all sorts of weird clauses and changing the times is a common one as is trying to hold tenants for keeping the same utility supplier.

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Thanks again for the additional detail Tim, it's helped me understand this from both landlord and tenant side and set's my mind at ease that I'm in a 'normal' situation :)

 

The law side of things is something that I'm very interested in, especially as I start to make some tentative steps into the world of BTL. I am looking to provide a solid service to my tenants, ensuring they are getting a good, well maintained property (from myself, but also from the agent I employ) at a reasonable rent. In return I'm hopeful that I get a tenant that respects the property, pays their rent on time, and is happy and content. So from my side of things I have the gas checked, the electrics checked, a legionnaires assessment done and a decent, law abiding AST in place that works for both sides. However I'm very interested in how I protect myself, my assets and my interests should I find myself in a less than ideal situation :)

 

So I move forward with confidence and a little more knowledge in my brain (which can't be a bad thing!).

 

Thanks again,

Chris

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Chris

If your agent uses a recognised and reputable referencing company to reference check the tenants (usually at their expense) there are quite a number of insurance products around  that provide tenancy insurance.  I am not FSA qualified so cannot advise you on any specific ones but we offer 2 at the agency where I work (we operate as introducers only) and one pays for legals only to get through the court process leading up to and including evictions which is at a fixed price and is tenancy specific - ie lasts for the lifetime of the tenancy and ends when the tenants leave - 6 months to 15+ years.  The other covers any unpaid rent, the court costs to £60k and 2 months 75% rent to cover refurb etc but this has an annual fee which we acquire at a discount rate because of the number of tenancies insured through our company.

There will be a number of products around and your agent may be able to guide you with what is used in your area.  

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Thanks Tim. I have looked at a few policies like these, and the agent I use has referenced the tenant (although to what depth I'm unsure, as what they shared with me was quite basic, but then again I'm not sure what they can / should be sharing with me).

 

I don't suppose you could recommend a referencing template (or type of questions) that I could potentially work with the agent to use? I'm sure the agent has this covered, but I'd be interested to compare (and then potentially add in for future tenants, as I'll be looking to use the same agent for the next let).

 

Thanks,

Chris

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Chris hi,

In order to do a really effective tenant reference I doubt it is something you can do yourself as the reference checking companies have access to records that are hard to do one's self. They check CCJs, credit ratings, employer references, previous landlord references, electoral roll etc and the quality of the package they produce is therefore insurable by a number of insurers.  I would not dream of carrying one out and advertise a reference check fee in the property advert so that the tenant pays for it and so it is cost neutral to you.  The National Landlords Assoc (NLA) do reference checks at 2 rates (one for members and a slightly higher rate for non-members) and the RLA probably has something similar.  The referencing companies available to agents is quite wide - Letsure, Reference My Tenant, RentChecks are 3 but there are many more and I would expect the agent to have used one of these. Interestingly it is very common for the agent to share the reports with the landlord and covered by the Data Protection Act to do so but tenant applicants are not able to see their results.

 

Despite all this the referencing is not bomb proof but goes a very long way to reducing the risks.  That said, when a tenant fails a check it does not necessarily mean that it is the end of the road - a wise agent or experienced landlord can sometimes see a way round the issue that causes the fail.  Sometimes it is income related or short-term contracts that will technically end before the tenancy agreement.  It is very common to use a guarantor in these circumstances who will cover the rent if the tenant can't.  You will need to reference check the guarantor but this is straightforward.  

 

If you are not using an insurance policy you can "take a view" on the information you have gleaned.  I have 2 tenants in a property of mine who failed spectacularly on paper, but a bit of digging proved it was a landlord who did not want the tenants to leave and gave bad references.  They have been at the property for 6 years and never missed a payment, do a lot of the minor maintenance without calling me and are generally good eggs.  Couldn't have better tenants!  However, we had some applicant recently who failed their reference for CCJs and it turned out one was for £1000 owed to a water company so clearly not the tenants to have in a property - the check worked, they paid for it and we refused them a tenancy.  Let the experts do their job and save you the hassle and leg-work

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  • 11 months later...

I appreciate this topic is quite old, but it covers exactly the situation I'm currently in and I feel the answer is somewhat misleading, although maybe things have changed over the last year!

 

The following question was asked:

 

On 06/11/2015 at 3:50 PM, christopher sharman said:

Out of interest is it part of the Housing Act that the tenant only has to give 1 months notice? Or could you ask that they also had to give 2 months?

 

And the response was:

 

On 07/11/2015 at 2:17 PM, tim wragby said:

You can write such clauses into your contract but in a court of law it would be meaningless as a landlord cannot override statute law! 

 

Although this is obviously true for a Statutory Periodic Tenancy, there's no reason why a Contractual Periodic Tenancy couldn't be used, which included a 2 month notice clause.  Obviously this requires more effort from the landlord/agent to produce the CPT and if an agent charges more fees for the new contract it may not be cost effective.

 

As a newbie landlord, I'm in the situation where a 12 month AST will come to an end in just over a month and so have started putting out feelers to the tenant.  They don't want another fixed agreement (although they aren't going anywhere and want to stay in the house), and would like a periodic tenancy instead.  I personally, don't like the idea of a STATUTORY Periodic Tenancy and have therefore offered a CONTRACTUAL Periodic Tenancy, containing a 2 month notice period for the tenant.  This makes it even with the 2 months required by the landlord and provides more time to arrange a replacement tenant for when the existing tenant wants to move on.  The CPT also gives the landlord more protection against non payment of bills, such as council tax etc.  Yes, it requires a little more effort but I believe the advantages are worth it.

 

I would be interested in feedback regarding the use of a CPT instead of a SPT.

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Milleniumaire,

I'm sorry that you feel my answers in the above thread are "somewhat misleading" - I will always give the best answer as I understand it.  The reason that I use the Statutory Periodic Tenancy (SPT) is that this is because it is by far the most common form of tenancy agreement in use.  I am confused as to why you feel so disadvantaged by the 2 month's notice by a landlord v 1 month for a tenant and it seems rather rash to opt for a contractual periodic tenancy to give you the change.  I would recommend looking at the full ramifications of exiting from an AST as you will be walking away from all the protections of the 1988 & 2004 Housing Acts and you restrict your recovery rights as well.

 

I have tenants who have been on SPTs for over 10 years and it is not much of a problem and the additional cost of getting a new contract signed +the chance of spooking your tenants to moving early may beself defeating.  I do not know the percentage of AST based tenancies to CPTs but I would guess it is 80+% to below 10% and there will be a good reason for this.

 

You say you are new to letting and I would recommend using the conventional route until you are certain about your reason for changing as I cannot see a financial gain otherwise a hell of a lot of others would have trod this path.  The AST is pretty landlord friendly- if you have a good property and have looked after it and done your homework buying in a rentable area it should be straightforward to let.  Holding on to a tenant by insisting on sticking to a contract can be counter productive and can cost you a lot more than negotiating a departure so that the tenant leaves paid up-to-date and the property in good order

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On 07/11/2016 at 10:58 PM, tim wragby said:

I am confused as to why you feel so disadvantaged by the 2 month's notice by a landlord v 1 month for a tenant and it seems rather rash to opt for a contractual periodic tenancy to give you the change.

 

I don't think it's confusing to want more time to search for a new tenant when given notice.  At this time of year (November, December) it is more difficult to find tenants, so if a tenant is considering leaving I would rather know 2 months before they leave, than 1 month.  This gives me an extra month to arrange for a replacement tenant.

 

Another advantage of a CPT over an SPT is the liability of council tax is with the tenant.

 

The cost of modifying the existing AST contract to be a CPT is negligible.  I have already discussed the options with my tenants and they are far from spooked and have confirmed they have no plans to move on and would be happy to sign a CPT with a two month notice period.

 

Despite the advantages of the CPT, I'm still undecided about whether to bother or to let the AST lapse into a SPT.

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