Saturday, July 04, 2009

How to choose the right tenancy agreement- some guidance for landlords

Many landlords don’t bother too much about their tenancy agreement. They consider it to be a disagreeable necessity, something filled with legal ‘mumbo jumbo’, and just try to get the shortest and/or cheapest one they can find.

This is a mistake. A tenancy agreement sets out the rights and obligations between you and your tenant/s, and needs to be clear and unequivocal. You also need to use the correct agreement for the type of tenancy concerned.

Most tenancies nowadays will be an assured shorthold tenancy (AST). However if:

  • the rent is over £25K
  • the tenant is living in self contained premises in the same building as the landlord, or
  • the tenant is a limited company
the tenancy cannot be an AST (which are regulated by the Housing Act 1988), and will governed by the underlying ‘common law’. You need to use a slightly different form of tenancy agreement which makes this clear. Otherwise mistakes could be made in error, for example by your legal advisor, if he is not made aware of the type of tenancy concerned. This could result in a claim for possession (for example) being thrown out by the court.

Assuming the tenancy is an AST, slightly different forms of agreement need to be used depending on whether:
  • there is one or more tenants occupying the whole flat or house, or
  • there are a number of tenants who all have a separate tenancy agreement for their own room, with shared use of the rest of the property
Other things you need to take into account are:

- Whether, if the term is over six months, you will want allow either party to end the agreement early. This is done by including a break clause

- Whether you will want the rent to be a weekly or monthly rent (most rent is paid monthly).

- Whether you will allow the tenant to have pets (in which case it may be advisable to use a tenancy agreement specially designed for this)

- Whether you will pay the utility bills or whether you will want the tenants to be responsible for this (for example landlords often pay the bills in shared houses).

Finally, when choosing a tenancy agreement it is a good idea to look for one which is written in a plain English style. These are much easier for both you and the tenant to understand, and tenants are more likely to read and comply with something they can read easily.

Landlords will find more information in the Landlord-Law Which Tenancy Agreement guide.

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Paul Long said...

Great article which makes it clear that a landlord needs a good tenancy agreement and not a free one pager - we have seen a number of landlords use the same tenancy agreement over and over again for years with no consideration to changes in legislation - a costly a mistake if the landlord ever has to go to court.
Paul Long

Tessa Shepperson said...

I agree, using old agreements can be very dangerous. For example if an old style forfeiture clause is used, this can give the tenant a defence to a claim for possession based on rent arrears during the fixed term of the tenancy.

Although in point of fact, I have never seen this raised as a defence. It would be interesting to know if it has.