Urban Myth - tenancies must be ‘renewed’ when the fixed term ends

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This is a myth largely created by letting agents, as an important part of their income stream comes from charging landlords for ‘renewals’ for tenants. But they are not actually necessary.

In a way, this post follows on from my last Urban Myth post about tenants staying on after the fixed term not being squatters. In that post I explained that under the Housing Act, assured and assured shorthold tenancies continue automatically after the end of the fixed term, as either a monthly or weekly ‘periodic’ tenancy, depending on how the rent is paid.

This does not mean to say that tenancies should not be reviewed at the end of the fixed term. Or, so far as the landlord are concerned, two months before the end of the fixed term, as that is the length of notice he will have to give if he wants them to leave.

However many, many tenancies run on as periodic tenancies quite happily for years. Often landlords and tenants prefer the flexibility of a periodic tenancy and do not want to be tied in for a longer term. For example if tenants expect to be moved to another town for their job but do not know exactly when.

The most important reason for ‘renewing’ a tenancy is to increase the rent. This is often done at this time, as if a tenant signs a new tenancy agreement or renewal form with the new rent, they cannot then challenge the rent figure if they think it is too high.

Another important reason for ‘renewing’ a tenancy for a further six months or a year, is to create certainty, and tenants often want the security of a fixed term, where they can only be evicted if they fail to pay rent.

However if you and your tenant would prefer the tenancy to roll on on a periodic basis, do not allow your letting agent to bully you into a ‘renewal’ for a further fixed term.

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Do you know of any 'urban myths'? Or have you had any problems with this particular urban myth? Please post a comment if so, I would love to hear from you.

Click here to see all the Urban Myths.

Urban Myth - Tenants who stay on after the end of their fixed term are ‘squatters’.

I do come across this view sometimes. Landlords telling me that their tenant has no right to stay on in their property, because he (the landlord) only agreed to let them live there for (say) six months.

In a way the law is rather pitched against landlords. Tenants can leave without penalty at the end of a fixed term, and don’t even have to give the landlord any warning that they are leaving (although it is a different matter if they stay on). However if the tenant does not want to move out, the landlord must service a two months notice, get a court order for possession and then instruct the County Court bailiffs before he can get his property back.

With assured and assured shorthold tenancies (i.e. most of those which started after 15 January 1989) the Housing Act 1988 specifically provides that if tenants stay on after the end of their fixed term, the law will create a new tenancy, a 'statutory tenancy' (because it is created by statue). This will be a ‘periodic’ tenancy, starting immediately after their fixed term ends, and will run on from month to month or from week to week, the 'period' depending on how their rent is paid. Apart from this, all the terms and conditions of the preceding ‘fixed term’ tenancy will continue to apply.

So when landlords (and tenants) say that tenants staying on ‘do not have a tenancy’ this is not true. They do. And so they are not squatters!

Do you know of any 'urban myths'? Or have you had any problems with this particular urban myth? Please post a comment if so, I would love to hear from you.

Click here to see all the Urban Myths.

Urban Myth - a short let cannot be an AST

This myth is based on reality, and is due to the history of the assured shorthold tenancy (AST).

Protected tenancies under the Rent Act 1977
When the Housing Act 1988 first introduced ASTs, people were still used to the old Rent Act system of protected tenancies (although protected shortholds had been introduced by the 1980 Housing Act and there were quite a few around).

Under a Rent Act protected tenancy, a tenant instantly obtained long term ‘security of tenure’, and was entitled to stay there (so long as they behaved themselves), effectively forever, at a ‘fair rent’ (what a landlord of mine once described as ‘expropriation without compensation’).

Assured Shorthold tenancies before February 1997
The Housing Act 1988 changed all that, and with an AST, tenants could be evicted after the end of the fixed term without the landlord giving any reason at all, provided the proper procedure was followed. They could also charge a market rent.

So, when drawing up the legislation, Parliament felt that tenants need to be warned about the type of tenancy they were entering in to, and therefore imposed conditions on the creation of an AST. These were set out in section 20 of the Act and said that:

1. The tenant (who must be a new tenant, an AST could not be granted to an existing protected tenant of the landlord) had to be served a notice telling him he would not get security of tenure (this became known as a section 20 notice)
   
2. The fixed term must not be less than six months, and
   
3. The landlord did not have the power to end the fixed term earlier (i.e. there could not be any break clause in the tenancy agreement).

Although Parliament was trying to be fair, in fact this rule lead to quite a few injustices (as often tends to happen in the ‘Nanny state’). Professional landlords and agents generally got things right. However, many amateur landlords did not appreciate the need for the section 20 notice to be given in advance, and created assured tenancies by mistake.

In the 1990’s and early 2000’s, I had quite a few landlords consult me about evicting their tenants, where nothing could be done, even though in many cases the tenancy had been granted on the understanding that it would be an AST. This was because the landlord had given all the paperwork to the tenant all at the same time, meaning that the s20 notice had not been handed over before the tenancy had been entered into, as required by the Act. Therefore the tenancy could not be an AST.

Assured shorthold tenancies after February 1997
Presumably this filtered through to our law makers, because in 1996, when the Housing Act 1996 was passed, this requirement was done away with for new tenancies (although it still applies to older tenancies). By then everyone was used to ASTs anyway, and arguably did not need the protection of the section 20 notice. From 28 February 1997 when this part of the 1996 act came into force, (virtually) all tenancies were or will now be an AST automatically, and there is no need to serve a section 20 notice any more.

So now you can have a tenancy fixed term for as short a period as you wish. Most are for six months, but you can have a tenancy for a week, a month, three months and two days, whatever you want.

The sting in the tail
There is a sting in the tail though. Parliament, reluctant to abandon ‘Nanny mode’ altogether, felt that tenants still needed protection. They therefore introduced in place of s20, a rule that says that possession orders are not enforceable within the first six months of a tenancy (that is the first tenancy - the rule does not apply to renewals). So what this means is that a tenant can take advantage of a two month let (by moving out at the end of the second month), but the landlord cannot. If he wants his property back he can’t get an order for possession until after six months.

There have been proposals to remove this rule (sometimes known as the ‘six month moratorium’) but it does not look as if this is going to be any time soon.

Landlord Law Urban Myths

This post announces an occasional new series I am starting, which I am calling Urban Myths.

This will highlight and discuss ideas prevalent among landlords and tenants (and even sometimes their advisors), which may be based on misleading versions of the truth, or a hangover from past laws, or sometimes just wishful thinking. But all wrong!

If you have any ideas for topics for this series, please email me at tessa@landlordlaw.co.uk