As everyone will be aware, there has been a lot of press coverage of the private rented residential housing sector, partly brought about by the crisis in affordable housing (why not try building some and not selling it off!) and the continual reports about “rogue” landlords.
Recently, the government have announced changes to the rules. As most landlords will be aware, the taxation rules for some landlords have been changed by denying them full tax relief on mortgage interest payments, which is being phased in over 3 years from 2017 (although this is currently being challenged through the courts). The recent reforms also require landlords to implement the right to rent checks prior to entering in to a lease with a new tenant. Another little trumpeted step has been to introduce in January this year a draft assured shorthold tenancy agreement (AST). That is going to be the main discussion point of this blog. It’s not a dramatic change but is a further example of the government moving in to the relationships in the private rented sector. The draft agreement and associated guidance produced amounts to 50 pages, and according to the guidance preamble has been produced to:
“strike a fair balance between the interests of landlords and tenants. It is particularly focused on supporting tenants who want to negotiate a longer fixed term period at the start of the tenancy”.
Whilst the government then indicate there is no legal requirement to use the agreement, they appear to be reinforcing their view that tenancies should be available for a longer period. But, and lets face it, there is always a but, this isn’t even the full picture and in my view it is intended to tip the balance more toward tenants. That’s not to say it’s biased towards them, it isn’t but it does shift the scales slightly in their favour.
The guidance for landlords, reinforces the legal obligation for smoke alarms and carbon monoxide detectors where appropriate, and also to ensure that the alarms work. Furthermore, all the standard provisions of an AST are included as one would expect. However, where it does differ is the option to tie the parties down to a fixed term period of a greater length than the usual term of an AST. Here the government provide a clear idea of where they want to take the private rental sector, by making provisions for where an AST is agreed to be for over 2 years. For leases of 2 years plus there is an option of both a break clause, and a rent review. If you opt for a rent review and follow the draft lease, then this can be annual, but limited to either a fixed percentage (to be agreed between the parties) or linked to the Consumer Prices Index (CPI).
The break clauses are intended to apply only for tenancies for 2 years or more. The draft provides that where a tenancy is for less than 2 years, this clause will have no effect. However, this is where it becomes, what could be described as a little odd. Where the tenancy is over 2 years, then the tenant has a rolling 3 month break clause that can be exercised only after the first 3 months. This rolling break clause lasts throughout the term of the AST. The only option (excluding where the property is to be sold) a landlord has to end the tenancy early is by exercising their break clause option which is to terminate the tenancy no later than 6 months after it is entered into and by giving 2 months notice.
So there you have, the quickest of quick run-throughs of the draft AST. As I said right at the beginning, the government drafted AST is supposed to give a fairer deal to both tenants and landlords, but by incorporating the break clauses which is clearly heavily favoured towards the tenants this can be seen to undermine the objective, and give rise to a question as to why a landlord would agree to an “over 2 year” lease that gives them less income security than a series of standard 1 or 2 year leases would do. Should you require any further information please contact, Cliff Morris, David Eminton or Nicola Davies.