On 2 July 2018, the government published a consultation paper seeking the public’s view on its new proposal for extending the minimum term of assured shorthold tenancies from six to 36 months. Milo Hallyburton from Lyons Davidson’s Landlord and Tenant team offers a perspective from the legal sector.
The media has reported apparent uproar from dissatisfied landlords over the proposal. It has been stated that the flexibility afford by assured shorthold tenancies will be lost; banks will increase interest rates on buy-to-let properties as their equity will become harder to realise in worse-case scenarios and, ultimately, that renters will suffer as costs and volatility are passed on to them.
But is this a realistic picture? Not at all. Rather, the proposed change is in reality little more than cosmetic, when we consider a landlord’s right to recover possession of their property.
Tenants’ rights in assured shorthold tenancies
At present, court proceedings cannot be brought in the first six months of an assured shorthold tenancy. This is relevant because, if a tenant does not agree to leave the property, enforcement has to be done through the court. The six-months protection for tenants is not changing under the government’s proposed plan; the proposal is only to increase the minimum term, not the period of protection.
Section 21 notices
A section 21 notice, sometimes referred to as a ‘no-fault eviction process’ can only be served when the assured shorthold tenancy’s fixed term has come to an end. At first glance, increasing the fixed-term minimum from six months to 36 months might therefore seem like an issue. However, it is important to note that the tenancy does not need to have come to an end by reaching the end of its term. It is possible for assured shorthold tenancies to come to an end by using a contractual break clause.
Tenancy break clause
In fact, this is even stated at point 59 in the consultation paper, which says: “A minimum three year tenancy but with an opportunity for the landlord and tenant to leave the agreement after the initial six months if dissatisfied.”
Therefore, under the new proposals, providing that an assured shorthold tenancy has been drafted to include a valid break clause, landlords will not lose any of their rights to seek possession of their property on a no-fault basis.
Rent review clauses
So, what impact will the government’s proposals really have? Provided the tenancy is drafted with a break clause, there will not be any noticeable changes in seeking possession of a property. However, landlords should pay closer attention to the rent review clauses in their assured shorthold tenancies.
At present, a short term (i.e. six-12 month) assured shorthold tenancy does not usually include a rent increase clause. In part, this is because landlords do not normally plan on increasing the rent for a property in the first six-12 months of a term.
Statutory periodic tenancy
Once the assured shorthold tenancy rolls over into a statutory periodic tenancy at the end of the fixed term, section 13(2) of the Housing Act 1988 can then be used – and, in fact, must be used irrespective of the tenancy’s terms – by the landlord to seek an increase in the rent, if it has not been agreed to by the tenant. This means rent increase clauses are often simply not needed.
If, however, the minimum term of assured shorthold tenancies increases to 36 months, it may be a more commercially important decision to plan ahead for how the rent for the property will change and to add this in as part of the tenancy itself.
So, what would be the effect of the government’s proposed plan to increase the minimum term from six months to 36 months? In simple terms, it would mean a requirement that landlords ensure their assured shorthold tenancies contain a break clause and, if desired, a rent increase clause. Not so drastic after all.
The consultation on the government’s proposals runs until 26 August. In any event, it is always paramount that landlords obtain correct advice to they have well-drafted tenancy and before they serve statutory notices. This is where we can help. We have an experienced team of lawyers who can give landlords the support they need to ensure they can get their properties back swiftly and without unnecessary complications. Please contact Ben Dalton in our Landlord and Tenant team by emailing [email protected] to find out more about this or any of the other issues raised in this article.