Important changes to AST rental thresholds will take effect from 1 October 2010

22/09/2010

By Megan Fradgley, Solicitor in Dispute Resolution

In order for short term residential tenancies to be assured shorthold tenancies ('ASTs') the rent payable must not exceed £25,000 per annum (i.e. £2,083.33 per month). However, this threshold is being increased to £100,000 per annum with effect from 1 October 2010 which will have a  major practical impact on landlords with properties that fall in this category.

On the positive side, landlords will be able to use the accelerated possession procedure in order to evict a tenant which is, largely, a paper based exercise to recover possession and is generally quicker and cheaper than standard possession proceedings.

However, the change in threshold will require immediate attention because the changes, when in force, will have retrospective effect. This means that previously exempt tenancies with annual rents exceeding £25,000 but below £100,000 will automatically become ASTs on 1 October 2010 and this has two major consequences for a landlord.

First, landlords must ensure they protect any security deposit taken from a tenant through an authorised tenancy deposit protection scheme. Failure to protect a deposit with one of these schemes carries tough penalties, with landlords being liable for a potential fine of three times the deposit. Whilst landlords are unlikely to be exposed to these fines immediately after 1 October, the risk remains.

Additionally, following the changes, landlords with previously exempt tenancies will also now need to follow the procedures in the Housing Act 1988 to bring the tenancy to an end. This involves the landlord either establishing that one or more of the grounds in Schedule 2 of that Act have been satisfied (e.g. substantial rent arrears) and serving an appropriate notice, or by serving the tenant two months' notice to end the tenancy (after the end of the fixed term) pursuant to section 21 of the Act.  

Landlords must also remember that any security deposit must be protected in a scheme before a section 21 notice can be served as failure to do so will render the section 21 notice invalid.

In view of the potential problems facing landlords as a result of these changes, landlords should review their portfolios to check whether any of their tenancies will be affected and take appropriate steps before 1 October to avoid later problems.