The level of protection granted to tenants under Assured Shorthold Tenancies (ASTs) has always been a controversial topic with the government needing to strike a delicate balance between providing tenants with security whilst allowing landlords to protect their investments. With such a high demand for rental properties, commentators and charities argue that the balance is currently too far in the landlord’s favour. The government had previously attempted to tackle this by reducing the number of buy-to-let properties (by increasing stamp duty land tax and eroding tax reliefs) and draft legislation has been prepared to abolish tenancy fees payable by tenants before entering into a tenancy agreement. The government is now taking one step further: in July 2018 they issued a consultation paper suggesting a mandatory 3 year term for all ASTs.
Current length of term for ASTs
- A minimum term of 6 months (as any order for possession following service of a notice under s21 of the Housing Act 1988 (HA 1988) will not take effect earlier then 6 months from the date of the tenancy)
- No maximum term, but many are granted for 12 months
- Following expiry of the fixed term, an indefinite statutory periodic tenancy will start. If the Tenant wishes to leave, it may serve one month’s notice on the landlord (if their rent is paid monthly)
- The landlord may end the tenancy by serving two months’ notice on the tenant under the HA 1988.
The finer details of the proposal are yet to be discussed, but the consultation paper suggests the main terms would be as follows:
- A minimum term of three years (subject to various exceptions including holiday lets, student accommodation and tenancies granted to people with a limited right to remain in the UK);
- After the first six months, either party could terminate the agreement “if dissatisfied”, although it is not clear what would count as a dissatisfaction or how it would be demonstrated;
- After the first 6 months:
- The tenant may terminate the tenancy by giving two months’ notice without any reason
- The landlord may only terminate the tenancy if they have reasonable grounds to do so. These grounds would be in accordance with the existing grounds inSchedule 2 HA 1998 eg, they want to occupy the property themselves, the tenant is in arrears etc. However, it is proposed to include an additional ground where the landlord wishes to sell the property with vacant
- Rents could only be increased once per year at whatever rate the landlord and tenant agree but the landlord must be absolutely clear about how rents will increase when advertising the property and the mechanism would need to be detailed in the tenancy. The proposals also discuss whether to cap any rent increase at the rate of inflation in the Consumer Price Index, but currently this does not appear to be the favoured option.
Initial comments on the consultation suggest the introduction of a longer minimum term would offer greater stability to tenants. Mandatory terms for ASTs are already the norm in Europe and these models work well.
The government is aware that their suggestions may concern some landlords who will want to be able to take back possession of their properties more easily and who may believe rent controls would artificially deflate the rental market and therefore the value of their investments. The government hopes the proposal may avoid costly periods while landlords search for new tenants.
As part of the consultation, which has just ended, ministers sought views from landlords, tenants and related organisations about the most effective ways to tackle obstacles to introducing longer tenancies.
Watch this space for the results of the consultation and the government’s next steps.