Current Law
When the Housing Act 1988 was introduced all residential tenancies created after commencement (15 January 1989) were assured tenancies or assured shorthold tenancies unless they fell within one of the exceptions in Schedule 1 to the Act. Indeed most tenancies created by private landlords after that date became assured shorthold tenancies. One of the exceptions in the Schedule provided that a tenancy could not be assured if the annual rent payable was more than £25,000, those tenancies are common law tenancies and are terminated by Notice to Quit. Over time the £25,000 rent level has never been increased whereas rents generally have risen, as a result an awful lot more tenancies are now excluded from the Act than used to be the case. To deal with this anomaly Parliament has now passed an Order increasing the rent threshold from £25,000 to a £100,000 from 1 October 2010.
What is the effect of this Order?
As of 1 October 2010 any common law tenancies with annual rents between £25,000 and £100,000 will become assured tenancies or assured shorthold tenancies unless they do not meet one or more of the other requirements for being assured or assured shorthold. For instance, if they are business tenancies, holiday lets or the property is occupied by a resident landlord. (See the Housing Act 1988 for all exceptions or contact us if you are unsure).
Practical Implications
Many existing common law tenancies will become assured shorthold tenancies and as a result landlords will need to comply with the special rules that apply to them. Such rules include, in particular, the duty to protect rent deposits and procedures for gaining possession.
Protection of Deposits
As you will be aware a landlord under an AST must protect the tenant’s deposit by using an authorised tenant deposit scheme as introduced by the Housing Act 2004. As you will know there are sanctions for failing to comply with the legislation including fines and without evidence of compliance it is impossible to gain possession using a S21 Notice and the assured shorthold ground.
There is debate amongst lawyers as to whether this legislation applies to common law tenancies which convert to ASTs on the 1 October 2010. The deposit many have been taken many years before. However the Government have advised that the reason for delaying implementation of the Order until 1 October 2010 is to allow landlords of tenancies that will become ASTs time to protect rent deposits. Whilst lawyers may wish to debate the rights and wrongs of the Government’s stance, from a practical point of view we would advise any sensible landlord or agent to comply with the scheme so as to avoid the potential adverse consequences of not doing so such as compensation, fines and not being able to obtain possession.
The downside of compliance is the loss of the interest on the deposit or payment of a premium but this pales into insignificance compared to the downside of the court deciding the TDS does apply and being found in breach. If in doubt on this matter contact us for more detailed advice.
Accordingly, if you have not already done so you should trawl through your contracts and identify all of those which will be affected by this change in the law and ensure that the deposits are protected.
There is some debate that it could be argued that deposits have been taken more than 14 days before they are registered but we believe the courts will adopt a sensible approach to such a technical breach, particularly since they are not now taking a very draconian approach to enforcement of the deposit legislation.
Possession proceedings
In addition you will need to keep in mind that the provisions of the Housing Act 1988 provide tenants with either greater security of tenure or longer periods of notice prior to being able to seek possession. If you have any problem tenants you may wish to consider whether now is the time to serve a Notice to Quit before the new legislation comes into effect.
Several issues arise:
If you serve a Notice to Quit and start proceedings close to 1 October which are heard after 1 October will the court say you have an assured or assured shorthold and that the correct notice is a S21 Notice or a Notice Seeking Possession? We do not know. We think a court would take the view that you had served the notice correct at the time and give you your possession order but we cannot be certain. If you serve before 1 October but issue after that date the position is even less clear. Our view is that it is best to try to avoid this situation. Review those tenancies and tenants that will be caught by this legislation now and if you will want possession soon make the landlord aware of the problems issue in time to get the proceedings completed before 1 October or leave service of the notice until after 1 October to avoid these problems.
Tenancies granted before 27 February 1997
Before this date, as those of you who have been in the business a long time will recall, to create an assured shorthold tenancy it was necessary to serve a Section 20 Notice. After that date such notices were not required.
As a consequence a tenancy granted at a rent of over £25,000 in the period between 1 April 1990 and 27 February 1997 will become an assured tenancy whereas the same tenancy granted after the 27 February 1997 will become an assured shorthold tenancy. The differences between the two types of tenure, in terms of security of tenure and the ability to evict without good reason, are enormous. The S21 procedure is not available to landlords of assured tenancies. Again you may wish to give consideration to bringing such a tenancy to an end by serving Notice to Quit under the common law and then granting a new tenancy. The new tenancy will then have been granted after 27 February 1997 and therefore on the 1 October 2010 will be converted into an assured shorthold tenancy.
If a tenant refuses to accept the termination of their old tenancy and a grant of a new tenancy landlords have to decide whether they would rather retain a rent paying tenant with the considerable security of an assured tenancy or whether they wish to avoid being stuck with such a secure tenant accepting that they may have an empty property and no rental income until such time as the property can be relet.
Please note that this change only affects England and not Wales.
