Proposals for a minimum term for residential tenancies

The government is seeking views on a proposal that new tenancies in the private residential sector should be for a minimum of three years.

The government issued a consultation document at the beginning of July, seeking views on a proposal that new tenancies in the private residential sector should be for a minimum of three years. The consultation applies to England only. The consultation period is only eight weeks. The last date for responding is 26 August 2018.

Current law

Currently, the minimum length of an assured shorthold tenancy (AST) is six months, and most residential tenancies seem to be granted for either six months or a year - although there is nothing to stop the parties agreeing a longer term. Once the contractual term comes to an end, the tenancy runs on from month to month (or from week to week, if rent is paid weekly) as a periodic tenancy and the landlord can bring it to an end by giving as little as two months' notice, by serving a section 21 notice. The landlord does not need to show any fault on the part of the tenant in order to end the continuing tenancy.

The government believes that it would be beneficial for tenants to have longer tenancies, on the basis that it would give them greater security and assurance that they will be able to remain in their home. Under the current rules, tenants can be asked to leave at short notice, or be forced to leave if the rent increases more than expected. Such tenants bear the financial costs of moving more frequently and the government believes that there is also an impact on health and wellbeing caused by living in uncertainty. This particularly impacts households with children who are forced to move school and lower income households that are just about managing to afford their rental costs.

The government states that there are advantages to landlords as well as tenants, in terms of greater certainty of rental income, fewer voids and saving of the costs of finding new tenants, and paying renewal fees to agencies. Tenants with longer tenancies would also be more likely to take proactive steps to look after the property and contribute to the local community.

Barriers

The government is therefore asking in this consultation document what the barriers are to the granting of longer tenancies. It mentions the following possibilities:

• Not all tenants want a longer tenancy. It is true that some tenants - students or those on short term work contracts perhaps - might not want a tenancy of more than a year. However, there is a possibility that tenants are simply unaware of the possibility that a tenancy could be granted for a longer period, or that it could contain a break clause to ensure they could bring it to an end early if necessary;
• Landlords might want the flexibility to recover their property quickly to sell it, live in it or for some other reason;
• Mortgage conditions prevent landlords from granting longer tenancies;
• Longer tenancies would need to contain rent reviews, which tenants might be concerned about;
• Letting agencies have an incentive to advise landlords to grant shorter tenancies;
• 12 months is the norm and parties are uneasy about moving away from it

The response form that accompanies the consultation paper asks for views from both landlord and tenants on the extent to which these issues might constitute barriers to longer tenancies, and also asks whether there are other barriers.

Proposals for a new framework

The consultation document sets out the government's proposed new framework for residential tenancy agreements, along the following lines:

• The minimum period for a new tenancy of residential property should be three years;
• Either party could terminate the tenancy after six months. The consultation paper states "if dissatisfied", but it is not clear whether it would be necessary for the terminating party to demonstrate that it has a good reason for its dissatisfaction;
• After six months, the tenant could terminate the tenancy by giving two months' notice without the need for any reason and the landlord could terminate the tenancy by giving two months' notice on any of the current grounds in the Housing Act 1988. These include misbehaviour on the part of the tenant, or the landlord needing to sell the property or move in to it him/herself;
• The tenancy could allow a rent review no more than once a year. The parties could be free to agree the basis of the rent review, or the framework could require a rent review on a specific basis, or incorporate a cap on the increase;
• There would be exemptions allowing shorter lets in certain circumstances, such as student accommodation, holiday lets, tenancies granted to people with a limited right to remain in the UK and perhaps other circumstances. It is important that the exemptions are sufficiently flexible that they do not lead to a reduction in the number of properties available to rent.

Views are sought on these proposals in a considerable amount of detail. For example, in relation to what type of rent review would be desirable, the consultation response contains seven possible choices of answer as well as an open text box to suggest further alternatives.

The government is also asking for views as to whether the new framework should be set in legislation or should merely be encouraged. Alternatively there could be a tax incentive for landlords to grant longer tenancies, although this could be difficult to implement given that tax is partially devolved within the UK whereas housing is fully devolved. As mentioned above, these proposals apply to properties in England only. In Wales, legislation governing residential tenancies is the responsibility of the Welsh Assembly Government.

Consultation document: "Overcoming the Barriers to Longer Tenancies in the Private Rented Sector"