Why a 6-month fixed term is commonly used for assured shorthold tenancies

6-month fixed term tenancies are extremely common but have you ever wondered why 6 months?


Historical


When the Housing Act 1988 first came into force, it implemented a minimum term of six months for ASTs. However, the Housing Act 1996 abolished this rule for all new tenancies commencing on or after 27 February 1997 by inserting a new section 19A into the Housing Act 1988. Section 19A even meant that landlords did not need to provide tenants with an initial fixed term tenancy but could in fact grant a periodic tenancy from the outset.


A hangover from pre Housing Act 1996 is that many practitioners believe 6 months is the minimum and grant ASTs accordingly; it has become almost an urban myth that ASTs must be for this minimum period – not true.


Council Tax Material Interest


Section 6 of the Local Government Finance Act 1992 provides a hierarchy for who is liable to pay council tax. To be liable for council tax a person must have a material interest. Where the tenant has a leasehold interest which was granted for a term of six months or more they have a material interest. It follows that if a person has a tenancy for less than 6 months then they do not have a material interest and are therefore not liable to pay the council tax.


Beware of allowing the fixed term of a tenancy rolling over to become a statutory periodic tenancy as in the High Court, MacAttram v. London Borough of Camden [2012] EWHC 1033 it was held that the periodic tenancy that followed on after the fixed term was NOT a “continuation” but was in fact a new tenancy. As the new tenancy was monthly periodic it was not for 6 months or more and therefore the tenant did not have a material interest.


Limitation on Serving Section 21 Notice Requiring Possession


Under section 36 of the Deregulation Act 2015 for any tenancy granted on or after 1 October 2015, no section 21 notice can be served within the first four months of the tenancy. Together with the requirement that the notice period must be a minimum 2 months, this effectively means that court proceedings for possession may not begin in the first 6 months of the tenancy.


Courts Powers to Grant Possession


Once a section 21 has been served on a tenant then assuming it is valid, a court can only grant a possession order if the tenant has been in occupation for 6 months at the time of the court hearing. If 6 months have not expired then the court simply has no power to grant a possession order even if there is a break clause permitting termination at, for example, 3 months or if the tenancy period is itself for only 3 months. It is important to stress that the courts power is only restricted in this way in respect of Section 21 notices and not Section 8 notices. So, if for example, rent is unpaid you should serve a Section 8 notice in the usual way and issue proceedings on its expiry no matter what stage the tenancy is at.


Letting Agent Fees


Letting agents love 6-month fixed term ASTs. Why? At each renewal, most letting agents charge tenants, landlords or in many cases both tenants and landlords, a renewal fee. This is a significant (and controversial) revenue stream for agents and some larger agents have departments dedicated solely to renewals – granting renewal tenancies and collecting renewal fees.


Summary


You do not need to grant a tenancy for a minimum 6 months but beware of the limitations for Section 21 possession and the council tax material interest rules.


To avoid the council tax material interest pitfall, grant a tenancy with a fixed term of 6 months or more. Ensure the tenancy agreement creates a ‘contractual periodic tenancy’ rather than a ‘statutory periodic tenancy’ when the fixed term ends. For landlords (and tenants) who use a letting agent if you want to avoid renewal fees, insist that tenancy agreement creates a contractual periodic tenancy when the fixed term ends. I.e. the tenancy continues rather than creating a new tenancy.

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