Category: Landlords

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.

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 were recently passed.

From 1 April 2018, all rented property which is to have a new tenancy must have an Energy Efficiency Rating of at least “E”.

This requirement also applies to all renewal tenancies to the same tenant for the same property on or after 1 April 2018. The duty is also triggered by any periodic tenancy arising on or after 1 April 2018 after expiry of any fixed term because the duty is not only triggered by a renewal but also “an extension”.

From 1 April 2020, all domestic property (including existing tenancies) must have the minimum Energy Efficiency Rating of at least “E”.

There are a number of proposed exemptions for the minimum standard where:

• the property is unable to be brought up to the standard
• the tenant refuses consent
• the landlord is unable to obtain consent from a third party
• works required to bring the property up to the minimum standard would devalue the property by more than 5% of market value

Penalties

Where a domestic property has been let which does not meet the minimum standard, the tenancy remains valid between the landlord and tenant but a fine will be payable by the landlord of up to £5,000.

The most recent Energy Performance Certificate (EPC) for your property contains recommendation of ways in which the energy efficiency of your property can be improved.

1. Advertising your home 24 hours a day, 7 days a week, even when the agent is closed. Some research suggests you get 50% more enquiries when you have a board.

2. Tenants/buyers tour a wide area, often just driving around looking for boards, even at the end of cul-de-sacs or tracks! People drive round the areas they like, then ring the numbers on the boards they see.

3. Attract those people who say “I always liked that property/road and had no plans to move until I saw the board, I never look in the papers or on the internet because I am not actively looking. If I hadn’t seen the board I wouldn’t have rented/bought the property”.

4. Neighbours and passers by tell people they know who might be interested. Many of your neighbours have friends or relatives who may want to move to the area, the board will alert them and they will tell the person your property is available.

5. Someone may view another property near yours, see your board then view and make an offer on yours.

6. The more people who know your property is on the market the more viewings you will have, more viewings equals more offers, more offers equals a better chance of letting/selling quicker at a higher rent/price.

7. When a let/sale is agreed, agents still get enquiries from the board asking to be notified if there is a hitch with the current let/sale, and agents will keep a list of people on file to call if this happens.

8. An enquiry that comes from a board is a valuable lead as chances are the person has already decided they are happy with the outside/the area/the neighbouring properties.

9. Not wanting the neighbours to know you are on the market is not a reason to have a board. Neighbours soon find out by word of mouth, recognising the estate agent in their logo’d car or the strangers outside your property holding written particulars.

10. Boards are an inclusive part of the service you are paying for so use every tool available to let/sell your property as it’s not costing you any extra.

Boards definitely work in letting or selling a property quicker and getting a better price but it is always up to you as the the owner or landlord whether you want a board or not. If you want the maximum number of enquiries, viewings and offers then make sure you have a board.