Landlords-Long Term Lease Law

Today, we have another guest blogger – Tessa Shepperson. Here Tessa explains the legal ramifications of using long terms for ASTs for tenants.

The Basics

The starting point is that there is no legal reason why a landlord should not give any term they wish.

Conventionally fixed terms tend to be either for six months or a year, but there is no reason why you should not have a term of two months or ten, if you want (or even ten months two weeks and two days!).

For more information on short lets, see my ‘Urban Myths’ blog post ‘A short let cannot be an AST’ here.

Long terms

So far as long terms are concerned, the main problem with them is the obvious one, that they tie the parties into the tenancy for a long time. Circumstances change, and either party may find that they need to end the tenancy earlier than anticipated. For example the tenant may be moved to another city for his job, or the landlord may need to realise his investment, perhaps to pay for a private medical operation or some other personal reason. If you are tied into a long fixed term you will only be able to end the agreement early with the consent of the other party.

Evicting Unsatisfactory Tenants

There is also the problem of the tenant being unsatisfactory. By far the best method of evicting AST tenants is under the section 21 procedure. It is relatively straightforward and no reason need be given to the tenant (who will therefore not be aggrieved by what he may consider to be unjust accusations), and if the paperwork is correct, there is no defense. However this procedure can only be used after the fixed term has come to an end.

Although there are ‘discretionary grounds’ for possession in Schedule 2 of the Housing Act 1988 which relate to bad behaviour, I do not recommend that they be used, save in cases of dire emergency. Discretionary grounds open a window of opportunity to tenants to put in a defense, so as to persuade the Judge to exercise his discretion and not make the order. And, particularly if the tenant gets legal aid, landlords can become locked into a long complex and expensive case, where if they lose, they could be ordered to pay their tenants legal costs.

This is why I always recommend that new tenants not given a fixed term of more than six months. If they complain saying that they want to stay in the property for a long time, you can always say that if they prove satisfactory this will be considered later. But, for example, if they persistently pay late, or annoy neighbors by having noisy parties, you will not be able to evict them easily if you have a long fixed term.

It is mainly for this reason (i.e. the difficulty of early eviction for problem tenants in long terms) that lenders will generally want you to give fixed terms of six months.

Break Clauses

If you want to have a longer term, you can always put a break clause in the tenancy agreement, although this needs to be properly drafted or it could be invalid. However at least with new tenants, I think a six month term is best, plus it also gives you a useful opportunity to review the rent.

Very Long (over 1 year) Terms

This post has really been considering fixed terms of up to about two years. Although longer terms are of course possible, most landlords will not want to effectively lose control of their property for such a long time, and it is unlikely that lenders would permit them.

So far as the law is concerned, the statutory repairing covenants in s11 of the Landlord & Tenant Act 1985 will not apply to tenancies with a term of over 7 years, and I understand that leases with a term of 21 years or more need to be registered at the Land Registry, and are subject to other legislation, for example as regards service charges etc.

In their reports on housing law reform the Law Commission did consider scenarios where landlords could let out properties on longer terms (i.e. between 1 and 21 years) perhaps with a premium as is the case with long (e.g. 99) year leases. However the rules relating to premiums (s115 of the Housing Act 1988) do not at present permit this.

Our Comments

Some great advice here from Tessa. The life of a landlord is hard enough what with the raft of legislation we have to contend with as a norm. Don’t make it harder on yourself by giving tenants long term contracts. Make sure you think of yourself first and how your business will survive into the future. It’s likely that BTL mortgages will become regulated at some point too. Stay ahead of the game and keep up to date with the changes, and know the rules of what you can and can’t do.

The author of this guest blog was Tessa Shepperson- a solicitor and editor of the popular online landlord service http://www.landlordlaw.co.uk

note: this blog also appeared on Property Tribes forum.

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