Most tenancies granted in the private rented sector are ‘assured shorthold tenancies’ and this had led to the “AST” becoming the default tenancy agreement for many letting agents and landlords.
In residential landlord and tenant law, it is often the reality of what was agreed between landlord and tenant that is more important than what the paperwork says. This means, if a landlord grants exclusive possession of a property for an identifiable period of time in exchange for rent, there will be a tenancy.
Where some go wrong is in assuming that any tenancy of residential premises will be an AST. An AST can only arise where all the conditions and none of the exceptions set out in the Housing Act 1988 are met.
Can it be an assured shorthold tenancy?
An assured shorthold tenancy can only arise if the conditions at section 1 Housing Act 1988 are met. First of all, there must be a tenancy, as opposed to a licence. However, setting up a licence rather than a tenancy is difficult and simply writing down that things are licences will not mean that they are.
Secondly, the property being let must be a dwelling-house and let as a separate dwelling. Dwelling-house can be a house, a flat or a bedroom.
The tenant must be a person, or if are joint tenants, at least one of them must be a person. The tenant or at least one of the joint tenants must occupy the dwelling house as their only or principal home.
This means a company let will not be an AST, nor will a rent-to-rent arrangement where the tenant is sub-letting and so is not actually going to live in the property.
Do any exceptions apply?
Schedule 1 to the Housing Act 1988 specifies situations where an AST cannot arise. The most important exceptions for private landlords are:
- Tenancies at very high or very low rent (in London, this means an annual rent below £1,000 or above £100,000);
- The property is licenced for the supply of alcohol;
- The tenancy is a holiday let;
- The Landlord lives at the property.
Common Law Tenancy
If a tenancy of residential premises is not an AST, then the common law rules for tenancies will apply. However, the Protection from Eviction Act 1977, the Landlord and Tenant Act 1985 and sometimes the Consumer Rights Act 2015 will still apply. This means landlords still face restrictions on what they put into a tenancy agreement and how they can end tenancies.
Where the tenant of residential premises is a company the tenancy will be a common law tenancy; there is no distinct category of ‘company lets’ in law, but this is a useful term to describe a set up where the tenant is the company, and the company allows employees to live in the property.
It important for landlords to understand what type of tenancy they are granting and to make sure they use suitable paperwork.
If a tenancy is not an AST there is no obligation to protect the deposit in a government approved scheme, and there are different routes to recover possession. Failing to understand the legal position properly will mean that time and money are wasted when seeking possession.
As common law tenancies are primarily contractual, the wording of the tenancy agreement is particularly important. The landlord is likely to have substantial powers when the tenant is in rent arrears depending on the wording of the contract or those powers can be quite limited. In general, a landlord will be more restricted for other breaches.
It is particularly important for landlords with lodgers to ensure that they use a suitable lodger agreement. These can easily be obtained online. Using the wrong agreement could make it much more complicated to remove a difficult lodger than it ought to be.
For company lets, there are some different considerations. A bespoke company let may make provision for what happens if an employee is dismissed or the company is dissolved. A standard AST will not address these matters.
For all of these reasons and many more, it’s important for landlords to make sure that they are using agreements that are suitable for their needs, and it is not possible to do this without understanding when a tenancy falls outside of the Housing Act 1988 and is therefore not an assured shorthold tenancy.