- From 1 October 2010, the threshold for an assured tenancy (including an AST) will rise to £100,000 per year in England
- The change affects tenancies entered into before, as well as after, 1 October
At the moment, a tenancy cannot be an assured tenancy if the rent is more than £25,000 per year. Instead the tenancy will simply be a common law tenancy.
On 1 October, the threshold for an assured tenancy will rise to £100,000 per year in England. When the original threshold was set 20 years ago it was intended to exclude tenants of luxury properties from the protection given by assured tenancies. At that time, only a very small number of tenancies were excluded by the threshold. As time has passed, many properties that could not be described as "luxury lets", including some large student houses, fall over the threshold and so are not currently assured tenancies.
An assured shorthold tenancy (AST) is the most common form of assured tenancy. Most assured tenancies which are granted now will automatically be ASTs, and so this article focuses on the impact of the new threshold on landlords of ASTs.
The change does not just affect leases entered into on or after 1 October. A lack of transitional provisions means that, on 1 October, existing tenancies which would have been ASTs but for the fact that their rent exceeded £25,000 p.a. will suddenly become ASTs, provided their rent is less than £100,000 p.a.
There are a number of implications for landlords - both negative and positive.
Protection of tenancy deposits
A landlord who takes a deposit under an AST must protect that deposit in one of three approved tenancy deposit schemes. Landlords under leases which are affected by the change in the rent threshold must ensure that they protect deposits, otherwise they will be liable to a fine and may not be able to recover possession of the property.
If a deposit has been taken before 1 October in connection with an existing tenancy which falls over the current rent threshold, it would not have been taken in relation to an AST, and therefore it does not have to be protected. However, if the current tenancy is renewed after 1 October, and the deposit retained, it must be protected at that point.
The requirement to protect a deposit applies to a landlord who "receives" that deposit. It therefore applies to a buyer who acquires the reversion to an AST along with a transfer of the deposit from the seller.
Recovering possession and notices to quit
The government guidance states that a notice to quit served under a common law tenancy before 1 October, but which expires after 1 October at a point when the tenancy has become an AST, will not be valid. The landlord will need to serve a "section 21" notice (a particular form of notice which applies to ASTs), in the prescribed form, after 1 October.
Under an AST, a landlord must serve a minimum of two months' notice to recover possession at the end of a fixed term or under a landlord's right to break, regardless of what the contractual provisions in the lease say.
In addition, in the absence of default by the tenant, a landlord cannot recover possession under an AST until six months have expired (even if the initial term is shorter than six months).
Landlords will have to follow the procedure in the Housing Act 1988 when proposing rent increases under periodic assured tenancies.
Common law tenancies entered into before 28 February 1997
Such tenancies will be rare, but will be particularly affected by the change as they will be converted into assured tenancies, not ASTs. Landlords will not be able to recover possession without showing one of the grounds set out in the Housing Act.
The changes are not all bad news for landlords. Two of the implications are positive:
Tenants' right of pre-emption under Landlord and Tenant Act 1987
Under the Landlord and Tenant Act 1987, if a landlord wishes to dispose of its interest in a property which includes residential flats it may first have to offer it to the "qualifying tenants". Tenants under assured tenancies are not qualifying tenants for the purpose of the 1987 Act and so do not have to be served with a notice of pre-emption if the landlord wishes to dispose of its interest. The increase in the rent threshold may reduce the number of tenants who hold pre-emption rights - a bonus for landlords.
Accelerated possession procedure
This is a procedure which is only available for ASTs. It is a faster and more cost-effective process than ordinary possession proceedings. This procedure will now become available in relation to a greater number of tenancies.