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Types of tenancies


If you are a landlord or are looking to be one it is important that you understand the types of tenancy which exist. This is because sometimes the rights and obligations of both the landlord and the tenant, particularly in the procedure for possession, will depend on the type of tenancy involved. [see Ending a tenancy]

>> Assured and assured shorthold tenancies

These types of tenancies are governed by the statutory code set up in the Housing Act 1988, which was amended slightly by the Housing Act 1996.  The vast majority of tenancies today will be assured or, more usually, assured short-hold tenancies.  Both assured and assured short-hold tenant landlords can charge a market rent for the property.

>> The main difference between an assured and an assured shorthold tenancy

Assured short-hold tenancies: Assured short-hold tenancies are now the ‘default’ type of tenancy, so if you are renting out a property and it does not fall into one of the exceptions discussed below, it will automatically be an assured short-hold tenancy, without you having to do anything (although letting a property without a written agreement is most unwise).

An assured short-hold tenancy can be for any term (the rule requiring them to be for a minimum term of 6 months was abolished by the Housing Act 1996), although in fact the vast majority of tenancies are for terms of six months. 

The main benefit of assured short-hold tenancies is that the landlord can recover possession of the property, as of right, so long as any fixed term has expired and the proper form of notice has been served. This notice must be properly drafted and give the tenant notice of not less than two months.
 
These notices are known as section 21 notices as the landlords’ right to recover possession and the notice procedure is set out in section 21 of the Housing Act 1988.

It is possible for tenants to challenge the rent during the first six months of the (initial) tenancy by referring it to the Rent Assessment Committee for review, but in fact they very rarely do this. 

Assured tenancies: these give tenants long-term security of tenure, and tenants are entitled to stay there until either they agree to go, or an order for possession is obtained against them. Possession under the ‘no fault’ section 21 procedure is not available for assured tenancies, and you will only be able to evict if one of the statutory ‘grounds’ for possession, as set out in Schedule 2 of the Housing Act 1988, apply. Before 24 February 1997 assured tenancies were the ‘default’ type of tenancy, and many of the assured tenancies in existence today were created by mistake, through landlords not following the proper procedure required at that time, to create an assured short-hold tenancy. 

>> Choosing an assured or an assured shorthold tenancy

The vast majority of landlords will wish to create an assured short-hold tenancy. If the property is subject to a mortgage, most mortgage companies will also insist that all tenancies are assured short-holds. The only circumstances where you may want to consider letting a property under an assured tenancy are if you are certain that you will not want to recover possession and you wish the tenant to have security of tenure (for example a family member or former employee). However you should be very careful before doing this, as you will be depriving yourself of the right to recover possession, perhaps during your lifetime (bearing in mind that assured tenancies can be passed on to spouses), and ideally should take legal advice first. 

>> Setting up an assured tenancy

In the unlikely event that you will wish to create an assured tenancy, you do this by giving notice to the tenant, saying that the tenancy is an assured rather than an assured short-hold tenancy. There is no prescribed format for this. It is best done as part of the tenancy agreement, but can also be a separate form of notice, served either before or after the tenancy has been entered into. 

>> Tenancies that cannot be assured or assured shorthold tenancies

In some circumstances the statutory codes set up by the Housing Act 1988 will not apply and the tenancy instead will be governed by either another statute or the underlying ‘common law’. These are as follows:

  • A tenancy which began, or which was agreed, before 15 January 1989 (this will normally be governed by the provisions of the Rent Act 1977)
  • An agricultural tenancy: this will normally be governed by the Rent (Agriculture) Act 1976, assuming that the tenant is a qualifying agricultural worker
  • A tenancy for which the rent is more than £25,000 a year
  • A tenancy which is rent free or for which the rent is £250 or less a year (£1,000 or less in Greater London)
  • A letting to a company
  • A tenancy granted to a student by an educational body such as a university or college
  • A holiday let
  • A letting by a resident landlord and the landlord shares facilities like the kitchen and bathroom is a licence/lodger situation commonly known as an excluded licence (because it is excluded from certain parts of the Protection from Eviction Act and Housing Act)
  • A letting by a resident landlord in a converted building (not a purpose built block of flats) where the landlord shares only the staircase and entrance. For example, if there is a building that when originally constructed was one house and since it was built has been converted into three self contained flats. If the landlord lives in one of the flats and lets out the other two and maybe only shares the communal hallway with the other tenants, the two lets cannot be assured shorthold tenancies because this is regarded as a resident landlord let.

In the circumstances set out above the tenancy will be governed by the common law.

Note that the chief significance of a property not being an assured short-hold tenancy is that the procedures for recovery of possession are different. 

>> Tenancies that can be assured, but not assured shorthold tenancies

The following tenancies cannot be assured short-hold tenancies:

  • Where you have an existing tenant who holds an assured tenancy, you cannot convert an existing assured tenancy into an assured short-hold tenancy, for example by giving a new form of tenancy agreement. This applies whether or not the fixed term in their tenancy agreement has expired
  • An assured tenancy which the tenant has succeeded to on the death of the previous regulated (pre1989) tenant under the ‘succession’ rules
  • An assured tenancy following a secure tenancy as a result of the transfer of the tenancy from a public sector landlord to a private landlord
  • An assured tenancy arising automatically when a long leasehold tenancy expires.

>> Fixed term tenancy

An assured or assured short-hold tenancy may be a fixed term tenancy, which lasts for a fixed number of weeks, months or years. The length of the fixed term will be set out in the tenancy agreement. Most tenancies have a fixed term of either three months, six months or a year, but the fixed term can be of any length. The requirement for a minimum fixed term of six months was removed by the Housing Act 1996 which is why a fixed term is now either not required or can be of any length. After a fixed term has expired you can either allow it to run on [see Statutory Periodic Tenancy below] or give a new fixed term agreement.

>> Statutory periodic tenancy

When a fixed term assured or assured shorthold tenancy ends, a statutory periodic tenancy arises automatically if the tenant remains in occupation beyond the fixed term. The statutory periodic tenancy runs in ‘periods’. The periods of the tenancy will be the same as the rental periods. It is important that a landlord understands the periods of the tenancy because when giving two months notice to a tenant after the fixed term, the notice must end on the “last day of a period of the tenancy”.

The first step in establishing the period of a statutory periodic tenancy is to look at when the last rent was payable during the fixed term. If it was weekly, then the periods are weekly, if monthly, the periods are monthly and so on.

The next step is to look at the dates that the rent is payable. If the rent is payable on the 15th of every calendar month, then the periods of the statutory periodic tenancy will be from the 15th to the 14th of every month. If the rent is weekly and payable on a Monday, then the periods of the statutory periodic tenancy will run from a Monday to a Sunday.

For example, if a tenancy has a fixed term from 14th January to 13th April and the rent is payable on the 1st day of every month, then the periods of the statutory periodic tenancy will run from 1st of the month to the last day of the month.

If the first day after the expiry of a fixed term is not a rent day, legal advice should be obtained before serving two months notice.

It is perfectly acceptable for tenancies to run on this way and many tenancies have operated for years as statutory periodic tenancies. It is not the case either that tenants become ‘squatters’ if they stay on, or that they will acquire additional rights if they stay as a periodic tenant for a long time.

Note: In rare cases, a tenancy agreement may contain a clause that determines what happens to the tenancy when the fixed term ends and creates a contractual periodic tenancy. If this is the case, then a statutory periodic tenancy does not arise because the tenancy has not ‘ended’ and the periods of the tenancy will be those defined in the clause.

>> Contractual periodic tenancy

An assured or assured shorthold tenancy that has no fixed term and just runs on the rental periods will be a contractual periodic tenancy. This type is of tenancy is perfectly acceptable but not very common. The periods of a contractual periodic tenancy will be the same as the rental periods, so if the rent is payable monthly, the periods of the tenancy will be monthly and so on.

>> Initial period of an assured shorthold tenancy

The assured short-hold tenancy does not require an initial fixed term although one may be agreed. This may be a fixed term of less than six months if the tenant agrees or the tenancy can be set up as a periodic tenancy from the outset.

However, notwithstanding what is agreed, effectively assured short-hold tenants have a right to stay in the premises for a minimum period of 6 months, as under the section 21 possession procedure, a Judge cannot grant an order for possession to take effect during the first six months. This means that even if a fixed term of less than six months or a periodic tenancy is agreed from the outset, there is not  a guaranteed right to possession until the initial six months has expired (although if the initial term was less than six months there is no reason why proceedings for possession cannot be commenced during this period).

Possession can also be sought during this initial period, or during a fixed term under some of the statutory grounds for possession in schedule 2 of the Housing Act 1988. The most important of these is for non-payment of rent, but for more information on this see the separate section on possession claims [see section 6.2 on possession].

During this initial six months period, assured short-hold tenants can also apply to have their rent reviewed by the Rent Assessment Committee, although very few actually do this. 

These rules do not apply to common law tenants. A common law tenancy can be forfeited (for example for non payment of rent) during the fixed term, and a landlord is entitled to recover possession as of right after the fixed term has expired.  However, very few tenancies are common law tenancies and they cannot be created, save in the special circumstances set out in above in Tenancies that cannot be assured or assured shorthold tenancies.

>> Regulated tenancies

Most lettings by private landlords which began before 15 January 1989 are regulated tenancies under the Rent Acts unless the landlord and tenant live in the same house. Regulated tenants have greater security of tenure and are subject to rent control.

Practically, it is virtually impossible to evict a regulated tenant unless they are in serious arrears of rent or you are able to provide suitable alternative accommodation. 

More information can be found in the leaflet ‘Regulated Tenancies’ available from the CLG website at:

www.communities.gov.uk

>> Licences

A licence is where someone is allowed to occupy property but does not have a tenancy. The ‘licence’ or permission of the owner prevents them from being a trespasser. Most of the protective legislation for occupiers does not apply to licences.

The three main tests for a tenancy are:

  • Exclusive possession
  • A fixed or periodic term and
  • The payment of rent

If these three factors are present, there will be a tenancy, unless there is some special circumstance reducing it to a licence. Landlords and Tenants cannot ‘contract out’ of the Rent Acts or other legislation, for example by getting a tenant to sign an agreement headed ‘licence agreement’.

A person who has exclusive possession of residential premises for a definite period is a tenant unless there are exceptional circumstances. This would include when the occupier’s possession is due to a relationship other than that of landlord and tenant, for example an employee who is required to live in employer’s premises as part of their employment.

Other circumstances where a tenancy will not occur is ‘serviced’ accommodation where the landlord needs to have frequent access for cleaning and meals are provided, such as in a hotel, and where the occupier shares living accommodation with the landlord (here the occupier is normally referred to as a lodger).

Subletting and assigning tenancies

If you have taken the effort to reference your tenant and check that they will be suitable, you will not normally want them to then assign (i.e. transfer the tenancy) or sublet it to someone else who may not have gone through your referencing procedure. In the past, tenancy agreements as a matter of course always used to prohibit any subletting or assignment. However, tenancy agreements are now subject to the rules in the Unfair Terms in Consumer Contracts Regulations 1999 which is administered by the Office of Fair Trading (OFT). In their guidance on this, the OFT stated that absolute prohibitions on assignment and subletting will be considered unfair and void under the regulations.

To enable you to retain some measure of control therefore, you should either ensure that your tenancy agreement provides for assignment and subletting only with your consent (and this will have to include the words ‘consent not to be refused unreasonably’ or similar), or provide some way for the tenant to end the tenancy early (for example if they get transferred by their job to another part of the country), by allowing them to end the tenancy if they are able to provide a suitable replacement tenant. 

Even if your tenancy agreement does not provide for it, it is suggested that you should always agree to re-let the property to a suitable new tenant, allowing the existing tenant to end their agreement early should they wish; provided of course that a suitable replacement tenant can be found to take their place. 

If the tenancy is a contractual periodic tenancy, or a statutory periodic tenancy that has arisen at the end of a fixed term, the tenant cannot by law give the tenancy or sublet to someone else unless the landlord agrees that he or she can.

If the tenant has paid a premium for the property (a sum which is additional to rent or a sum paid as a deposit which is greater than two months rent), the tenant is able to sublet unless there is a term in the tenancy agreement preventing this.

>> Joint tenancies

Joint tenancies can be agreed with two or more people from the outset of the tenancy. Each is then responsible jointly and severally (individually) for meeting the terms of the tenancy in full, including paying the rent. This is known as ‘joint and several liability’.

For example, if a property is let jointly to four tenants A, B, C and D for a monthly rent of £400 (with each agreeing to pay £100), and C decides to leave, they will all still remain liable under the contract for all the rent. So C is still liable for rent even though she may not be living there, and A, B and D will each be liable to you, the landlord, for all the rent, including the £100 share from C. This situation will continue until either vacant possession is given back to the landlord or a new tenancy is signed, for example with A, B, D and perhaps E.

If one of the joint tenants wishes to vacate, it is best to regularise the situation as soon as possible by signing a new tenancy agreement with the remaining and new tenant (s), so long as any replacement tenants can be referenced satisfactorily. Do not let the situation drift and allow tenants to come and go at will without signing a tenancy agreement with you, otherwise when you need to recover possession of the property you will encounter difficulties.

Technically a tenancy can only be in the names of four tenants, as in land law only four people can hold a legal interest in land. However if there are more then four tenants who wish to share, the additional tenants will still be liable for the rent and everything else under the contract, and their co-tenants will be deemed to be holding the tenancy on trust for themselves and the others. Practically therefore this is not a problem.

>> Succession rights and rights of survivorship

If a tenant dies and the tenancy is a joint tenancy, the remaining joint tenant or tenants have an automatic right to stay on in the property (Right of Survivorship).
        
If the tenant was a sole tenant, the right to succession will depend on whether the tenant had a fixed term tenancy or a periodic tenancy. If a fixed term tenancy and the fixed term has not expired, the executors will arrange for it to be passed onto whoever is left the tenancy in the will, or whoever inherits under the intestacy rules if there is no will.

If it was a contractual periodic tenancy or a statutory periodic tenancy, the tenant’s husband or wife or a person who lived with the tenant as husband or wife, has an automatic right to succeed to a periodic tenancy unless the tenant who died had already succeeded to the tenancy. Only one succession is allowed. No one else in the family has an automatic right to succession (s17 Housing Act 1988).

If the tenancy was a contractual periodic tenancy or if it was or becomes a statutory periodic tenancy and there is someone living in the property who does not have a right to succeed to the tenancy, the landlord has a right to possession under Ground 7, provided that they start possession proceedings within a year of the death of the original tenant.

If the tenancy is a short-hold tenancy, the landlord has an automatic right to repossess the property at the end of any fixed term, even if the tenant had a right to succession, provided that the landlord gave the proper form of 2 months’ notice under section 21, that the landlord required possession.

>> Unlawful discrimination

There are legal obligations on Landlords both in the public and private sector as service providers and employers, to take reasonable steps to ensure that people are not discriminated against directly or indirectly due to their race, colour, gender or disability. The specific legislation is as follows:

Direct discrimination is defined as treating a person less favourably than another on the grounds of their race, gender or disability.

Indirect discrimination consists of applying a requirement or condition that, although applied equally to persons whether male or female, Black or White, is such that a considerably smaller proportion of a particular racial or gender group can comply with it than others, and it cannot be shown to be ‘justifiable’.

With regard to issues pertaining to disability, a similar requirement exists that Landlords do not impose criteria that could be identified as ‘unreasonable’.

The Commission for Racial Equality (CRE) has published a revised code of practice on racial equality in housing. The code is important because it is a statutory code, which has been approved by Parliament. This means that the Courts will take into account the code’s recommendations in legal cases. The code is in two main parts. The first explains what landlords need to know about discrimination; the second makes recommendations about how they can avoid it.

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