I need to make something crystal clear here. I am discussing assured shorthold tenancies only in this guide. I suggest that no landlord should seriously consider using anything else and should tailor their investments accordingly.

However, some tenancies cannot be run as assured shortholds. Landlords considering running any of the exceptions listed below must seek alternative advice.

Exceptions

• Tenancies which were agreed or began before 15 January 1989.
• Any tenancy where the rent exceeds £25,000 per annum (approximately £500 per week). Assured shortholds remain the only tenancies where landlords are protected by guaranteed ‘no fault’ repossession. To be valid, assured shortholds must comply with all the legal criteria. Many landlords whose rent exceeds £480 per week (irrespective of what the lease calls itself) fall outside the benefits of this legislation and should seek advice about other methods of gaining repossession.
• Any tenancy where the rent is £250 per year or less (Greater London £1,000 per year).
• A business tenancy or one where a licence to consume alcohol is bought/sold.
• A tenancy let with more than two acres of land.
• The tenancy of an agricultural holding.
• A tenancy granted to a student by an educational body (ie a university).
• A holiday let.
• Letting by a resident landlord.
• There are some other very limited exceptions where tenancies were previously assured tenancies, where pre-1989 tenancies have been succeeded on the death of a tenant, where secure tenancies from local authorities change hands or on the expiry of long leaseholds.

Background on assured shorthold tenancies

When these shorthold leases were created back in 1988, they offered some revolutionary advantages for landlords, explained elsewhere. However, tenants were also given a modicum of security of tenure, where, during the initial fixed term it is more difficult to obtain possession unless the tenant is misbehaving. This short period of protection is called the initial fixed term.

What’s an initial fixed term?

Initially, the shortest time landlords could offer an assured shorthold lease was six months. After this six months has expired, any landlord can apply to the court (see Lesson 11: Ending tenancies) which has no option but to grant possession to the landlord/agent. No legal reason is required – that’s the whole nub of shortholds – landlords can choose to terminate them at any time after the initial fixed term has expired by giving two months’ written notice beforehand.

And if that doesn’t seem like much of a deal – here’s another anecdote to give you a flavour of the good old days.

Now that’s why experienced landlords still celebrate shortholds. So, if six months and a few weeks hassle to get a Possession Order seems harsh – remember Mr Jenson.

How long does the initial fixed term have to be?

The original minimum set out by the 1988 Housing Act was six months.

However, in 1997, the government tweaked the legislation a bit and it became possible for tenancies of less than six months to be offered as assured shortholds. However, what the government never changed was the tenant’s six-month period of security of tenure. Ooops.

We have therefore a conundrum. Legitimate leases can be signed for, say, three months … however … the landlord’s guarantee of Possession still does not start until at least six months has expired. Now, to me at least, the prospect of signing a legally binding lease of three months where I cannot get a guaranteed possession for six, throws many of the advantages of the original legislation into the trash.

Experienced landlords always offer a six-month initial fixed
term to a complete stranger

It is my strong advice therefore that all landlords offer assured shorthold leases with an initial fixed term of six months only. That way, your tenant is obliged to keep all the terms of the lease (especially including payment of rent) for as long as they enjoy security of tenure. You are tied to one another which is fair and simple. Go for the straightforward option every time. Don’t ever throw an unnecessary spanner into the works or let agents persuade you to do so.

Why longer initial fixed terms can be problematic

Don’t offer (or allow agents to offer) one-year leases willy-nilly. One-year leases give an initial fixed term of one whole year and your new tenant (a stranger until yesterday) enjoys security of tenure for a year, rather than six months.

Two broad types of leases (for independent landlords)

Off the peg leases

These leases are supplied by a variety of organisations and cost between £2 and £5 each depending on the number you order. My personal choice supplier of everything for landlord and tenant remains Oyez (their phone number is given at the end of lesson), which supplies nationwide and whose leases have to be legally up to date. In addition, Oyez leases are the product of a year’s negotiation with the Office of Fair Trading and are fair under UK contract law. Off the peg leases like these are four pages long and cover pretty much everything it is reasonable for a landlord or tenant to demand of one another and remain within the Housing Act. (Other suppliers you might like to check out are the Small Landlords Associations, Residential Landlords Association and many other stationers and online lease suppliers who all charge a few pounds each.)

Tailor-made leases

These leases can be obtained from local solicitors everywhere. They can work well but need regular review because the law can change. This can be a costly business for landlords. Solicitor’s charges will usually be around £100 and you’ll have an annual bill to make sure your lease remains up to date. Tailor-made leases can also be unduly long. I’ve seen leases for a six-month let that run to 30 pages of close type – which daunts tenants.

How difficult are leases to fill in?

They aren’t. Overleaf are the questions on a typical off-the-peg lease. What is essential to remember is that you will need two leases for each tenancy – one for your tenant to keep, one for you to keep – both identically completed.

For the purpose of this exercise, I’m looking broadly at the terms contained in an off-the-peg lease, see example on page 66.

One important exception

By now, having read this much of the guide you’ll be beginning to understand the ramifications of the new Houses in Multiple Occupation (HMO) legislation. If you’re at all confused, you should read the whole of Lesson 13 before continuing because here’s another emerging major issue for all landlords. At present all decent leases contain a subletting clause, precluding tenants from inviting in other people to help pay the rent. There’s often another clause that states that reasonable requests to allow this should be agreed by the landlord. Under the new HMO regulations which came into force in April 2006, any unit with more than two individual tenants (or singletons who don’t constitute a family unit) may well be classified as an HMO. This means a very substantial risk of reclassification (along with all the subsequent potential safety cost implications) may arise if your couple (or two girls) decide to rent out the spare room and turn a perfectly safe two-bedroom flat let to two individuals into an HMO.

Therefore, having recently taken legal advice myself, I have decided to insert new clauses into one of the blank spaces always provided

Tenancy agreement for letting a (furnished/unfurnished) dwelling house on an assured shorthold tenancy under Part 1 of the Housing Act 1988

(shown below for guidance only – do not replicate without specific legal advice). All landlords should take fairly urgent legal advice on this matter and make sure they keep abreast of this situation. Of course, the courts may decide that withholding this subletting consent is not fair and may, in time, invalidate my clauses. Until then, I intend to insert in the blank space between Parts 4 and 5 of the off-the-peg variety of leases, the following:

• 10 (c) ‘It is agreed that it shall be reasonable for the landlord to withhold its consent to any subletting or parting with possession by the tenant or tenants if the subletting or parting with possession (whether in conjunction with any other subletting or parting with possession that the landlord be requested to determine the reasonableness of) results in the creation of a ‘‘House in Multiple Occupation’’ within the meaning of the 2004 Housing Act.’
• 10(d) ‘The tenant shall indemnify the landlord for all costs claims demands liabilities and expenses which the landlord may suffer or incur arising from a breach by the tenant of its obligations under this Agreement.’

And having read that, you may now begin to see why so many of us prefer the broad sweeping clauses in, say, an Oyez lease.

Confusion relating to fixed terms

During the initial fixed term the tenant is obliged to pay rent. They cannot just move on and abandon their rent liabilities.

Shortly before the end of the six-month fixed term the tenant is free to give one month’s written notice. A little earlier (remember the landlords needs to write two months in advance) the landlord is free to give written notice. But neither have to do any such thing. If both parties are happy, these original leases can simply run on with no more paperwork. Simply by the offering and the receiving of rent, your original lease changes into a nifty thing called a statutory periodic tenancy without lifting a finger.

What is a statutory periodic tenancy?

Statutory periodic tenancies are brilliant things that can run for years – all on the original documents – and way beyond any fixed-term periods of tenant security. Their advantage is that they can be concluded fast – by either party. And it’s always in the landlord’s interest to be closest to the point when they can go for possession. There’s absolutely no need to offer up a whole new lease and a new fixed term the minute the old one runs out. Find out all about them in the Office of the Deputy Prime Minister’s booklet. Call 0870 1226 236 and ask for one, the product code is 97 HC 228B (they’re free). Show one to your agent if they always offer lease renewals and charge you and your tenant for the privilege.

When is a lease an assured shorthold lease and how easy is it to set up?

From 1997 onwards, every lease unless it falls into an exceptions category (including unwritten ones) is an assured shorthold – unless tenants can provide written evidence in addition to the lease (which they can’t unless you send them a letter specifically saying this won’t be a shorthold, which is pretty hard to do accidentally – so it won’t happen).

Here’s a short question and answer session that should help answer most issues.

Questions and answers about leases and licences

• QWhat’s a shorthold assured lease?
• AIt’s a contract drawn up between landlord and tenant setting out the broad framework of the agreement between them.
• QAre leases difficult to understand?
• ANot at all – unless you or your solicitor or agent goes out of their way to make them totally impenetrable. The legal requirements of the 1988 Housing Act are extremely simple.
• QWhat do off-the-peg leases cover?
• AThe broad issues that need to be mutually agreed between landlord and tenant shown earlier.
• QIs it wise to let someone into a unit without a written lease?
• AAbsolutely not. In the first instance, you won’t be able to apply for accelerated possession without a written contract (see Lesson 11: Ending tenancies). Protect yourself with a lease with clear terms to avoid misunderstandings.
• QWhere can I obtain leases?
• AYou have two options.
• QDo either kinds have specific advantages or disadvantages?
• AThe broad sweeping clauses of off-the-peg leases are designed by legal experts who know exactly what they’re doing. Of course, you can specify much more detail in a tailor-made lease – but it’s over-egging the pudding. In most cases, high specification units need very comprehensive inventories and schedules – but the lease terms are set out by the Housing Acts – and they’re already in an off-the-peg lease.
  Ill-conceived clauses are more trouble than they’re worth. A common one early on that caused problems was that tenants had to clean curtains and carpets before vacation. Have you any idea how dry clean only curtains come out of a hot wash cycle? Off-the-peg leases soon dropped unnecessary clauses.
• QBut my agent tells me that I need a specific lease and this will cost a great deal of money to draw up by his firm and have signed.
• AAgents say this all the time. I suggest that landlords hearing this should read the handy free booklet I told you about earlier and draw their own conclusion – because no arrangement of words changes the Housing Acts. (Call 0870 1226 236 and ask for one, the product code is 97 HC 228B.)

A little about assured shorthold leases

Assured shortholds are simple, effective, and enforceable. Tenants have no security of tenure at all, once the initial fixed term written on the lease has expired (though of course a court process must be gone through to remove the roof from over anyone’s head – see Lesson 11: Ending tenancies). Although UK landlord and tenant legislation is immense, by using 1988 assured shortholds, landlords are able to utilise a tiny core of legislation, unaffected by much beyond a few temporary tenant rights.

A few more questions

• QMy agent insists that I offer my property on a minimum one-year let. Does this mean I can’t apply for no fault possession for a minimum of a year, sooner than the minimum six months allowed by the legislation?
• AYes. Insist on an initial lease of six months.
• QDoes that really matter?
• AIt might, especially if they put an awful tenant in place and you’re not guaranteed possession for a whole year.
• QWhy do agents sometimes insist on offering contracts that are longer than the minimum exposure for landlords?
• AThat’s a very good question. However, experienced landlords always test tenants over the minimum six months. Don’t let third parties bully you into the best option for them. Insist on the best option for you (and often tenants too).
• QWhat are the options if my tenant wants to stay longer than the six months he originally signed a lease for?
• AYou can both choose between either of the following options:
• QAre there any other types of assured shorthold I need to know about?
• AJust the contractual periodic, which runs on a month-by-month basis. Again, no fault possession cannot be sought from a court until the first six months has run its course, and, because the periodic runs from one payment to the next, tenants can’t be charged rent for the remainder of a period which hasn’t been fixed, which raises even more issues. By and large, contractual periodic tenancies don’t offer landlords as many advantages as good old assured shortholds with an initial fixed term of six months.
• QAnything else I should consider?
• AYes. Here are a couple that you may not realise (beyond the earlier exemptions):

• QWhat about rent increases?
• ARent increases can’t occur unless you have a clause in the existing lease that allows them. Off the peg leases don’t have them because these days most tenancies don’t last long enough for rent hikes.
  
  The solution is very simple. If you propose a rent increase in any tenancy that lasts long enough to become a statutory periodic tenancy and rent increases aren’t mentioned in the original lease, you can ask for a rent increase by sending a rent increase form to your tenant one month before you want a higher rent. There is a special form for this, called ‘Landlord’s notice proposing a new rent under an Assured Periodic Tenancy of premises situated in England’. These forms cost around £1 each – and are available from Oyez (or others) as already discussed.
  
  Or you can offer your tenant a whole new lease (with a further fixed term) at a higher rent level – but they’re under no obligation to accept it. This can be a fine balancing act between keeping a good quality known tenant in place – or risking a newcomer with all that may bring for the sake of a small hike in rent.
• QWhat if my tenant doesn’t agree to a rent increase?
• AIf your tenant refuses, you can both agree to go your separate ways and one or the other gives notice. However, a good tenant on a slightly lower rent may be much more valuable than an unknown quantity sometime in the future. It’s your choice.
• QAnything else I need to understand?
• AYes. In return for all that money and all those restrictions and obligations, tenants buy the ‘right to quiet enjoyment’ and you are obliged to give them that. Don’t interrupt their lives at all except on the very rare occasions that can arise, when landlords genuinely believe that their tenants are not keeping their side of the bargain. Beyond that all landlords wanting to enter their unit once it is let are obliged to give their tenant 24 hours’ written notice of their intention to enter and should have a legitimate reason like a repair or quarterly inspection.

A final few questions (these are more specifically for sharers who have joint and several liability leases, ie more than a single tenant in a unit).

• QHow many leases do I need for four sharers?
• AOne lease for the landlord, one lease for all the sharers combined – all four signatures plus the landlord’s must be in place on both these leases and all must be witnessed and dated. This constitutes joint and several liability. In this arrangement, each sharer is liable for their own share of the rent but must make up shortfalls if someone moves out or doesn’t pay up. All four signatures must be on the inventory and schedule of condition but each tenant must complete their own individual Tenant’s Application Form and Parental Guarantor Form if they’re young. (Format available in Lesson 9: Selecting tenants and tying up the deal.)
  
  Leave them with one original lease and you keep the other. You may also need a licence from the local authority due to new legislation in force from April 2006 – four sharers is definitely an HMO.
• QWhat if I want three tenants but they’re not friends and I arrange each tenancy separately by advertising a house share?
• AThen you’ll need six leases and strong nerves for a notoriously complex tenancy like this – one for you and one for each tenant of the three separate tenancies. Each will have its own start date, and its own fixed term – meaning the end point of these tenancies will not necessarily match up. In these cases, each party will be contracted to pay their share of the rent and won’t be liable for any shortfall if another party leaves the building. These circumstances will require two leases per tenancy and one each of every other form. Again, you may well need a licence (because of new legislation) – three sharers is probably an HMO, which may need licensing.
• QWhat about letting to a family?
• AHere you’d have one lease for the family, one for the landlord – with both adults named and both parties signing one inventory, etc. In some cases, you’d ask for both parents to fill in a Tenant’s Application Form, in others, where say only one parent works outside the home, one may suffice.

• QWhat about this converted house of mine? It has six self-contained units.
• AWhere any self-contained unit is let, each requires its own individual tenancy arrangements. But beware. With a single property, used by multiple tenants – especially if the conversion occurred before the 1992 Building Regulations – you’re probably operating an HMO (see Lesson 13: Houses in Multiple Occupation).

Why do I need to know any of this if I’m using an agent?

Whether or not you use an agent – this is information you need to understand. Otherwise, you’ll struggle to manage your agent. Knowledge is a win-win situation because information is always king.

Licences (these are different forms of occupancy altogether)

These don’t apply for the overwhelming majority of landlords and tenants. They apply where resident landlords invite people into their homes to live and charge rent and where the tenant doesn’t enjoy exclusive use of any part of the building. Usually resident landlords provide other services, such as cleaning or meals. Where tenants have almost no security of tenure with an assured shorthold lease, with a licence they have, in effect, none. Landlords charge rents weekly and tenants (or lodgers as they’re more commonly known) can be given a week’s notice to leave at any time and for no reason. These are historically precarious arrangements for tenants, but many work surprisingly well.

But don’t try pretending you’re a resident landlord where you live in one flat and a tenant rents another self-contained unit from you upstairs. It won’t hold up in court. Nor does the scam of owning large buildings, converted into scrappy bed sits where the landlord pops by each week to leave bread and eggs in the kitchen but lives in a lovely safe house just up the hill. Buildings in multiple occupation are complex to set up and require more than the ingredients for a bread and butter pudding to substantiate.

Leases – options and considerations

Getting started

However simple to understand, leases are very important documents. Responsible landlords need paperwork. So get yourself a paper trail and look after it.

The importance of a Tenant Application Form

(For a suggested format, see Lesson 9: Selecting tenants and tying up the deal.)

A Tenant Application Form can be drawn up by any landlord and has the legal benefit of ensuring the tenant has declared their true identity, previous addresses, employment history, income status (if required), accurate bank details, their National Insurance number or passport number and at least the previous three years’ addresses. There’s a standard format for you to copy in Lesson 9 because you certainly don’t need a solicitor to create these simple forms (for referees and guarantor form details see Lesson 9 on selecting tenants).

The advantage of a Tenant Application Form cannot be overstated. Ground 17 of the 1996 Housing Act makes the making of a deliberate false statement an offence and a completed Tenant Application Form gives written and provable discretionary grounds for possession, should you be unlucky enough to find yourself housing a professional fraudster.

To make the tenancy as watertight as possible, a Tenant Application Form might be well joined by a Parental Guarantor Form – for younger tenants these are an absolute must and you’ll need one per tenant. This is a particularly useful strategy for those letting to younger people say the under 25s. It ties a responsible adult into the tenancy, making them accept some of the financial risks you’re running when letting to youngsters.

People skills – you can’t beat them in this business.

Break clauses

Although shorthold assured tenancies can be terminated after six months, some landlords (or tenants) want a break clause, say after three. This can be a precarious ground for landlords – is not advised and requires a specialist lease. Break clauses are a specialist facility, usually used by landlords and tenants letting and renting very expensive units of accommodation. No landlord should be beguiled into imagining that this is the thing they need to help them get round the very reasonable terms of the 1988 Housing Act and shorten the six month minimum fixed term. In truth, the overwhelming majority of independent landlords would do well to avoid getting themselves into areas of such unnecessary complexity (and units over £500 p.w. can’t be assured shortholds anyway).

Whys and wherefores

Yet again, reading this lesson shouldn’t take very long. Ordering your copy of the government’s own guide book which verifies this information takes a matter of moments and, as the information is basic, it won’t take long to read.

Beyond that, online sites give a huge amount of advice about being a landlord, but rarely cover actual leases – probably because when it comes down to it, there’s really not much to say about such a simple document. If you would like to take a look at an off-the-peg variety, call Oyez (tel: 020 7556 3200) and order one. Postage takes around one day.

Further information

• Department for Communities and Local Government
  Officers in the Private Rented Housing Section at the Office of the Deputy Prime Minister can be extremely helpful if you telephone them on 0207 890 3000 and ask nicely. Call on their Free Literature number 0870 1226 236. Ask for a free catalogue – there are some other very useful free leaflets.
• Citizens Advice Bureau
  The Citizens Advice Bureau can also be helpful.
• The internet
  Online websites like www.landlordzone.co.uk and www.rics.co.uk or www.rla.co.uk are good places to research. Try also checking out the government’s own website – it’s surprisingly user friendly at www.communities.gov.uk. The issues around joint and several liability are often discussed on university websites under their accommodation advice sections – they can make very interesting reading. I find UCL or Bristol have good responsive sites.

How long did this take?

How long did it take to read this lesson and reassure yourself that an assured shorthold lease guarantees you possession at the end of the fixed term – 20 minutes? How long to consider what type of lease will suit you and where to obtain them – another 10? How long to familiarise yourself with a standard lease, when you’ve purchased one? Maybe half an hour – once only during a lifetime – they don’t change much believe me. Anyone with the skills to read anything as complex as a daily newspaper can certainly understand a lease like these.

So, landlords can learn a great deal in just over an hour (remember, you’re not aiming to sit a degree in landlord and tenant, just enough to run your tenancies effectively). Even the most anxious of first time landlords who may want to run through the process a couple of times should only need a few hours to get their heads around the details. I’ve never met a single landlord who failed at the lease hurdle. Everyone worries about it like mad the first time (and that’s understandable) – then finds how easy it is and can’t believe how they breezed through it when the time came. When you pause for a moment to consider how much an agency will charge you and your tenants for these processes it certainly isn’t long.

CHECKLIST/SUMMARY

• Ignore scaremongers. 1997 changed the legislation. Every new lease signed under the 1988 Housing Act is an assured shorthold lease – unless the tenant can prove to a court that you voluntarily gave them written proof that you offered them something with more rights.
• Break clauses are unnecessary for investors. Avoid giving them.
• Leases are important legal documents. Keep them safe.
• Make sure your tenant understands their lease – this will help tenants to understand what’s expected of them during and at the end of their tenancy.
• Most leases are between one tenant and one landlord. Where agents are used, the lease may be between the agent and the tenant.
• The advantages of an assured shorthold lease kick into place at the end of the initial ‘fixed term’. Keeping this initial fixed term to six months offers the maximum all round benefits to landlords.
• Always use a written lease and back it up with a Tenant Application Form (see Lesson 9), inventory and schedule of condition, giving both landlord and tenant a solid degree of protection from one another’s idiosyncrasies.
• Don’t kid yourself into believing you can set up a license operation, to avoid giving tenants any rights at all. It’s surprisingly difficult.
• Don’t photocopy off-the-peg leases, it’s copyright theft and has been challenged. They’re cheap and the more you buy the cheaper they become – but don’t order too far in advance to save a few pounds because last year’s lease may not be up to date. As a rule of thumb, buy new leases every six to nine months.
• Read and understand your lease. It isn’t difficult – and if it is, change lease suppliers.
• Your paperwork can’t override the basic framework of the 1988 Housing Act, whatever you try inserting as a clause.
• Give tenants enough time to read leases before expecting them to sign.
• Make sure you understand what the initial fixed term means and be wary of extending it beyond six months with new, unknown tenants.
• When leases do come to an end, either re-issue a new lease or allow the tenancy to become a statutory periodic one to retain the advantages of being beyond the fixed term.
• Make sure that leases are filled in correctly, signed in ink, dated and witnessed.
• Read Lesson 11 on grounds for possession – leases are not easy to get out of during that initial fixed term once they are signed.
• Make sure you have two leases per tenancy – one for the landlord, one for the tenant/s.
• If you let separately to more than one tenant you’ll need a pair of leases for each tenancy.
• If you let out on joint and several liability – all sharers plus the landlord and witness(es) sign just two separate leases (one copy for the landlord, one copy for the tenants to keep).
• Always get legal documents witnessed.
• By paying rent your tenant is buying a ‘right to quiet enjoyment’. This needs to be respected by all landlords.
• Always give tenants 24 hours’ written notice of your intention to inspect or carry out repairs to their home.
• Keep spare keys.
• Even if you use an agent – keep spare keys.
• Don’t allow agents to bully you into offering an initial fixed term of more than six months. Assured shorthold leases do not necessarily need replacing at the end of the first six months. On the contrary, leaving the old lease in place often, if not always, gives landlords the most rapid access to obtaining possession should a problem suddenly arise.
• If a year goes by under a statutory periodic tenancy and you feel a rent increase is necessary, get a form from Oyez for a rent increase and serve it on your tenant. Or download a form from www.communities.gov.uk. Tenants, however, may decide to move rather than paying more – and never forget – a bird in the hand …