A landlord's guide to tenancy agreements
The landlord’s essential guide to tenancy agreements
By Suzy Hershman, Head of Dispute Resolution, mydeposits
Being a landlord can be an extremely rewarding job but it can also be a challenging one. There are many tasks that need doing, as well as the duty of care to your tenants and legal responsibilities to keep up to date with. The tenancy agreement is part of these requirements and is the bedrock of a successful tenancy. It protects the property, outlines your and your tenant’s responsibilites, and can prevent any disputes arising in the future.
NRLA deposit protection provider, mydeposits, has created this guide to help landlords understand the importance of the tenancy agreement, know which tenancy agreement to use, what should be included in one and what to do when the agreement expires.
This guide will cover:
- Why you need a residential tenancy agreement
- The Assured Shorthold Tenancy Agreement (AST) in England and Wales
- What you should include in the tenancy agreement
- A case study highlighting the importance of a tenancy agreement
- Additional clauses
- What happens at the end of the tenancy
Why you need a residential tenancy agreement
Without a tenancy agreement in place, landlords and tenants have no written record of their contract, which leaves both with reduced legal options if a dispute occurs. Rental agreements are about protecting the legal rights of both parties, so everyone benefits from having one in place.
A tenancy agreement is a binding contract between you and your tenant(s). It sets out, clearly and without room for misinterpretation, what is expected of the landlord and the tenant, and the length of the agreement between both parties. It also explains what either can do if the other person doesn’t keep to their side of the agreement.
Although it is not a legal requirement, having a written tenancy agreement from the outset will make things much simpler:
- It states all the terms of the tenancy
- Most insurers insist on one being in place before offering landlord insurance
- Disputes are more likely where just an informal arrangement exists
- Accelerated eviction procedures can only be used with a written agreement
- Tenants on benefits will need a tenancy agreement for any claim
This guide will discuss the importance of creating a clear and robust residential tenancy agreement. Alhough there are other options, since 1997 this has been the standard written contract for almost all new residential tenancies.
The Assured Shorthold Tenancy Agreement
The majority of private rented sector (PRS) landlords in England and Wales will use an Assured Shorthold Tenancy (AST) as the default contract of choice with their tenant.
It should be used where the following conditions are met:
- The rent is between £250 and £100,000 per year
- The tenants are people rather than an organisation such as a company
- The property will be the tenant’s main home
- The landlord does not live in the property
- The length of the tenancy is between six months and three years
The different types of AST
The NRLA offers three types of written AST to provide much needed flexibility for landlords and to suit the different circumstances of their tenants.
- Joint AST for a family, an individual or two people who are unrelated: For when you are renting out the entire property to an individual, a family or a couple of friends on one joint tenancy. In this type of agreement every adult is equally responsible for meeting the terms of the agreement including paying the rent. It is designed to be used with or without a security deposit.
- Joint AST for a group of sharers: Use this agreement when you are renting a property to three or more people and at least two of them are unrelated to each other. These types of arrangements are known as houses in multiple occupation (HMOs) and have their own specific requirements which the tenancy agreement covers. If you are renting to four or more sharers who are not related to each other, you should use the ‘sharer agreement’. It is designed for up to six tenants and everyone can sign it electronically. Tip: For landlords with larger HMOs (four or more tenants), it is advisable to let using the standard ‘room-only ‘AST as it allows you easier access to the communal areas of the property in order to comply with your HMO requirements such as fire safety. (see below)
- Standard room-only AST: Landlords renting out a property to three or more people - at least two of whom are unrelated – need to comply with far stricter HMO regulations. The best way to do this is through a ‘room-only’ agreement so that inspections of the communal areas of the property can be carried out when you need to.
What you should include in your residential tenancy agreement
In the event of a dispute between you and your tenant, the tenancy agreement is one of the most important pieces of evidence you will need to provide to an adjudicator as it outlines both your responsibilities as the landlord, as well as your tenant’s. For this reason, it’s vital that the agreement is robust, and contains anything you may need to rely on at a later date.
The clauses that should be included in any agreement are:
Your details and your tenant’s name
Names and contact details of any person party to the agreement, along with the full address of the property which is being let. This confirms the detail of who is responsible for the property.
Start date and length of tenancy
Date that the tenancy begins and the agreed length of the agreement, if appropriate to the region (for example, in Scotland tenancies are open ended), including any break clause.
Ending the tenancy early and notice periods
Whether the tenancy can be ended early and how this can be done, including how much notice is required and if there are any costs (these must be transparent, and reasonable).
Rent payments and payment dates
How much rent is due, the payment frequency and payment dates, how to make payment , and any circumstances when the rent may be increased.
Details of the deposit protection
Whether the tenant is using a deposit protection scheme or a deposit replacement membership, and in what circumstances any money can be withheld from the tenant when the tenancy ends (e.g. to repair damage caused by tenants and rent arrears).
Repairs and maintenance
Who is responsible for repairs, and how and when the tenant should report any damage to you so the matter can be dealt with quickly.
Garden maintenance
Responsibility for garden maintenance (if there is one) including front and back gardens, trees, shrubs and borders, mowing, weeding and general upkeep. Again, this must be reasonable and tenants should be asked to report any damage to areas that may not be their responsibility (e.g. fences, sheds).
Bills
Which bills your tenants are responsible for throughout the tenancy and which bills, if any, that you will cover. Include water and other utility bills, council tax, TV licence, broadband or details of service charges.
Cleaning detail
How the property should be returned at the end of the tenancy. The tenant is only responsible for returning the property cleaned to the same standard as when they moved in.
Pet clauses
Include a clause on whether pets are allowed in the property or not. Most landlords prohibit pets but as consent for pets is a very topical issue, you need to offer clear written reasons for refusing a pet when a request is made, and you are encouraged to give it some thought.
Subletting
Rules on subletting and details of whether other people are allowed the use of the property, and if so, which rooms and for how long.
Smoking clauses
This is often a common cause for disputes, so it is important to include your position on smoking in the property. We would advise that smoking is not allowed.
Nuisance in the property
This will include any actions that could increase insurance costs for the property, or cause nuisance to you or the property’s neighbours, such as noise and playing loud music after certain hours.
Use of the property
Outline the use of the property for residential purposes and that the property is not to be used for business purposes, without consent, or illegal purposes.
Vacant periods
What the tenant is to do in the event of the property being vacant for a specified number of consecutive days,which commonly includes, turning off the water or leaving the heating on a low setting during the winter months. You should specify that the property must always be locked and secure (including using any burglar alarm) when empty.
Furniture
Whether the property is furnished or unfurnished, state your terms on the introduction or removal of furniture in the property and who is responsible for removal costs if excess furniture is left in the property without permission.
Taking possession
Set out how, and why, you may be required to legally repossess the property by using either Section 8 or Section 21 of the Housing Act 1988 (in England and Wales) or Section 33.
Additional considerations
You can also include individually negotiated clauses at the end of the tenancy agreement. These must be legal, fair and reasonable, having been clearly communicated to, and signed by, the tenant.
While the key to a well written and quality agreement includes well defined sections for both landlord and tenant, the clauses themselves must be clear, plain and simple. Common problems adjudicators find is the poor drafting of some terms in the agreements, a good example being break clauses, which can be interpreted in different ways and have the unintended effect of being contrary to the original intent.
The NRLA’s agreements are updated regularly to make sure that they remain legally compliant, but some landlords may choose to add additional clauses. The NRLA restrict editing on the agreements but for those landlords that do want to add their own clauses, an addendum is available, as well as suggested wording relating to increasing the rent or additional and selective licensing.
Any additional clauses must be fair and reasonable. If not they could be seen as unfair and difficult to enforce. It is recommended that a solicitor is employed to draft these clauses.
What happens when the agreement ends?
Most new residential tenancies last between six months and a year. If the tenancy ends, no new fixed term is agreed and the tenant is still in the property, then a ‘periodic tenancy’ comes into effect. This is a rolling tenancy with no fixed end date, but running usually month to month – reflective of what was in the original agreement. The statutory notice for ending a periodic tenancy remains unchanged.
In summary
The tenancy agreement is a legal contract between you and the tenant, and much more besides. It is a vital document that protects you and helps you maintain both the property and the relationship with your tenant. With a clear tenancy agreement in place, all parties are clear on what is expected of them during their tenancy, and what is and isn’t allowed. This helps to promote more long-term, happy and reliable tenants for you and a better protected investment.
“Having clear, simple, and easily understood tenancy agreements is key to avoiding disputes with tenants. In addition to this, make sure that you (or your letting agent) are familiar with what your tenancy agreement actually says. We see a number of cases where landlords and letting agents think their tenancy agreements say particular things, when they don’t. Memories can let us down, and it’s surprising what the response can be when asking people when they last read their own tenancy agreement.”
Mike Morgan, Property Redress Scheme
NRLA members get a 30 per cent discount on the deposit protection fee when they protect a deposit with the mydeposits insurance-based scheme in England and Wales.
