Guide to contractual and statutory periodic tenancies
Most tenancy agreements are made for a fixed period of time. These fixed terms are usually for a 6 or 12 month period, though this can be for longer or shorter depending on need.
However, once this fixed term ends the tenant does not have to leave the property. Every tenant with an assured or assured shorthold tenancy (AST) is entitled to remain in the property on a periodic tenancy, until either they end the tenancy and leave or the landlord regains possession via a court order.
To ensure this, there are two different types of periodic tenancy that will follow on from the fixed term; contractual and statutory periodic tenancies. Each has specific differences that affect landlords, with benefits and drawbacks to each.
This guide will act as a primer for landlords and agents in deciding which type of periodic tenancy to use if not using the NRLA assured shorthold tenancy agreements, and how to identify what type of periodic tenancy you have.
What is a contractual periodic tenancy?
At its simplest, a contractual periodic tenancy means that the tenancy runs from month to month, week to week, etc, agreed as part of the tenancy agreement. This will mean that a clause will be present in the tenancy agreement saying that periodic tenancy will follow on from the fixed term.
Typically, these tenancies are written as continuations of the fixed term. They will use phrases like 'continue on as a periodic tenancy' or 'carry on from month to month after the end of the fixed term'. In these cases, the fixed term and the periodic portion are all part of the same tenancy, which is very important for council tax purposes. Reference to contractual periodic tenancies in this guide are to this type of periodic tenancy clause.
What is a statutory periodic tenancy?
Many tenancy agreements do not contain any clause specifying how the tenancy will continue after the end of the fixed term at all.
For these type of tenancies, Section 5 of the Housing Act 1988 steps in to create a brand new tenancy agreement known as a statutory periodic tenancy.
This tenancy will run from month to month, week to week, etc based on the last rent paid. For example, if the tenant pays monthly in the fixed term, then the periodic tenancy will run from month to month. Or if your tenant pays 5 months up front and then makes one monthly payment in the fixed term, then it will run from month to month.
The key point to understand about a statutory periodic tenancy is that it is a brand new tenancy that is separate from the original fixed term. This is very important for council tax, deposits and the service of documents.
How do I spot the difference?
The first thing to do is read your tenancy agreement to see if a clause detailing the periodic tenancy exists. If one does, then it will normally be a contractual periodic tenancy.
If no clause exists, or the clause specifically states that the tenancy will be a statutory periodic tenancy or arise under Section 5 of the Housing Act 1988, then it will be a statutory periodic tenancy.
What type of periodic tenancy do I have if I do not grant a fixed term agreement?
In some rare cases, tenants may move into a property without first being granted a fixed-term tenancy. Typically these tenancies have no written agreement and usually are the result of more informal arrangements.
As a statutory periodic tenancy can only be created through the expiry of a fixed-term agreement, these tenancies are still classed as contractual periodic tenancies.
However, many of the benefits associated with contractual continuations do not apply to these informal contracts, particularly where they are verbally agreed. The NRLA strongly advises its members to always agree a tenancy in writing so the terms and conditions are clearly laid out and everyone understands their obligations.
What type of periodic tenancy does the NRLA agreement have
All of the NRLA assured shorthold tenancy agreements create a contractual periodic tenancy that continues on from the initial fixed term.
Along with a host of other documents, these agreements are free to download for all members of the NRLA.
Key things to consider
There are a number of significant differences in how various laws apply to the two different types of periodic tenancy types. This section will outline the main differences so you can plan accordingly.
Council Tax liability during a periodic tenancy
If the tenancy is for the whole of a house or flat rather than a room, and it is for a fixed term of at least 6 months, then the tenant will be liable for the council tax until the end of that term even if they move out without giving notice.
If at the end of this fixed term, the tenancy continues as a contractual periodic tenancy, then the same rules apply. The tenant(s) will be liable for the council tax until the end of their notice period even if they leave early in their notice.
As statutory periodic tenancies are brand new tenancies there is no 6 month fixed term, therefore the tenants are only liable for council tax while they are living in the property. If a tenant abandons the property without notice inside the statutory periodic tenancy then landlords may find themselves having to pay to regain possession, while also paying the council tax.
Similarly, tenancies that begin as periodic tenancies or those with a fixed term of less than 6 months will follow the same rules as a statutory periodic tenancy.
Deposit protection and penalties
Provided the deposit is protected in a scheme and the prescribed information is served on all relevant parties then there is no difference between the two types of periodic tenancy.
However, if the deposit has not been protected correctly the law interacts differently with each.
For contractual periodic tenancies, the landlord will only be liable for one to three times the deposit as a penalty. This is because there is only one tenancy in which they are in breach of; the combined fixed term and periodic tenancy. For statutory periodic tenancies, there are two tenancies so the landlord can face a penalty of 2-6 times the deposit as a penalty for non-compliance instead.
For contractual periodic tenancies, where a landlord has protected the deposit late inside the original fixed term then the landlord will have to return it before serving a section 21 notice. This is different from statutory periodic tenancies, where they should be able to serve a section 21 notice from the start of the new periodic tenancy provided the deposit is protected and the prescribed information served before it starts.
Electrical safety during a periodic tenancy
In England, for any new tenancy created on or after 1 July 2020 and from 1 April 2021 for existing tenancies, you are required to ensure the electrical installations in your property are safe to use. This is achieved by having a competent person inspect the property and provide you with an electrical installation condition report (EICR) stating these installations are safe to use.
The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 also set out a number of different requirements around providing copies of the EICR to relevant people:
- The EICR must be given to all of the tenants before they occupy the property.
- When you replace the EICR you must provide a copy of the new report within 28 days of the inspection.
- If a tenant requests a copy of the EICR in writing, you must also provide them with one within 28 days.
- If the local authority requests the EICR you must provide them with a copy of it within seven days or face potential penalties.
- Any prospective tenants who request a copy in writing must be provided one within 28 days.
For periodic tenancies, the choice between contractual and statutory periodic will affect when these regulations come into force for you.
Statutory periodic tenancies that start at any point from 1 July 2020 onwards will have to comply with the regulations from the point the statutory periodic tenancy starts. You will be required to have an EICR ahead of the tenancy beginning.
For contractual periodic tenancies that follow on from a fixed term, the regulations will not apply to your tenancy until 1 April 2021 even if your fixed term ends before that date.
Service of section 21 notices usually
Where a tenancy is running on as a contractual periodic tenancy then the landlord will have to follow the rules of section 21(4) of the Housing Act 1988. Landlords of a statutory periodic tenancy can follow the easier rules of section 21(1) instead.
In England, the only difference between the two rules is around the length of the notice in certain circumstances. The notice will be the same otherwise.
For statutory periodic tenancies, the section 21 notice period will usually be simply two months or more if the landlord wishes. Currently longer notice periods are in place due to the coronavirus legislation however.
For contractual periodic tenancies, it is normally the same. However, if a landlord is taking rent quarterly or 6 monthly then the notice period must be either three months or six months long. The NRLA recommends landlords take payments monthly, weekly, or fortnightly to avoid this issue.
In Wales, a section 21(1) notice served during a statutory periodic tenancy will need to be at least two months long.
For contractual periodic tenancies, the landlord must follow the section 21(4) rules. As in England, this can mean an extended notice period where the rent is paid in quarterly or higher installments. However in addition to this, the notice must also expire on the day before the rent is due.
Service of 'How to rent: a checklist for renting in England'
Landlords will often find they are legally required to be serve certain documents at the start of a given tenancy. For example, 'How to rent: a checklist for renting in England' should be served at the start of a tenancy. Crucially it also needs to be served at the start of any subsequent tenancy if there has been an update to the document.
As a statutory periodic tenancy is a subsequent tenancy, landlords have to check at the start of the new tenancy to make sure they have served any updates on their tenants. If not they won't be able to successfully serve a section 21 notice.
Contractual periodic tenancies are not new or subsequent tenancies. As such landlords do not need to check if there has been an update or serve any extra copies on the tenant.
Increasing the rent in a periodic tenancy
The rules on rent increases work very differently for the two types of periodic tenancy.
For contractual periodic tenancies you may insert a rent review clause into your agreement. Provided this is a fair term this increase will be binding on the tenant and the landlord. The landlord can then follow the terms of the clause to increase the rent.
Where no rent review clause exists in the tenancy a landlord may use the prescribed section 13 (form 4) to increase the rent but not until the fixed term is over and 12 months have elapsed since the tenant moved in.
For tenants on statutory periodic tenancies, landlords may not create a rent review clause as the fixed term and statutory periodic tenancy are separate. They must use the Section 13 form instead. However, unlike the contractual periodic tenancy this can be served as soon as the fixed term is over, even if only 6 months have passed since the tenants moved in.
Requirements to have an EPC
An EPC is valid for 10 years and is required every time a landlord markets a property or face the potential of a fine. This includes the granting of a statutory periodic tenancy.
Under the Minimum Energy Efficiency Regulations, landlords cannot rent out properties with an F or G rating unless they have managed to secure an exemption or the property does not require an EPC.
As a result of these two pieces of legislation, landlords of tenancies that will become a statutory periodic tenancy will have to get an EPC and may not be able to rent out F or G rated property without first spending £3500.
For landlords with tenancies turning into contractual periodic agreements, the EPC can lapse until the next time they agree a new tenancy or rent to a different tenant.
Landlords should bear in mind that new legislation often talks about the creation of 'new' tenancies and this often will include statutory periodic tenancies. As such, landlords who use statutory periodic tenancies may find they have to comply with new legislation sooner than with a contractual periodic tenancy.