Currently, any tenancy where the annual rent exceeds £25,000 cannot be an assured shorthold tenancy (AST) and so landlords who charge more than this can enter into a contractual tenancy agreement, negotiating their own terms and unfettered by the fairly stringent legislation which governs ASTs. All that is about to change…
On 1 October 2010, the annual rent threshold will increase when the Assured Tenancies (Amendment) Order 2010 comes into force. From that date, any tenancy where the rent is less than £100,000 will automatically become an AST overnight.
The proposal to increase the AST threshold was initially broadly welcomed as an attempt to offer greater clarity and transparency for landlords and tenants. However, the National Landlords’ Association (NLA) believes the change may damage a significant number of landlords who entered into contractual tenancy agreements in good faith.
“The retrospective nature of this change is highly regrettable, and it could have a wide-ranging impact on the letting of private residential property,” claims NLA Chairman, David Salusbury.
The single-most important change for landlords in the higher rent bracket is that they must protect any deposits they have taken by joining one of the Government approved schemes. If they fail to do so by the 1 October 2010, they risk being sued by their tenant for not complying with the Tenancy Deposit Scheme legislation. Currently, a landlord who fails to lodge a deposit can be ordered to pay compensation to a tenant amounting to three times the deposit, as well as meeting tenant’s legal costs.
Assuming that tenants will be alert to this potential for an easy windfall, landlords whose rental income is in the £25,000 to £100,000 bracket should take steps now to lodge any deposits they are holding with one of the three approved schemes. Further information about these can be found at on the Directgov website at: www.direct.gov.uk/en/tenancydeposit/index.htm
An AST is defined as any tenancy where:
The tenant or joint tenants are individuals;
At least one of the tenants occupies the dwelling house as his only or principal home, and
The annual rent payable under the tenancy must not exceed a rate of £25,000 (£100,000.00 with effect from 1 October 2010).
One advantage the changes will bring for landlords is that the procedure to regain possession will be standardised by the use of the Accelerated Possession Procedure - only available where the tenancy is an assured shorthold one. However, this procedure is linked to the Tenancy Deposit Scheme and a landlord who has not registered a deposit will not be able to use this quick route to recover possession.
There are some grey areas within the legislation:
- To comply with the Tenancy Deposit Scheme legislation in its entirety, a deposit must be lodged with one of the approved schemes within 14 days of receipt. This will simply be impossible since landlords may well have taken the deposit several months, or even years before. It is anticipated that the key date will be 1 October 2010, i.e. the deposit will need to be lodged within 14 days of that date, or possibly even at some point prior to that date, but this is not clarified by either the Order or the explanatory notes...
- It is unclear what the ‘start’ date of the tenancy will be. Will it be the date that the original agreement commenced, or with effect from 1 October 2010, when the tenancy becomes an AST? This question is important for two reasons:
- if the landlord wants to regain possession using the accelerated procedure, a possession order cannot take effect until 6 months have passed from the start of the tenancy agreement; and
- a tenant’s right to refer an excessive rent claim to the rent assessment committee cannot be made once 6 months of the tenancy agreement has elapsed.
There may yet be further clarification on these points. If not, we shall have to wait for them to be tested through the Courts before we know what the Judges are likely to do. Let us hope that common sense will prevail. It cannot be right for a landlord to be penalised for something that is entirely outside his control - but it would not be the first time!
For a no-obligation chat about the new Assured Tenancies (Amendment) Order 2010, how it will affect you and how we can help, please contact either
Mary Rouse on 01926 880734 or
Ravinder Khatkar on 01926 884623.
