In England and Wales, when renting out residential property, there are two main types of tenancy agreement: the assured tenancy and the assured shorthold tenancy.
The following article examines the meaning of each type of tenancy in the context of rental options for private landlords. It also looks at how to identify what type of tenancy has been created for any existing tenant(s).
What is a tenancy agreement?
A tenancy agreement is a legally binding contract between the landlord and tenant, giving that tenant the right of occupancy, and setting out the terms under which they will occupy the property in question.
The agreement can be oral or written, although oral agreements can be difficult to enforce because there is often no proof of what has been agreed.
An agreement in writing, setting out the reciprocal rights and responsibilities of both the landlord and tenant, signed and dated by both parties, can be essential in the event of an alleged breach or in effectively bringing a tenancy to an end.
A tenancy can either be for a fixed-term, for example, six months, or run indefinitely, ie; where the rent is paid on a periodic weekly, monthly or quarterly basis.
What is an assured tenancy?
When the Housing Act 1988 came into force on 15 January 1989 it created two forms of tenancy: the assured tenancy and the assured shorthold tenancy.
The 1988 Act defines an assured tenancy as a tenancy of a dwelling-house let as a separate dwelling to an individual, who is a sole or joint tenant, where the tenant, or at least one of the joint tenants, occupies the house as his/her only or principal home.
Although there is no statutory definition of ‘dwelling-house’, this can include the whole or part of a house, and covers flats or single rooms. To be let as a separate dwelling, however, the tenant must have some distinct accommodation, for example, exclusive possession of a bedroom, even though they may be required to share communal areas such as a kitchen or bathroom with other tenants.
This also means that the landlord must not be living in the same property as the tenant. If you have a lodger living in your home and share rooms with them, the lodger is likely to occupy your premises under what’s known as an excluded tenancy or licence.
Finally, the tenant, or at least one of the joint tenants, must occupy the property as his/her only or principal home. If a joint tenant leaves, leaving the remaining tenant in occupation, the assured tenancy will not be affected.
An assured tenancy will typically roll on a week-by-week or month-by-month basis. This is known as a contractual periodic tenancy. It could also be for a fixed term, although when a fixed term assured tenancy expires it will automatically continue as a statutory periodic tenancy unless the parties agree to a new fixed term.
The assured tenancy will then continue indefinitely unless either the tenant serves a valid notice to quit, or the landlord lawfully evicts the tenant by following the correct legal procedure.
What is an assured shorthold tenancy?
An assured shorthold tenancy (AST) is a type of assured tenancy, so all the requirements of an assured tenancy apply (see above). However, ASTs typically run for a period of six to twelve months, although they can be for longer.
An assured tenancy can be an assured shorthold tenancy if it was created on or after 15 January 1989. However, different rules apply for tenancies entered into pre and post-Housing Act 1996 under which amendments were made in relation to the notice provisions for landlords when creating an AST.
In the case of tenancies entered into post-1989 but pre-1997, the landlord must have served notice in the prescribed form before the assured tenancy was entered into, positively stating that the tenancy to which it relates was to be an assured shorthold tenancy.
In contrast, any assured tenancy created on or after 28 February 1997, when the relevant provisions of the 1996 Housing Act came into force, will now automatically be treated as an assured shorthold tenancy unless one of the exclusions in Schedule 2A of the 1988 Act apply.
The main exclusions are as follows:
- A notice has been served by or on behalf of the landlord before the assured tenancy is entered into stating that the assured tenancy to which it relates is not to be an assured shorthold tenancy.
- A notice is served by or on behalf of the landlord after the assured tenancy has been entered into stating that the assured tenancy to which it relates is no longer an assured shorthold tenancy.
- The tenancy agreement itself contains a provision to the effect that the tenancy is not an assured shorthold tenancy.
It will no longer be possible, as it was pre-1997, for an assured tenancy to be granted by mistake, for example, by the landlord failing to serve notice stating that the tenancy was to be an AST. As such, the majority of assured tenancies granted post-Housing Act 1996, will be classed as assured shorthold tenancies by default.
That said, in addition to tenancies excluded by notice or containing an exclusionary provision, there remain some limited circumstances in which a new tenancy cannot be treated as an assured shorthold tenancy and must, therefore, be an assured tenancy.
These include tenancies by succession, former secure tenancies, tenancies arising on expiry of a long lease, tenancies replacing existing non-shortholds and assured agricultural occupancies.
What are the differences between the two types of tenancy?
The central difference between an assured and an assured shorthold tenancy is the security of tenure. This refers to the security, or rights of occupation, of an occupier derived under the law.
The assured shorthold tenancy is a form of assured tenancy, albeit with limited security of tenure. Under an AST the landlord has the automatic right to regain possession at any point following expiry of the fixed term, without any specific reason, as long as they provide a minimum of two months’ notice.
Assured tenancies, on the other hand, provide tenants with far greater security of tenure than the AST. The assured tenant is able to stay in a property until they choose to leave or, alternatively, the landlord gains possession on one of the statutory grounds listed under the Housing Act 1988.
What are the key considerations for private landlords?
Prior to February 1997, assured tenancies were the most common type of tenancy. Today, however, these are seldom used in the private sector, with landlords typically opting for assured shorthold tenancies since it allows them to recover possession without requiring a reason.
Assured tenancies are usually granted by Housing Associations or Housing Trusts as social landlords, because they offer greater security in the long-term, provided the tenant doesn’t breach the terms of the agreement.
Whilst it is still possible for a private landlord to create an assured tenancy, in order to lawfully bring that tenancy to an end the landlord will require proof that the tenant has in some way breached the terms of the tenancy agreement.
Certain grounds for possession are mandatory, for example, serious rent arrears of more than two months. In these cases, where proven, the court will usually make an outright order for possession.
However, other grounds for possession are discretionary, for example, the tenant has persistently delayed paying rent, where the court must go on to consider whether in all the circumstances it is reasonable to grant possession.
In either case the landlord cannot evict the tenant without good reason, and even then, there are no guarantees that the court will grant an order for possession. As such, the assured tenancy can potentially leave a private landlord with a problematic tenant on an indefinite basis.
Should legal advice be sought?
Although most private landlords opt for an assured shorthold tenancy agreement, it is always best to seek legal advice to ensure that any rental option is the right choice depending on your circumstances.
Your legal adviser can also help you to draft the terms of the tenancy agreement, ensuring that it sets out the reciprocal rights and responsibilities of each party, and contains the correct information as to the start date, the rent due, the deposit amount and so forth.
In this way you will have the peace of mind that if you need to bring the tenancy to an end, you have written confirmation of the terms of the tenancy including, for the purposes of serving notice following the expiry of a fixed term under an AST, exactly when the tenancy began.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert legal advice should be sought.