What do you think about three-year tenancies?

Your views could help shape UK landlord tenancy legislation

You may have heard that the government want to railroad all landlords into minimum three-year tenancy agreements with their tenants. The idea is to give tenants more security, as around 80% of tenancies are for six to 12 months, meaning that landlords currently have greater flexibility to evict their tenants at short notice.

The government’s consultation paper was published on July 2nd by Secretary of State for Housing, Communities and Local Government James Brokenshire. ARLA Propertymark will be responding to the consultation, and we intend to send our response. So, we have a question to ask you: what do you think about three-year tenancies?

To help you decide, this article outlines the government’s suggested three-year tenancy model and offers some views that have already been expressed.

What is the government proposing?

The longer-term tenancy model suggested by the government does try to provide both the tenant and landlord with some flexibility. They propose that:

  • Tenancies should be for a minimum of three years.
  • After the first six months, the tenancy agreement can be cancelled, if either party is unhappy.
  • If both parties are satisfied with the arrangements, the tenancy agreement would remain in force for the remainder of the three-year period.
  • During the remainder of the tenancy, the tenant can leave by providing a minimum of two months’ notice.
  • The landlord would be able to recover vacant possession of their property providing they have reasonable grounds to do so, such as non-payment of rent or antisocial behaviour. In such a case, landlords would be required to serve a Section 8 Notice.
  • If the landlord’s circumstances change and they need to sell the property, there will be provisions to be able to do so – though at least two months’ notice must be given to the tenant.
  • Landlords will only be able to increase rents once per year, and this must be at a rate agreed by the landlord and tenant.
  • Landlords must make it clear how rents will be increased when they advertise the property for let.

Possible exemptions to long-term lets

The government is considering making this three-year term the default agreement but allowing landlords and tenants to agree a shorter term if it is requested by the tenant. They have also said that there might be financial incentives to landlords to offer longer-term tenancies (we wouldn’t advise holding your breath while waiting for these to materialise).

Arguments for and against longer tenancies

Landlords and tenants are not the only parties affected by these proposals. Mortgage lenders and letting agents also have a vested interest in ensuring that any law change requiring longer tenancies is well thought out and properly designed.

Landlords are pretty much split into two camps:

  • Those who believe longer tenancies will provide a guaranteed income for longer, and are happy that the two-month notice period could help them to find new tenants and keep costly void periods to a minimum
  • Those who wish to keep shorter tenancies for the greater flexibility they offer and the easier route they give to remove nightmare tenants

Some letting agents are against longer-term tenancies, because it may mean a reduction in tenancy renewal fees. However, this revenue is likely to disappear soon anyway, as the government has already announced it intends to ban letting agents’ fees.

Meanwhile, mortgage lenders may oppose longer tenancies. They may be concerned that if an investor defaults on their buy-to-let mortgage, longer tenancies will make it harder to repossess a property. The lender would then need to collect the rent directly from the tenants, and, effectively, the lender would become a landlord.

Would you need a larger tenancy deposit?

The move for longer tenancy agreements comes on top of the government’s announcement in May that it is exploring ways to reduce tenancy deposits. Under the longer tenancy proposals, if the tenant wishes to leave, they could give two months’ notice and leave having paid no rent. If the deposit is, say, only a couple of weeks’ rent, unscrupulous tenants may be tempted to do this. Therefore, a question that immediately arises is this:

If the tenant now needs to give two months’ notice, should they give at least two months’ rent as a deposit?

A need for such a large deposit could make it more difficult for people to rent, and also remove almost twice the £4.2 billion from the economy that is currently held in tenants’ deposit money.

Hopefully, we’ve given you a little more insight about the three-year tenancy proposals, the arguments for and against, and how they may work. Please let us know your views by using the online contact form. And please share this article via social media to help spread the word.

Live with passion,

Brett Alegre-Wood

About the Author:

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Ezytrac. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.