When entering into an agreement, renters will typically sign an assured shorthold tenancy agreement with their landlord, making it clear the rights and responsibilities of each party, alongside the obligation to pay rent, and how long the tenant can rent the property for. But, what happens when this period is over? Here we offer landlords guidance on the rolling, or periodic tenancy.
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Commonly, once the fixed term of an assured shorthold tenancy comes to an end the landlord will likely renew the tenancy agreement with the occupants, permitting them to reside within the property for another fixed term, or market the rental opportunity to new tenants. However, what happens if the tenant doesn’t vacate the property and the tenancy agreement is not renewed?
This circumstance would automatically enter both the landlord and tenant into what is referred to as a periodic or rolling tenancy. The essential difference between periodic tenancies and the more common AST, and most other types of tenancy is the distinct lack of a fixed term, allowing the tenancy to roll over each month, providing rent has been paid. Although this technically allows the tenancy to continue for an indefinite amount of time, there are key differences in the rights of both landlords and tenants when entering into a periodic tenancy.
There are three ways in which a periodic tenancy can be created which are detailed below.
Under section 5 of the Housing Act 1988 a tenancy becomes periodic at the end of an Assured Shorthold Tenancy when the lease is not renewed.
The Act states that if the tenant stays in the property after the fixed term has passed then a periodic tenancy is created. It remains under the same conditions as the preceding fixed tenancies.
Periodic tenancies are usually monthly, but they can also be weekly (depending on how often the rent is paid). Having said that, if the previous tenancy involved paying six months’ rent upfront, them this will also be the length of the periodic tenancy ie six months.
Schedule 1 of the Housing Act 1988 states that if the tenant is a limited company, or the rent more than £100,000 per annum or less than £750 per annum (£1,500 in London), then it is a periodic tenancy.
This also applies if the landlord also lives in the property. This is often the case with a house owner who lets out a granny flat or some other out building on the grounds.
Under section 54(2) of the Law of Property Act 1925 it is not necessary to have a formal written tenancy agreement. This is when the tenant is paying rent and the fixed term is for three years or less. A new tenancy is automatically created.
At the end of the tenancy agreement (which would have mentioned the contractual tenancy) the tenancy continues as a contractual one – usually on a monthly basis, but it’s up to the landlord to state how long he or she wants the period to be.
Some landlords will be worried a periodic tenancy may make it more difficult to evict a tenant when he or she wants their property back. But rest-assured that isn’t the case. Provided the statutory eviction process is carried through, ie Section 21 and follow ups, then there should be no problem in this regard.
Under Section 13 of the Housing Act 1988 landlords are able to increase the amount of rent their tenants are expected to pay during a periodic tenancy. Providing the landlord has entered into a contractual periodic tenancy with the tenant, they are prohibited from issuing a section 13 notice within the first 12 months of the rolling tenancy. Landlords are further required to serve this notice whilst the fixed term of their tenancy is in effect, although the actual rent increase will only take hold once the statutory periodic tenancy has commenced. To the delight of periodic tenants, landlords are also prevented from issuing their occupants with more than one section 13 notice every 52 weeks.
Owners are also able to increase the rent their tenants pay through a rent review clause. Although these are commonly utilised by landlords during the fixed term of an assured shorthold tenancy, providing that the periodic tenancy is contractual, the rent increase will stay in effect. However, landlords that use a rent review clause within their tenancy agreement will be unable to serve their residents with a section 13 notice.
Providing the statutory periodic tenancy is still within its initial 12 months landlords can enact a section 6 procedure to increase the rent. The section 6 notice is intended for landlords that need to amend the terms of their tenancy as it has become a rolling tenancy, and therefore those with a contractual periodic tenancy will not be able to enact a section 6 as they have existing terms in place. The notice will typically take 3 months to be enacted, however, the notice could be handled by a tribunal, delaying the process. It is worth noting that such notices are not exclusively used to increase the amount of rent tenants must pay, but the tribunal may amend this figure as they see fit.
If the owner of the rental property wishes to bring the periodic tenancy to an end they are obligated to provide their tenants with at least 2 months notice, or a single period of the tenancy, whichever allows the tenant more time. In this instance a “period of the tenancy” would be the time over which a single rent payment covers the tenant; therefore, if they pay rent every month, the period would be a single month.
Similarly to if a landlord were to end a periodic tenancy, tenants must also adhere to the minimum amount of notice required. For renters, the notice period for a periodic tenancy is one period of the tenancy. With this in mind if the tenants are required to pay weekly, then must provide their landlord with at least a weeks’ notice, whereas if they pay rent each month, their landlord must be served a minimum of a months’ notice.
The flexibility touted by renting is by far the main benefit as to why tenants choose to rent. This is never more true than with a rolling tenancy as tenants will be free to vacate the property far easier than if they were locked into a fixed term. Although some landlords will see a periodic tenancy as an uncertain period for their income, if they are struggling to find new occupants for their rental opportunity, a rolling tenancy could be the lifeline that allows them to steer clear of void periods. Not only that but if a landlord wishes to reclaim possession of their rental property this is often achieved far faster than in a fixed term where owners would be dependent on section 21 or section 8 notices.
With this being said, having a fixed term in place, whether this be for six months, twelve months or longer, will secure a significant amount of rental income for the landlord, allowing them to more effectively manage their property, without the worry of potentially rapid sourcing income though new tenants to cover buy to let mortgage payments and insurance fees. However, if landlords encounter a tenant they wish to remove from the property, commonly due to rent arrears or property damage, landlords are at the mercy of the eviction process, something that is notoriously expensive and inefficient.
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