The way tenancy agreements in the UK are structured could change when the Renters’ Rights Bill becomes law, but will it impact landlords looking for long-term tenants?
The much-debated Renters’ Rights Bill continues to make its way through Parliament, and could become law as early as the end of this year. It proposes several key changes for landlords and tenants in the UK, aimed at making renting fairer and more secure.
The Bill is set to abolish assured shorthold tenancy (AST) agreements, which are the most common form of tenancy contract. Tenants normally sign up for anywhere between six months and three years; with the most common agreement being for 12 months.
After this point, the tenant and landlord either agree to a further fixed period tenancy, such as another 12 months, or let it switch to a periodic tenancy. This means it rolls on a monthly basis and tenants can hand in their notice at any point, while landlords can also serve their notice without having to wait until a particular point in the year.
Once ASTs have been abolished, the government proposes that all new tenancies would become periodic. The idea behind this is to give tenants more freedom and flexibility to hand their notice in at any point, without having to stay put until their longer-term agreement has come to an end.
Long-term vs periodic: pros and cons
At the moment, while landlords still have the choice, it is important to weigh up the various pros and cons of tenancy lengths.
For example, a long-term agreement provides predictability for both the tenant and the landlord, and allows the tenants to live without fear of eviction (unless they break the terms of their agreement).
Normally, rent cannot be increased during a long-term AST. The rent is agreed between landlords and tenants before the contract is signed, and is then normally reviewed at the end of the term. This can protect tenants from fluctuating market rents.
At the same time, periodic tenancies can benefit the landlord and the tenant by offering more flexibility if circumstances change, such as a relationship breakdown or a significant change in income.
Landlords should also be able to regain possession of their property more easily, such as if they need to move back in or sell the property, by using a Section 21 ‘no-fault’ eviction. However, Section 21 is also set to be abolished by the Renters’ Reform Bill, while Section 8 eviction criteria will be expanded to allow landlords to regain possession of their property under reasonable circumstances.
The impact on landlords’ rental yields
When it comes to rental yields, there is evidence that longer-term tenants can boost rental returns overall. This is because having tenants stay put for a prolonged period of time reduces void periods, as well as the cost of more regularly finding new tenants.
If tenants stay for longer, they may also be more likely to see the property as their home, and therefore take better care of it, leading to less maintenance and refurbishment costs. It can also boost the relationship between the landlord and the tenants.
However, long-term tenancies can also mean landlords aren’t able to react to local market changes. If rents in the wider area experience a surge, the landlord must wait until the end of the AST before suggesting a rent rise.
Balancing your asking rent with the market average while also ensuring your property appeals to your target tenant is important. For some landlords, maximising rent isn’t as important in the long run as retaining good tenants who pay on time and look after the property.
Do tenants want periodic tenancies?
While the new legislation is largely intended to benefit tenants, by allowing them to more easily leave accommodation that isn’t suitable or for another reason, it might not really be what tenants want.
New research from FCC Paragon has revealed that, out of all short-term rental properties listed (only including short-term ASTs rather than holiday lets), only 10.4% had secured a tenant.
By contrast, a quarter (25.2%) of long-term rentals were listed as ‘let agreed’, suggesting that the demand for longer tenancy agreements was actually higher than for shorter ones.
This trend was the same across all parts of the UK, including in the East and the North West where short-term lets appeared to have the highest level of appetite overall.
Bekki Leaves, Managing Director of FCC Paragon, pointed out that landlords were concerned that by replacing ASTs with periodic tenancies, landlords would be unable to end contracts within the first 12 months, which was a worry for some, while tenants would still be able to “leave at any time by providing a short notice period”.
This refers to the fact that even under the new periodic tenancy rules, tenants will be ‘protected’ for the first 12 months, with landlords not able to move back in or attempt to sell the property during that time.
“The majority of landlords and tenants prefer long-term contracts thanks to the security and stability they provide. Even if the RRB does come into effect, tenants will still prefer to stay in their homes for longer periods of time, which means for good landlords and good tenants, it will continue to be business as usual.”
