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Fixed term tenancies: How hard can it be for a social landlord?

In November 2010 the Housing Minister Grant Shapps identified what he perceived to be a problem with social housing:

“For far too long in this country there has been a lazy consensus about the use of social housing, which has left one of our most valuable resources trapped in a system that helps far fewer people than it should. This out-of-date approach has seen waiting lists rocket and is unfair to people who genuinely need social homes. They trap existing tenants in poverty, often in homes that aren’t suitable for them.”

After consultation the Government came up with some proposed solutions which involved a radical re-think of the way social housing was to be allocated and administered. The ideas included: flexible tenancies, fairer allocations, greater mobility, fairer provision for homeless, affordable rents and tenants’ powers of scrutiny.

The Localism Act 2011 was the vehicle by which these central ideas were given substance. In particular the newly created Homes and Communities Agency took over regulation of the social housing sector as from 1 April 2012. With the new regulator came an entirely new set of regulatory standards - the tenancy standard. Central to this complete make-over was removal of the old shibboleth: the tenancy for life. Whereas up to the 1 April 2012, any tenancy granted by a social housing provider (starter/introductory tenancies apart) was likely to be a periodic assured or secure tenancy which would persist as long as the tenant was alive (and sometimes afterwards, if there was a succession) the new regulatory code allowed, and indeed encouraged, social housing providers to grant tenancies for a fixed period only.

Coupled with this the Government introduced the concept of “Affordable Tenancies” where the rent would be higher than the statutory social rent. So in one fell swoop the complexion of the social housing market changed. No longer would everyone have broadly the same security of tenure with comparable rents, but different tenants even of the same landlord in identical properties might now have wildly different securities of tenure and rents.

While there are many interesting aspects to this changed landscape both political and legal, central to the transformation is the fixed term tenancy. This article will consider some of the legal issues surrounding the nature and content of the tenancy document itself and will focus particularly on tenancies granted by housing associations.

First and foremost a housing association’s ability to grant a fixed term tenancy is not new: the power has always existed but never been used because the regulations apparently did not permit it. However, there are certain areas where particular care has to be taken as the law governing aspects of a tenancy (for example rent rises) differs depending on whether the tenancy is periodic or fixed term. Areas to look out for are: Tenure, rent increases, repairing obligations, succession, and terminating the tenancy

First the good news: the Localism Act 2011 amended the relevant sections of both the Law of Property Act 1925 and the Land Registration Act 2000 so that fixed term assured tenancies do not have to made by deed and do not have to be registered at the land registry- a considerable saving in time and money for a housing association.

Having somewhat glossed over the regulatory aspect of the new tenancies the first point to make (perhaps rather obviously) is that any tenancy must mirror the terms of the housing association’s underlying policy. That it is to say, there may be a policy setting out the circumstances when possession might be sought on rent arrears grounds.  If the tenancy itself contains clauses which do not agree with the stated policy, there may be difficulties in enforcing possession.

Tenure

The first aspect to look at is tenure. Hitherto, the vast bulk of a housing association’s tenants would have been assured non-shorthold tenants.  As we know, this means, by and large, that the landlord needs to prove one of the statutory grounds for possession set out in Sch 2 of the Housing Act 1988 when seeking to evict. This usually means proving some default by the tenant.  The flip side of this is that a tenant can remain in occupation as long as he does nothing wrong.  But this runs contrary to the idea of a fixed term, where the tenant must leave at the end of the term whether he has done something wrong or not.

To get round this, fixed term tenancies must be assured shorthold tenancies. When the fixed period expires the landlord has simply then to use the procedure under s21 of the Housing Act 1988 to regain possession. No fault on the tenant’s part need be proved.

Granting an assured shorthold tenancy (as opposed to an assured non-shorthold) is straightforward since any tenancy of a dwelling will, by default, be an assured shorthold tenancy (s19A and Sch 2A HA 1988). The crucial thing to remember however is that the agreement must not say on its face that it is to be assured - as this will cancel the default position. 

Rent increases

Section 13 of the Housing Act 1988 provides a statutory mechanism whereby a housing association can raise the rent. The tenancy agreement may agree how the rent is to be raised. However, in the absence of agreement the landlord simply has to serve the correct notice of increase on the tenant, which the tenant can challenge if he wishes before the appropriate tribunal. But s13 applies only to periodic tenancies.

Thus (in the absence of the tenant’s consent) the landlord of a fixed term tenancy will not be able to raise the rent during the term of the tenancy unless it contains terms permitting a raise in rent.  It is therefore crucial for a housing association to ensure that its fixed term tenancies contain rent review clauses.

Repairing obligations

The well-known provisions of s11 Landlord and Tenant Act 1985 did not apply to any tenancy over seven years in length (s13). However, the Localism Act has amended this so that these repairing obligations will again apply to fixed term tenancies in excess of seven years (though not to “shared ownership” leases).

Succession

The Localism Act 2011 amended s17 of the Housing Act 1988 so that fixed term assured shorthold tenancies of two years duration or greater could pass by succession on one occasion. However, provision is also made for a second succession if the tenancy agreement itself makes provision for such a succession. 

Furthermore, the Act provides only for automatic statutory succession (for both periodic and fixed term) to a spouse or civil partner who was living in the property at the time of the tenant’s death. If such spouse or civil partner was not living in the property at the tenant’s death then there will be no succession unless the tenancy makes provision for such a succession, and a person who fulfils the criteria set out in the succession clause is living in the property.

Clearly then a housing association will wish to consider whether to include in its agreements clauses permitting second successions and/or clauses permitting succession to other persons (not spouses or civil partners) who are living in the property at the time of the tenant’s death.  In both cases, the landlord would want to consider what criteria to set for such successions.  Clearly, this would be a policy decision so the terms of the tenancy should reflect any published policy.

Ending the tenancy

The whole point of the new regime is that at the end of a fixed term the housing association may decide not to renew a particular tenant’s tenancy and seek to evict him to make way for another tenant. The first thing to note is that the new tenancy standard requires a housing association to have policies governing (a) the situations in which certain fixed term tenancies will be granted and (b) the situations where the housing association will or will not renew an expired fixed term tenancy. The first crucial factor therefore is to make sure that the decision not to a renew the tenancy is taken in accordance with the association’s stated policy.

If the housing association requires possession at the end, or shortly after the end of the fixed term, the decision to evict needs to be taken at least six months in advance. This is because s21 of the HA 1988 has been modified (s21(1A) and (1B)) for tenancies over two years where the landlord is a “private registered provider”. In such a case the landlord must notify the tenant at least six months in advance of it's decision not to renew the tenancy (and to seek possession), and give the tenant information where he might find help or advice about the notice. The landlord itself must offer advice and assistance. Furthermore, while there is no statutory right for the tenant to seek a review of the decision not to renew the tenancy the new tenancy standard requires it. Therefore the landlord must carry out a review of its decision, if requested to do so by the tenant.

The more vexed question is what happens during the course of the tenancy if the landlord wishes to evict a tenant for – say- rent arrears. Section 7(6) of the HA 1988 places important hurdles in the way of a landlord seeking possession.

First of all, only certain grounds can be relied on. These are 2,7 or 8 (of the mandatory grounds) and all the discretionary grounds (except 9 and 16).

Secondly, the tenancy agreement must say on its face that the landlord would seek to rely on these grounds. It seems that if a ground is not set out in the tenancy then the landlord cannot rely on it. If no mention is made of any grounds at all in the tenancy it must be doubtful whether the landlord could seek possession during the fixed term.

Thirdly, the tenancy agreement must provide  that the tenancy can be brought to and end by “Re-entry, forfeiture, determination by notice or otherwise”. In other words, the tenancy must contain a contractual break clause or forfeiture clause of some kind. Again, in the absence of such a clause it is doubtful that a landlord could seek possession during the fixed term.

Of course, a tenant may also wish to terminate a tenancy before expiry of the fixed term.  This can only be done  if there is an express term allowing the tenant to give notice. In the absence of such a clause, the tenant can only seek to surrender the tenancy and it would be the landlord’s choice whether to accept that surrender (and relieve the tenant of any further obligations) or not.

At the end of the fixed term the tenancy will become a statutory periodic tenancy by virtue of s5 HA 1988. The tenant will then be able to terminate by giving the appropriate notice to quit.  If the landlords requires more than the statutory four weeks notice, then this should be included in the tenancy itself.