Are Periodic Tenancies a Good Idea for Landlords?

Landlords often get asked by tenants to allow their tenancy to ‘turn periodic’ instead of renewing. This post will tell you exactly what a periodic tenancy is, and what it means for landlords and tenants in England and Wales. 

This post applies only to assured shorthold tenancies, which are the most common type of tenancy in England and Wales.

What is a Periodic Tenancy?

‘Periodic’ refers to the ‘period’ of the tenancy. Most tenancies in England and Wales are monthly: the tenant’s rent is due once every month, and they pay in advance for the coming month. We can say that the period of these tenancies is one month.

Most tenancies begin with a ‘fixed term’. This is a length of time, for example six months, for which the tenant is protected from eviction, rent increases, and changes to the contract’s terms. The landlord, too, is protected from the tenant being able to end the tenancy. The tenant cannot serve notice to end the tenancy during this period, ensuring the landlord receives a regular rental income. 

Once this fixed term is over, however, the tenancy doesn’t just end automatically. Rather, as long as the tenant hasn’t packed up and moved out, the tenancy continues on a periodic basis: every month, the tenant pays rent for the next period. This is a periodic tenancy. 

When a tenancy becomes periodic, the protections of the fixed term no longer apply. The tenant can serve one month’s notice to end the tenancy. Likewise, the landlord can serve two months’ notice. The imbalance in term lengths is, in law, due to the tenant’s interest in the property as their home trumping the landlord’s interest in the property as a financial asset. 

So there we have it — a periodic tenancy is one which rolls from period to period, with no fixed end date. 

Statutory periodic and contractual periodic

A minor point to bear in mind is that a tenancy can become periodic in two ways. A contractual periodic tenancy occurs when the tenancy agreement includes a term describing how the tenancy will continue after the fixed term ends. If there is no such clause in the contract, then the periodic tenancy will be created automatically due to the Housing Act requiring this to happen. There are some legal differences between these two kinds of periodic tenancy, but they do not apply to this article’s topic. 

Is Periodic Better than Renewing a Fixed Term?

Once a tenancy’s fixed term ends, if landlords are generally happy with the tenants, they have a choice to make. They can allow the periodic tenancy to keep running, or offer a renewal to the tenants.

The tenant will have their own desires and preferences, and ultimately an agreement will have to be made. But what is best for the landlord? Here are the relative advantages of each.

Benefits of periodic tenancies

When a tenancy is periodic, the landlord is able to use a Section 21 notice to evict the tenant. Section 21 evictions are often the simplest and fastest way to evict a tenant, because these evictions are ‘accelerated’ in court. Furthermore, they don’t require the landlord to prove that any ‘grounds’ for eviction exist (for example, proving rent arrears or a breach of the contract). 

Being able to evict a tenant easily is a strong position for a landlord to be in. It means that if the tenant suddenly stops paying rent, they will be able to evict them, perhaps within as little as two months. This would not be possible in a fixed term, where landlords must either wait until the fixed term ends or use a more difficult route to evict the tenant, such as Section 8, where grounds must be proved.

Fixed terms also prevent landlords from easily increasing the rent. The fixed term ‘freezes’ the terms of the tenancy for its duration, meaning rent increases cannot be introduced without the tenant agreeing to a future rent increase clause in the original tenant agreement. But if you don’t have this, then you can only increase the rent once the fixed term ends.

You can propose a new, higher rent as part of a renewal, but you can also decide to increase the rent without renewing. This can be done with a Section 13 rent increase notice. 

Allowing a tenancy to continue on a periodic basis has another major benefit. It means the landlord doesn’t have to go through the admin and paperwork of renewing. Renewals mean landlords must issue a new tenancy agreement, collect signatures, and re-serve the deposit protection documents and the ‘How to Rent’ booklet. If it’s the first time you’ve renewed since the Tenant Fees Act commenced in June 2020, you may need to return some of the tenancy deposit if this exceeds five weeks’ rent. 

Benefits of fixed-term tenancies

In a periodic tenancy, the tenant can end the tenancy with as little as one month’s notice. This can put landlords in a tight spot, as it gives them very little time to find new tenants before the existing ones move out. Renewing the tenancy for another fixed term protects the landlord from being in this situation, ensuring a steady rental income for the length of the fixed period. 

In theory, fixed terms can last up to seven years, at which point the tenant may gain some leaseholder rights over the property. In practice, the most popular fixed term lengths are six months and one year, but up to two years is common, especially for tenants who need to know they will remain in the property for longer (e.g. families with children in a local school).

If a tenancy’s fixed term exceeds three years, the agreement must be made by deed. Deeds requires the signatures of all parties to be witnessed. We recommend seeking legal advice if planning to a tenancy with a fixed term over three years.

Offering a new fixed term gives tenants security as it protects them from Section 21 evictions. Many tenants desire this security. Offering it with a renewal also provides a natural opportunity to propose a new rent. The tenant gets their peace of mind and the landlord gets a higher rent.

Conclusion

Fixed terms lock tenants in for longer, which can be great if they are good tenants who take care of the property and pay on time. But if they stop paying rent or damage the property, this can make them very hard to evict. Periodic tenancies offer more flexibility to both parties, but mean that the landlord can be given just a single month’s notice to find new tenants. 

---