Landlord law expert Tessa Shepperson explains everything about periodic tenancies, rolling contracts, contract renewals, and what to do when your AST’s minimum term is about to expire!
When a landlord rents out a property to a tenant, there will usually be a tenancy agreement that specifies a period of time which the tenancy will last for.
This period of time is the ‘term’ of the tenancy. Where the term is set out in the tenancy agreement, it is usual to refer to the agreement as ‘fixed term’, as it will be for a fixed period of time. This will normally be for six months or a year. Less commonly, it can be for other periods of time.
But what happens when this period of time ends? Let’s go through the different scenarios.
What Happens When a Contract’s Minimum Term Ends
This will depend on whether the tenants have moved out or not. Let’s look at both cases.
1. If the Tenants Have Moved out
If the tenants move out at the end of the fixed term, the tenancy ends. It will no longer exist. This is under a rule quaintly known by lawyers as ‘effluxion of time’.
So, if the tenants have moved out by that date, then that is the end of it. The tenants no longer have any liability under the tenancy and the landlord no longer has any right to charge rent.
Landlords often get upset about this if the tenants have moved out without giving them any notice. Sometimes they may even put in their tenancy agreement a clause requiring the tenant to give notice if they want to leave at the end of the fixed term and providing for them to pay ‘rent in lieu of notice’ if they don’t.
Sadly (for the landlords) these clauses will almost certainly be void under the Unfair Contract Terms regulations (now part of the Consumer Rights Act 2015).
The tenant only signed up for a specific period of time. Any clause forcing him to stay longer or attempting to make him liable for continuing rent if he has moved out will be considered ‘unfair’ and unenforceable.
2. If the Tenants Remain in Occupation
The situation is different if the tenants remain living at the property. Although, save where there is a contractual periodic tenancy set up (see below on this), the tenancy will still end at midnight on the last day of the fixed term.
If the tenants remain in occupation, then in most cases, if no new fixed term tenancy or ‘renewal’ has been signed, then as soon as the fixed term tenancy has ended, a new ‘periodic’ tenancy will be created automatically in its place.
Unless or until a new fixed term tenancy or ‘renewal’ document is signed, the tenancy will then continue on this periodic basis.
There is nothing wrong with this. Some tenancies have run on for years on a periodic basis. You don’t HAVE to give tenants a new fixed term or renewal.
Fixed terms are often preferable as they give both landlord and tenant more security. Plus, they give landlords an opportunity to increase the rent. Sometimes, however, such as if either the landlord or the tenant are uncertain of their plans, it may be better to let the tenancy run on as a periodic, as this is more flexible.
The landlord may also prefer not to be tied down to a long fixed term if they are unhappy about the behaviour of their tenant and are only willing to allow them to remain if they behave themselves on a month by month basis.
Whether you allow the tenancy to run on as a periodic or insist on a new fixed term really depends on what you want and what is best under the circumstances.
Incidentally, letting agents are often keen for tenancies to be renewed as this will trigger their entitlement to a ‘renewal’ fee. Don’t let them over-persuade you. If the circumstances of your tenancy are that the more flexible periodic tenancy is preferable, then they should accept this. They do not have an absolute right to a renewal fee – however much they may want it!
How are Periodic Tenancies Created?
So if the tenants remain in the property and no renewal is signed, there will be a periodic tenancy. How are these created? There are basically three options:
- If the tenancy is an assured shorthold tenancy
- If the tenancy is a ‘common law’ unregulated tenancy
- If the tenancy agreement provides for a contractual periodic tenancy
Let’s take a look at these in turn.
1. Statutory Period Tenancy
If the Tenancy Is an Assured Shorthold Tenancy, then when the minimum term expires, the tenancy will continue due to statute.
Of the three, this is the most common situation. The new tenancy will arise because section 5 of the Housing Act 1988 says it will.
The Housing Act 1988 is the act which set up and regulates assured and assured shorthold tenancies. Section 5 says that if the tenant remains in occupation after the end of the fixed term, then a new ‘periodic’ tenancy will be automatically created. This new periodic tenancy will:
- Start immediately after the fixed term ends
- Be deemed to be between the same people who were the landlord and tenant at the time the fixed term ends
- Be in respect of the same premises
- Be ‘periodic’ which means it will run from period to period – normally monthly or weekly (see more on this below)
- Save for this, it will be under the same terms and conditions as the preceding fixed term tenancy
This sort of periodic tenancy is known as a ‘statutory’ periodic tenancy – because it was created by statute, i.e. section 5 of the Housing Act 1988.
In most cases, the period will be monthly or weekly, depending on how the rent is payable under the terms of the tenancy agreement. However, if the last payment of rent was different – for example if the tenant paid all the rent up front by one payment for six months’ worth of rent – then the period of the tenancy will reflect this last payment (so in our example it will be a six month periodic tenancy).
Most tenancies today are assured shorthold tenancies, so in most situations where tenants stay on after the end of the fixed term, they will have a statutory periodic tenancy.
2. ‘Common Law’ Unregulated Tenancy
Some tenancies fall outside the statutory code set up by the Housing Act 1988. In the main these are:
- Tenancies where the landlord is a resident landlord as he lives in the same building (see more on this below)
- Tenancies where the tenant is a limited company, or
- If the rent is either:
- more than £100,000 pa, or
- less than £750 pa (or £1,500 pa in Greater London)
You will find a full list in Schedule 1 of the Housing Act 1988.
So far as resident landlords are concerned, this will normally be where someone is renting out some sort of granny annex of ‘garden flat’. It will not apply to situations where the landlord owns two or more properties in a purpose-built block of flats and rents one and lives in another – here the rented properties will be ASTs. If the landlord is renting a room to a lodger, this will normally not be a tenancy at all (see more about this in my Lodger Landlord website).
So, what happens if a tenant stays on after the end of the fixed term in a common law tenancy? Section 5 will not apply as this is not an AST. Generally, however, the law will imply a periodic tenancy where the tenant pays and the landlord accepts rent.
Under section 54(2) of the Law of Property Act 1925 it is not necessary to have a formal written tenancy agreement deed if a tenant is living in a property and paying rent where there is a fixed term of 3 years or less. A new tenancy will be created automatically.
The only circumstances where it will not be created will be if the tenant fails to pay rent or the landlord refuses to accept it. Generally, the landlord will be looking to recover possession of the property here, in which case note that they will still need to get a possession order through the courts (my Landlord Law Eviction guide has instructions on how to do this).
3. The Tenancy Agreement Provides for a Contractual Periodic Tenancy
The third kind of case that creates a periodic tenancy is ‘contractual periodic tenancy’. These are not common and only exist if the tenancy agreement signed by the tenant specifically provides for them.
When this is done, the tenancy does not actually end at all, but continues (assuming the tenants don’t move out) on a periodic basis, as set out in the agreement. Normally this will be for a monthly periodic tenancy.
One of the advantages of contractual periodic tenancies is that you can specify what the period of your periodic tenancy will be so this creates certainty.
What Won’t Happen
It’s probably worth mentioning, to conclude this article, that where someone has been living in a property as a tenant, they will not turn into a ‘squatter’ if they remain in the property after the fixed term has ended.
They will stay a tenant and will be entitled to remain in the property until evicted through the courts.
Another worry landlords have is that if tenants stay in the property a long time, they will suddenly acquire extra rights, such the right to buy the property. This won’t happen, either.
Landlords will almost always be entitled to evict tenants who remain living in the property after the fixed term has ended. The only circumstances where this is not the case is where the tenant has a protected tenancy under the Rent Act 1977. But no Rent Act protected tenancies have been (or can be) created since January 1989, so this is not going to happen with a more recent tenancy.
In the vast majority of cases where a tenant stays on after the end of the fixed term where no new agreement has been signed, he will continue to have a tenancy – a periodic tenancy. Indeed, he will also have a tenancy agreement as the terms of the preceding tenancy agreement will continue to apply.
However, there is nothing to fear about periodic tenancies and there are times when allowing a tenancy to ‘run on’ as a periodic is a good idea. Hopefully this article helped you understand the issues and how the rules work.