Break clause and rental renewal clause in AST

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    Break clause and rental renewal clause in AST

    Hi everyone, I'm signing up to a new AST and I've received a draft of the contract. Would like to clarify a few things regarding the rental renewal and break clause.

    7.1 Rental Increase

    The Rent payable under this agreement will increase upon each anniversary of the commencement of the initial term, or in the event of both the Landlord and the Tenant wishing to renew the tenancy created by this agreement for a further term; at least in line with the RPI (Retail Prices Index) for which RPI figures have been published no later than 30 days before that anniversary or renewal, at a minimum of 3% but otherwise upon the same terms and conditions.
    What happens to the rent amount if the fixed term ends and the tenancy becomes a statutory periodic tenancy? Would this clause apply to the rent in a SPT or would it remain the same as in the original fixed term?

    9. Termination

    It is agreed and understood that the Tenancy hereby created may be terminated by serving advance written notice to the Landlord’s Agent in accordance with Clause 6.1 and 6.2 above and as outlined in the Tenant Break Clause (if any) below provided always that it is understood that:
    1. up to time of the termination the Tenant shall pay the rent and observe and perform the Tenant obligations covenants and conditions contained in this Agreement and
    2. immediately on the expiration of such notice the Tenant shall yield up the Property with vacant possession and the Tenancy and everything contained in this Agreement shall cease but without prejudice to the rights and remedies of either party against the other in respect of any claim or breach of obligation arising from the Tenancy.
    3. Where the Tenant comprises of more than one person the written notice must be served and signed by all Tenants.

    Break Clause

    Tenant Break:
    No less than 2 months notice served after completion of the first 4 months of the Tenancy. This means that the Tenancy cannot end before the last day of the first 6 months of the tenancy term as shown on page 1 of this Tenancy Agreement.

    Landlord Break:
    No less than 2 months notice served in accordance with Section 21 of the Housing Act 1988 after completion of the first 4 months of the Tenancy. This means that the Tenancy cannot end before the last day of the first 6 months of the tenancy term as shown on page 1 of this Tenancy Agreement.
    How flexible is this clause? Can the tenancy be ended early only at the end of month 6 or does it mean that I (or the landlord) could end it in month 8 as long as the notice is served 2 months before that?

    #2
    Originally posted by throw332 View Post
    What happens to the rent amount if the fixed term ends and the tenancy becomes a statutory periodic tenancy? Would this clause apply to the rent in a SPT or would it remain the same as in the original fixed term?
    The rent clause carries over to any SPT, so rent would increase on each anniversary.

    However, the SPT is a new tenancy with the same terms as the original tenancy, so it seems to me that the rent would not increase when the SPT starts and could not be increased until on year after the SPT starts.

    Originally posted by throw332 View Post
    How flexible is this clause? Can the tenancy be ended early only at the end of month 6 or does it mean that I (or the landlord) could end it in month 8 as long as the notice is served 2 months before that?
    It appears to allow the tenancy to be ended on any day after 6 months by giving at least 2 months notice (note that you can give more than 2 months' notice).

    Comment


      #3
      If the tenancy becomes an SPT, the break clause becomes void.

      If the tenant vacates on or before the end of the six months, the tenancy will end at the end of the six month fixed term whether notice has been served or not.
      If the initial six months isn't a fixed term, the tenancy won't end after six months and an SPT won't be created.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

      Comment


        #4
        Is the term of the tenancy expressed to continue as periodic? If not, how long is the term?

        Comment


          #5
          Hey everyone thanks for the responses. The tenancy is expressed as a fixed 12 month term, no clauses for periodicity at all at least in the draft agreement, I've only just paid the holding deposit.

          Comment


            #6
            Originally posted by jpkeates View Post
            If the tenant vacates on or before the end of the six months, the tenancy will end at the end of the six month fixed term whether notice has been served or not.
            That would seem not to be the case given that we now know that the tenancy is for 12 months.

            Originally posted by MdeB View Post
            It appears to allow the tenancy to be ended on any day after 6 months by giving at least 2 months notice (note that you can give more than 2 months' notice).
            Agreed, though the notice cannot be served until four months have elapsed.

            *

            Clause 7.1 attempts to achieve the unachievable by providing for what happens after the fixed term ends. What will happen though is that if the fixed term is followed by a statutory periodic tenancy (SPT) then:

            (a) the rent at the start of the periodic tenancy will be the same as that payable at the end of the fixed term
            (b) clause 7.1 wll be included in the terms of the SPT with the effect that the rent cannot increase during the first year of the SPT as the terms will provide that the increase takes place a year later.

            So what happens after two years? The structure of the clause is such that it provides for two possibilities:

            The Rent payable under this agreement will increase upon each anniversary of the commencement of the initial term

            or

            in the event of both the Landlord and the Tenant wishing to renew the tenancy created by this agreement for a further term; at least in line with the RPI (Retail Prices Index) for which RPI figures have been published no later than 30 days before that anniversary or renewal, at a minimum of 3% but otherwise upon the same terms and conditions.

            So, if both the landlord and the tenant wish to renew the SPT the blue applies, but if only one or neither wish to renew then the red applies. Note that it is only the wish, and not an actual renewal which is the trigger.

            If the red applies all we know is that the rent is to increase - there is no indication of how the increase is to be arrived at. Not very helpful.

            If the blue applies then the increase is to be either (i) at least in line with the RPI (Retail Prices Index) for which RPI figures have been published no later than 30 days before that anniversary or (ii) a minimum of 3%. The first snag with that is that in the absence of the words "whichever is the greater" we do not know whether (i) or (ii) is to apply. The second is that (i) makes no sense because it says the increase is to be in line with a figure of the index and not with the increase in the index over a given period. That would seem to leave us with an increase of 3% - which remember will only apply if both the landlord and tenant wish to renew.

            So, if you insist you do not wish to renew the SPT all that will happen is that there must be an increase after two years.

            To summarise, clause 7.1 is a complete pig's ear.



            Comment


              #7
              Originally posted by Lawcruncher View Post
              That would seem not to be the case given that we now know that the tenancy is for 12 months.
              Yes, substitute 12 months for 6 months in my response/
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Thanks again for the help.

                So just to clarify, if my 12 month fixed term expires and the landlord asks for a rent increase, If I refuse the increase but stay in the property my tenancy becomes a SPT on a month to month basis and the rent could not be increased for another year?

                Although I'd imagine in such a scenario the landlord would be incentivised to simply serve me 2 months notice and evict me if they believe they can find a higher paying tenant.

                Comment


                  #9
                  I think that the landlord would expect the rent to increase at the 1st anniversary and I don't see anything in the wording to suggest otherwise (although, as per Lawcruncher, the amount of the increase is unclear).

                  Currently, the landlord would have to serve 6 month's notice, not 2.
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    I wonder if the landlord has butchered an agreement template intended to create a contractual periodic tenancy but in doing so has removed all reference to it in the term.

                    Comment


                      #11
                      Originally posted by DPT57 View Post
                      I wonder if the landlord has butchered an agreement template intended to create a contractual periodic tenancy but in doing so has removed all reference to it in the term.
                      Something has gone wrong.

                      What the draftsman has not realised is that when the fixed term ends and an SPT kicks in the original agreement is a dead letter - you cannot have two agreements running simultaneously. The terms of the fixed term tenancy are though carried forward so that clause 7.1 applies but from the start of the SPT.

                      Comment


                        #12
                        IMO the rent will rise by RPI on each anniversary, which LL cannot vary by serving s13

                        Comment


                          #13
                          Originally posted by mariner View Post
                          IMO the rent will rise by RPI on each anniversary, which LL cannot vary by serving s13
                          In my opinion no rent rise can occur until the first anniversary of the start of the SPT.

                          Section 13 applies to:

                          (a) a statutory periodic tenancy other than one which, by virtue of paragraph 11 or paragraph 12 in Part I of Schedule 1 to this Act, cannot for the time being be an assured tenancy; and

                          (b) any other periodic tenancy which is an assured tenancy, other than one in relation to which there is a provision, for the time being binding on the tenant, under which the rent for a particular period of the tenancy will or may be greater than the rent for an earlier period.

                          Note that the words in red do not apply to SPTs - reasonable enough considering that an agreement for a fixed term cannot provide for an increase in rent after the fixed term ends. Since (a) has no qualification of the kind set out in (b) it would seem that in this case a section 13 notice can be served - but only to increase the rent after the end of the first year of the SPT.

                          The draftsman is guilty of the sin of introducing an unnecessary complication. If you are going to complicate things you need good drafting skills to reduce the risk of producing unintended consequences.

                          This is yet another thread which emphasises that legal drafting can be trickier than people think.

                          Comment


                            #14
                            Originally posted by Lawcruncher View Post
                            In my opinion no rent rise can occur until the first anniversary of the start of the SPT.
                            That interpretation relies on there being no definition of "the initial term".
                            Which, albeit as an assumption, there must be, otherwise the reference to it makes no sense.

                            Once the initial term is fixed in time, the anniversary of its commencement is also fixed.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment


                              #15
                              Originally posted by jpkeates View Post
                              That interpretation relies on there being no definition of "the initial term".
                              Which, albeit as an assumption, there must be, otherwise the reference to it makes no sense.

                              Once the initial term is fixed in time, the anniversary of its commencement is also fixed.
                              I think the terms of the SPT have to be interpreted ignoring the fact that there was a previous tenancy. The SPT is an entirely new tenancy the terms of which just happen to be the same as the preceding tenancy.

                              Comment

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