Revised AST terms - 3yrs with 2 months notice after 12 months. Any drawbacks?

[Hooper]

Hi - I have asked various similar questions on this topic but I think I have chosen my preferred course of action and wanted to see if anyone spotted any majors flaws.

I basically would like my tenants to stay for a minimum of 12 months after which time I would like contracts to continue with two months notice to be given either way. I also would like to avoid the uncertainty of a tenant being able to move out at the end of an initial 12 month term without giving any notice.

I looked at having an initial Term of 12 months followed by a contractual tenancy but it was complicated for tenants to read. I was also uncertain about rights of eviction under a contractual tenancy.

Instead I have opted for:
a. 3 year AST
b. 2 Months notice either way, such notice not to expire in first 12 months.
c. Clause allowing rent to be varied with two months notice, such notice not to expire in first 12 months.

Any potential drawbacks?

[johnboy]

I cant remember for sure but I think if the ast is to be longer than 2 years it has to be drawn up as a deed. Or have I confused than with 5 years?

I am sure one of the other members will confirm or not.

[Hooper]

I think it is 3 years?

[matthew_henson]

Hi - I have asked various similar questions on this topic but I think I have chosen my preferred course of action and wanted to see if anyone spotted any majors flaws.

I basically would like my tenants to stay for a minimum of 12 months after which time I would like contracts to continue with two months notice to be given either way. I also would like to avoid the uncertainty of a tenant being able to move out at the end of an initial 12 month term without giving any notice.

I looked at having an initial Term of 12 months followed by a contractual tenancy but it was complicated for tenants to read. I was also uncertain about rights of eviction under a contractual tenancy.

Instead I have opted for:
a. 3 year AST
b. 2 Months notice either way, such notice not to expire in first 12 months.
c. Clause allowing rent to be varied with two months notice, such notice not to expire in first 12 months.

Any potential drawbacks?

No point in having the three year tenancy in that case, the reason T would want to take such a long term is to fix the rent for the period. Otherwise it offers T less rights than a 12 months AST falling in to an SPT where T get 1 months notice. Also T is at mercy of your rent increases were either an annual renewable or SPT would ensure that did not happen too often and would be at market rate

Bad deal for T good for you, but smart T would most likley see through and reject

You can still use a section 21 to end the tenancy once the break clause has been evoked and your eviction rights in an SPT are easier than an AST as you can use a S21 immediately.

It would be an attractive deal to T if 1) the rent was fixed or 2) rent increases were contracted and reasonable, say 3% pa, avoid the RPI+ x% method, RPI could go anywhere in the next three years and cost your or T dearly (RPI goes negative as well!)

[Hooper]

No point in having the three year tenancy in that case, the reason T would want to take such a long term is to fix the rent for the period. Otherwise it offers T less rights than a 12 months AST falling in to an SPT where T get 1 months notice. Also T is at mercy of your rent increases were either an annual renewable or SPT would ensure that did not happen too often.

Bad deal for T good for you, but smart T would most likley reject

You can still use a section 21 to end the tenancy once the break clause has been evoked

Is it so bad for tenant? They are not tying themselves into any more than 12 months - during which time the rent cannot be varied. And they are entitled to give notice to quit before any increase applies. If it was a normal fixed term I would be entitled to ask for a rent increase and, if not accepted, would be entitled to give them two months notice to quit and re-let.

That said - it would seem reasonable to link rises to an index. What regional rental indexes are there outside the findaproperty.com RENTAL index?

[matthew_henson]

Is it so bad for tenant? They are not tying themselves into any more than 12 months - during which time the rent cannot be varied. And they are entitled to give notice to quit before any increase applies. If it was a normal fixed term I would be entitled to ask for a rent increase and, if not accepted, would be entitled to give them two months notice to quit and re-let.

That said - it would seem reasonable to link rises to an index. What regional rental indexes are there outside the findaproperty.com RENTAL index?

Agreed but an annual renewable contract limits rent rises to annual and an SPT to the first anniversary of the end of the fixed term then six monthly

A stated earlier indices go down as well, better to agree a fixed percentage increase

Try these guys http://www.rrpi.co.uk/ but not sure how how many data points they take to find their average

[Hooper]

Agreed but an annual renewable contract limits rent rises to annual and an SPT to the first anniversary of the end of the fixed term then six monthly

A stated earlier indices go down as well, better to agree a fixed percentage increase

Try these guys http://www.rrpi.co.uk/ but not sure how how many data points they take to find their average

Thanks. I certainly didn't know that about the SPT.

It would therefore also seem reasonable to limit increases to once in any 12 month period.

[Hooper]

Does this make sense?

The Landlord reserves the right to vary the Rent by giving a minimum of two months notice, such notice not to expire during the first 12 months of the Term and limited to once in any 12 month period. Rent reviews shall not exceed the greater of, a. 5%p.a. or, b. the change in the findaproperty.com rental index, since the Rent was last fixed.

[matthew_henson]

Does this make sense?

The Landlord reserves the right to vary the Rent by giving a minimum of two months notice, such notice not to expire during the first 12 months of the Term and limited to once in any 12 month period. Rent reviews shall not exceed the greater of, a. 5%p.a. or, b. the change in the findaproperty.com rental index, since the Rent was last fixed.

Make sense would also add something suggesting it can't go down.

Have you done the research in your area and match the increase to the local trend? in the area were I live rents have been in terminal decline for 4 year (7% year on year reduction) so as a T you would be an idiot to sign up to an increasing contractual obligation. I have not increased the rent for my tenants in SE London for 5 years and so they have stayed for 5 years (market down there has gone up 12% in the period)

The trouble is if you keep hiking the rent in flat market you will never get a tenant to stay and a one month void is the same as an 8% reduction in rent plus if you use a letting agent add the extra 10+% of annual to the cost. You could be looking at a 20% loss for the sake of a potentially greedy 5% increase

Personally (if your property is desirable of course) I would fix the rent for a 2 or 3 year period which would make it attractive to long term tenants and help you avoid voids/LA fees which can wipe out any gains in an instant. Of course if the property has some flaws tenant may not wish to stay too long

[Hooper]

Thanks for your reply.

One of the finest properties in the area!

I'm not far from you but rents are on the way up here after at least 18 months of falls - this borough is currently the highest riser in London (according to findaproperty.com). This particular property is currently agreed to let at 365pw - up £5 from last year but still down from the 2008 peak of 420.

That said - I'd prefer not to price in definite increases as I have never increased rent for an ongoing tenant. I just want to make sure that I have the option to do so if there is a significant recovery over the Term. Particularly given the risk of inflation accompanied by rate rises.

The point of the contract is not to provide either of us with 3yr security (most of my tenants are quite young and mobile) but to make it such that - if everyone is happy - it can tick along without renewals on terms that we are all happy with.

I try not to bother with agents although I have recently started signing up with an online one simply in order to get advertising on Rightmove, Globrix, etc. That works out about 1.5%.

[islandgirl]

can I ask what may be a stupid question - you are DIY, so no agency fees. What if you sign a 3 yr AST and the tenant is trouble - having to chase for rent (but never falling so far behind a section 8 would work), is destroying the flat, refusing to speak to you, accusing you of harrassing him etc etc. You are stuck with him for 3 yrs at worst, 12 months at best. I learnt the hard way by issuing a 12 month AST - 6 months is now my golden rule followed by periodic - my current tenants have been in 4 years!

[Hooper]

can I ask what may be a stupid question - you are DIY, so no agency fees. What if you sign a 3 yr AST and the tenant is trouble - having to chase for rent (but never falling so far behind a section 8 would work), is destroying the flat, refusing to speak to you, accusing you of harrassing him etc etc. You are stuck with him for 3 yrs at worst, 12 months at best. I learnt the hard way by issuing a 12 month AST - 6 months is now my golden rule followed by periodic - my current tenants have been in 4 years!

Thanks. I guess these are exactly the kind of obstacles that I am trying to identify.

Sorry to hear about your nightmare tenants. I have always offered 12 month contracts without a break clause because I want to try to steer clear of short term tenants. Making it clear that the tenancy is for a minimum of 12 months does seem to weed them out.

The 3yr AST I am proposing has a break clause so that it can effectively be terminated by either party (with two months notice) at any time after 12 months. I am therefore assuming that there is no less recourse open to me for repossession than if I had we had signed up to a fixed 12 month term followed by SPT?

[islandgirl]

You see I found the opposite - bad tenants WANT 12 months - they KNOW you can't touch them for a full year.....good tenants understand and if you say you are willing to go periodic after 6 months all being well will accept your reasons.

[Lawcruncher]

Does this make sense?

The Landlord reserves the right to vary the Rent by giving a minimum of two months notice, such notice not to expire during the first 12 months of the Term and limited to once in any 12 month period. Rent reviews shall not exceed the greater of, a. 5%p.a. or, b. the change in the findaproperty.com rental index, since the Rent was last fixed.

This must fall foul of the Unfair Terms in Consumer Contract Regulations and is in any event unenforceable. Even if you limit the increase, you cannot have a provision that allows the landlord unilaterally to increase the rent. A rent review needs to be expressed in terms that if the parties do not agree, the question is to be referred to a third party. An increase by reference to some index or by a fixed amount or percentage is fine.

As a general observation, I cannot help feeling that you are overcomplicating things. The fact is that a tenant can walk away at the end of a fixed term without notice; there are ways round it but they do have disadvantages and can lead to complications. Best to keep things simple. If you do want complications DIY is out.

[jeffrey]

This must fall foul of the Unfair Terms in Consumer Contract Regulations

Even were that so (and I express no opinion), it's irrelevant. Any clause is enforceable until a Court holds that it's not.