A guide to the different types of tenancy agreement
A written contract is the best way to form an agreement with a renter moving into your property. While the most common form of tenancy agreement is a fixed-term assured shorthold tenancy (AST), it’s not the only option – your let might fall under the rules and regulations of a different type of tenancy. With that in mind, we’re looking at the different tenancy agreements, how they work, and when you should consider each arrangement.
Why should I have a written tenancy agreement?
There’s no legal requirement for a landlord and tenant to have a written agreement, but having one offers both parties far better security throughout the tenancy. Without a written agreement that complies fully with tenancy law and the Tenant Fee Act, it's highly likely that neither the landlord or tenant will have a clear understanding of their full range of rights and responsibilities. This also means that there is a greater risk that one or both parties end up in breach of their statutory obligations.
Furthermore, if a dispute arises during the tenancy, it can be difficult to assign responsibility or provide evidence of liability without a signed written document to refer back to. For example, if rent is received after the agreed due date or in the incorrect amount, without a written contract it can be difficult to prove that a tenant is in breach of the terms of your agreement.
What should I include in a tenancy agreement?
As a rule of thumb, you should include the following information when drawing up a contract:
- Address of the property
- Address of the landlord (or their managing agent)
- Rental amount
- Details for the account into which rent will be paid and schedule of payment (monthly, quarterly etc.)
- Deposit total
- The deposit protection scheme in which the deposit will be held
- Terms of the tenancy (e.g. the length of the fixed term, due date for rent, number of tenants etc.)
- Notice periods
- Rights and obligations
- Special clauses, such as a pet clause or break clause.
Different types of tenancies
What is an assured shorthold tenancy?
By far the most common type of agreement, AST contracts are the norm in the private rental sector (PRS). An AST covers just about everything to do with a tenancy, including specific details about living in the property and the responsibilities of the landlord and tenants. It's main distinguishing feature compared with other types of tenancy is that a landlord can evict a tenant without any reason at the end of the fixed term.
Landlords cannot increase the rent during the fixed term unless a properly worded rent review clause is included in the AST. Under an AST, tenants are guaranteed a minimum fixed term of 6 months (unless they are in breach of contract), and cannot be evicted using a break clause any earlier than this. Most ASTs run for 12-24 month, with a break clause agreed by all parties actionable at least 6 months after the start of the tenancy.
Landlords have a number of obligations to tenants under an AST:
- Provide tenants with a valid EPC and Gas Safety Certificate
- Arrange annual gas safety checks
- Follow the correct procedure under Section 21 to regain vacant possession
- Provide tenants with a copy of the government's 'How to Rent' guide
- Register the deposit with an approved government-backed scheme
Most private tenants renting from a landlord or agent will have an AST. However, there are limited circumstances under which a tenancy does not qualify as an AST, e.g. if the rent exceeds £100k per year, is below £250, or if the tenancy is a short-term holiday let.
What is a non-housing act tenancy?
Tenancies on residential premises that aren’t an AST may be written up on a non-housing act agreement, otherwise known as common law tenancy. The legal basis for a tenancy that cannot be assured comes from Common Law, meaning its conditions are not listed in any single legislative document. In the main, rules are derived from legislation such the Eviction Act 1977, the Landlord and Tenant Act 1985 and sometimes the Consumer Rights Act 2015.
Non-housing act tenancies offer far fewer protections to the tenant, as the landlord is not bound by the same obligations as under an AST. However, landlords are also unable to evict their tenants using a Section 21 notice. Your let is likely to be a non-housing act tenancy if the tenant pays over £100,000 per year, the property isn’t their primary residence, or the agreement is between the landlord and a company rather than an individual.
What is a company let?
Some landlords may decide to let their buy-to-let property to a company rather than individual tenants. The majority of company lets don’t fall under AST regulations and will instead be classed as a non-housing act tenancy (as per the above).
In this case, the tenancy won’t be subject to the same rules for tenant deposit protection and eviction notices. The eviction notice is also replaced by a ‘notice to quit’, which the landlord can provide at the end of the tenancy.
What is a fixed-term tenancy?
A fixed-term tenancy, also known as a short-hold tenancy, lasts for a fixed period. They can last up to a maximum of 7 years under an AST, depending on the agreement between the landlord and tenant. It’s not uncommon to see fixed-term tenancies in place for two years or five years.
What is a joint tenancy vs single-room let?
Joint tenancies and single-room lets are common in HMOs (house in multiple occupancy). A joint tenancy sees the landlord rent the property to all the tenants, with each one jointly and severally liable for upholding the terms of the agreement. If one tenant fails to pay the rent, the others will be responsible.
With a single-room let, the landlord rents a room in an HMO to the individual tenant, granting them access to the common areas in the house. If a tenant fails to pay on a single-let tenancy, they are solely responsible for their share of the rent.
Single tenancies can see landlords earn more rental income as they charge per room and income is more consistent as a single vacant room incurs a less costly void than an empty property. Joint tenancies, however, tend to have fewer problems as there’s collective responsibility and the tenants are already friends with one another. A joint tenancy is more common when all the tenants know each other, or it’s a student let.
What is a periodic tenancy?
A periodic tenancy has no fixed end date, meaning it runs until either the landlord or tenant decide to end the agreement. All ASTs that aren’t renewed or terminated at the end of the fixed term (i.e. the tenants don't move out and the landlord hasn't served them notice asking them to leave at the end of the fixed term) automatically go onto a statutory periodic tenancy.
Essentially, it has the same terms as an AST, just without the fixed-term contract. Once on a statutory periodic tenancy, the contract rolls from month to month just like a typical contract you may have with a phone, broadband or satellite TV company.
If a tenant wishes to end the periodic tenancy, they can do so at any time but need to provide one month’s notice before vacating the home. Landlords can do the same, but they must provide two months’ notice. Landlords can also increase the rent once in a 12-month period during a statutory periodic tenancy, but it needs to be a reasonable reflection of current market rental conditions.
What about lodger agreements?
A lodger agreement is an alternative option to tenancies. This is when a landlord rents a room in a furnished property where they also live, meaning the renter becomes a lodger in the landlord’s home. With an excluded tenancy, the lodger shares all common parts, such as the bathroom, toilet and kitchen.
Alternatively, the lodger may also have something called an excluded licence, which means the agreement doesn’t give them exclusive access to any area in the property, but the landlord can go wherever they like.
Summary: understanding your tenancy
Having a written tenancy agreement or some form of contract is necessary to protect the interests of all parties, increase the chance of a smoother rental process, and mitigate the risk of potential disputes arising. Understanding how each tenancy works means you can provide your new tenant with the right rental agreement for the type of let on offer.
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