What is a residential tenancy agreement. Without a tenancy agreement in place, landlords and tenants have no written record of their contract, which leaves both parties with reduced legal options if a dispute occurs. Rental agreements protect the legal rights of both parties.
A tenancy agreement is a binding contract between you and your tenant(s). It sets out, clearly and without room for misinterpretation, what is expected of the landlord and the tenant, and the length of the agreement between both parties. It also explains what either sides legal obligations if the other party do not keep to their side of the agreement.
Although it is not a legal requirement to have a written tenancy agreement. It is beneficial to have a written tenancy agreement. It will make it much easier for all involved.
- It states all the terms of the tenancy
- Most insurers insist on one being in place before offering landlord insurances
- Disputes are more likely to occur where just an informal arrangement exists
- Accelerated eviction procedures can only be used with a written agreement
- Tenants on benefits will need a tenancy agreement for any claim
This guide will discuss the importance of creating a clear residential tenancy agreement.
The Assured Shorthold Tenancy Agreement
The majority of private rented sector (PRS) landlords in England and Wales will use an Assured Shorthold Tenancy (AST) as the default contract of choice with their tenant.
It should be used where the following conditions are met:
- The rent is between £250 and £100,000 per year
- The tenants are people rather than an organisation such as a company
- The property will be the tenant’s main home
- The landlord does not live in the property
- The length of the tenancy is between six months and three years
The different types of AST
- Joint AST for a family, an individual or two people who are unrelated: when you are renting out the entire property to an individual, a family or a couple of friends on one joint tenancy. In this type of agreement every adult is equally responsible for meeting the terms of the agreement including paying the rent. It is designed to be used with or without a security deposit.
- Joint AST for a group of sharers: Use this agreement when you are renting a property to three or more people and at least two of them are unrelated to each other. These types of arrangements are known as houses in multiple occupation (HMOs) and have their own specific requirements which the tenancy agreement covers. If you are renting to four or more sharers who are not related to each other, you should use the ‘sharer agreement’. It is designed for up to six tenants and everyone can sign it electronically. Tip: For landlords with larger HMOs (four or more tenants), it is advisable to let using the standard ‘room-only ‘AST as it allows you easier access to the communal areas of the property in order to comply with your HMO requirements i.e fire safety.
- Standard room-only AST: Landlords renting out a property to three or more people – at least two of whom are unrelated – need to comply with far stricter HMO regulations. The best way to do this is through a ‘room-only’ agreement so that inspections of the communal areas of the property can be carried out when you need to.
What you should include in your residential tenancy agreement
In the event of a dispute between you and your tenant, the tenancy agreement is one of the most important pieces of evidence you will need to provide to an adjudicator as it outlines both your responsibilities as the landlord, as well as your tenant’s. It is vital that the agreement is fully comprehensive and contains everything you may need to rely on at a later date.
The clauses that should be included in any agreement are:
Your details and your tenant’s name
Names and contact details of any person party to the agreement, along with the full address of the property which is being let. This confirms the details of who is responsible for the property.
Start date and length of tenancy
Date that the tenancy begins and the agreed length of the agreement.
Ending the tenancy early and notice periods
Whether the tenancy can be ended early and how this can be done, including how much notice is required and if there are any costs. These details must be transparent and reasonable.
Rent payments and payment dates
How much rent is due, the payment frequency and payment dates, how to make payments and any circumstances when the rent may be increased.
Details of the deposit protection
Whether the tenant is using a deposit protection scheme or a deposit replacement membership, and in what circumstances any money can be withheld from the tenant when the tenancy ends. Deposits can be used to repair damages caused by tenants and rent arrears.
Repairs and maintenance
Who is responsible for repairs, and how and when the tenant should report any damage to you so the matter can be dealt with quickly.
Responsibility for garden maintenance, if there is a garden; including front and back gardens, trees, shrubs and borders, mowing, weeding and general upkeep. Again, this must be reasonable and tenants should be asked to report any damage to areas that may not be their responsibility. i.e fences, sheds.
Which bills your tenants are responsible for throughout the tenancy and which bills that you may cover. This includes water and other utility bills, council tax, TV licence, broadband or details of service charges.
How the property should be returned at the end of the tenancy. The tenant is only responsible for returning the property cleaned to the same standard as when they moved in.
Include a clause on whether pets are allowed in the property or not. Most landlords prohibit pets but as consent for pets is a complicated issue. A landlord would need to offer clear written reasons for refusing a pet when a request is made, and you are encouraged to give it some thought.
Rules on subletting and details of whether other people are allowed the use of the property, and if so, which rooms and for how long.
This is often a common cause for disputes, so it is important to include your position on smoking in the property. We would advise that smoking is not allowed.
Nuisance in the property
This will include any actions that could increase insurance costs for the property, or cause nuisance to you or the neighbours, such as noise and playing loud music after certain hours.
Use of the property
Outline the use of the property for residential purposes and that the property is not to be used for business purposes, without consent, or illegal purposes.
What the tenant is to do in the event of the property being vacant for a specified number of consecutive days, which commonly includes, turning off the water or leaving the heating on a low setting during the winter months. You should specify that the property must always be locked and secure including using any burglar alarm when empty.
Whether the property is furnished or unfurnished, state your terms on the introduction or removal of furniture in the property and who is responsible for removal costs if excess furniture is left in the property without permission.
Set out how, and why, you may be required to legally repossess the property by using either Section 8 or Section 21 of the Housing Act 1988 (in England and Wales) or Section 33.
You can also include individually negotiated clauses at the end of the tenancy agreement. These must be legal, fair and reasonable, having been clearly communicated and signed by the tenant.
While the key to a well written agreement includes well defined sections for both landlord and tenant, the clauses themselves must be clear, plain and simple. Common problems are the poor drafting of some terms in the agreements, a good example being break clauses, which can be interpreted in different ways and have the unintended effect of being contrary to the original intent.
In the event that landlords do want to add their own clauses, an addendum can be used, as well as suggested wording related to increasing the rent or additional and selective licensing.
Any additional clauses must be fair and reasonable. If not they could be seen as unfair and difficult to enforce. It is recommended that a solicitor is employed to draft these clauses.
What happens when the agreement ends?
Most new residential tenancies last between six months and a year. If the tenancy ends, no new fixed term is agreed and the tenant is still in the property, then a ‘periodic tenancy’ comes into effect. This is a rolling tenancy with no fixed end date, running month to month – reflective of what was in the original agreement. The statutory notice for ending a periodic tenancy remains unchanged.
- The tenancy agreement is a legal contract between you and the tenant. It is a vital document that protects you and helps you maintain both the property and the relationship with your tenant. With a clear tenancy agreement in place, all parties are clear on what is expected of them during their tenancy, and what is and is not allowed. This helps to promote more long-term, happy and reliable tenants for you and a better protected investment.
- Having clear, simple, and easily understood tenancy agreements is key to avoiding disputes with tenants. In addition to this, make sure that you are familiar with what your tenancy agreement states. In many cases where landlords and letting agents are unaware that their tenancy agreements confirm particular clauses.