Richard Smith looks at how the Housing Act 1996 has affected shortholds.
Under the Housing Act 1988 the standard tenancy is the assured tenancy, whereas the assured shorthold is an exception which can be created only by complying with certain conditions set out in section 20(1). The Housing Act 1996 reverses this position. It inserts section 19A into the 1988 Act, the effect of which is that on or after the relevant commencement day (probably the beginning of January 1997) any new assured tenancy will automatically be a shorthold tenancy unless it falls within certain exceptions (see box below).
Thus all the requirements of section 20(1) of the 1988 Act are abolished for new shortholds. There is no need for a pre-tenancy notice, or for a fixed term of not less than six months, nor is there any bar on a landlord’s break clause within that time.
It should be noted that a new tenancy which is entered into in pursuance of a contract made before the commencement day is still subject to the old rules and must comply with the section 20(1) criteria.
Termination of the shorthold tenancy
The system of termination remains unchanged, so a section 21 notice is still required. Care must be taken to ensure that in respect of a periodic tenancy the notice complies with section 21(4) as distinct from a notice for a fixed-term tenancy which is governed by section 21(1) and (2).
The new Act makes some minor changes to termination as follows:
- New six-month rule
The 1996 Act adds subsection (5) to section 21 of the 1988 Act in respect of new tenancies. This provides that a court order for possession cannot be made so as to take effect earlier than six months after the beginning of the tenancy.
This innovation is necessary to ensure that a new shorthold tenant has a right to possession of at least six months before the shorthold ground can be employed. Abolition of the requirement of a fixed-term tenancy of at least six months enables landlords to grant shorter terms or even periodic tenancies. In such cases possession will deferred until the six-month period is up.
- Calculation of the six-month period for new tenancies
Where possession is sought in the case of a tenancy which is not a “replacement tenancy”, possession cannot take effect until six months after that tenancy starts. In the case of a replacement tenancy, possession cannot take effect until six months after the start of the “original tenancy”. A “replacement tenancy” is one which comes into being on the ending of a shorthold tenancy where the parties are the same and the premises are the same or substantially the same. “Original tenancy” is defined as that immediately preceding the replacement tenancy (or replacement tenancies if there has been a succession of them).
Therefore, the tenant has a right to possession for six months from the beginning of the tenancy before the first replacement tenancy. This will usually be the initial tenancy, but could be a subsequent contractual one which did not take effect immediately after the termination of an earlier tenancy.
- Two months’ notice to be in writing
The new Act requires that the statutory two months’ notice to give up possession of a shorthold must be in writing for all tenancies, old and new.
- Grounds for possession
An assured or assured shorthold tenancy may be terminated before its contractual expiry date on certain grounds set out in the 1988 Act. The 1996 Act makes the following amendments:New ground 17 – false statement by tenant
This ground will be available where the landlord has been induced to grant the tenancy by a false statement made knowingly or recklessly by the tenant or by a person acting on the instigation of the tenant.Modification of ground 8
Ground 8 is the mandatory ground for possession for rent arrears for a certain length of time. That time will be reduced from three to two months for tenancies where rent is paid monthly, and from 13 to eight weeks where rent is payable weekly or fortnightly.
Challenging the rent
Under section 22 of the 1988 Act an excessive rent can be challenged by the tenant, but only within the initial shorthold tenancy. The rent of the successor shorthold cannot be challenged.
The six-month minimum duration for shortholds under the old law gave tenants at least six months to challenge the rent before the Rent Assessment Committee. But, under the new law, not only is there no minimum term for a shorthold but there is also no requirement for a fixed term. So the new Act inserts paragraph (aa) in section 22(2) in respect of new tenancies, imposing a limit of six months from the beginning of the tenancy within which to challenge the rent.
This obviously caters for new contractual periodic shortholds for which, apart from the new provision, there would be no time limit on challenging the rent while the tenancy continued. But the new provisions also mean that, where a tenant has a new shorthold of less than six months, he loses the right to challenge the rent after the initial term has expired.
In determining when the six-month period for challenging the rent begins, the new Act provides that it shall be the beginning of the tenancy. In the case of a replacement tenancy, it will be the beginning of the original tenancy.
Landlord’s duty to provide statement as to the terms of the shorthold
One effect of the new Act is likely to be the encouragement of informal tenancies, because the requirements of pre-tenancy notices and six-month fixed terms will have gone. There is no need for a deed or even writing for leases for three years or less, in possession and at the best rent reasonably obtainable without taking a fine (Law of Property Act 1925). So tenants may be unsure of the terms according to which they hold their tenancies. Therefore the 1996 Act inserts section 20A into the 1988 Act, which enables the tenant to serve notice in writing on the landlord demanding a written statement of any or all of certain terms of the shorthold tenancy which do not appear in writing. These terms are:
- the date the tenancy began or, if it is a statutory periodic tenancy or the tenant is a successor to a deceased protected shorthold tenant, the date it came into being;
- the rent payable and the dates when it is payable;
- any provision for rent review;
- in the case of a fixed-term tenancy, the length of the term.
No notice requesting a statement may be made by the tenant if such a statement has already been made by the landlord to the tenant.
In the case of a statutory periodic tenancy or a successor tenancy (where the deceased predecessor was a protected shorthold tenant), the terms in respect of which the statement is demanded are the terms of the tenancy from which the statutory or successor tenancy is derived.
If the landlord fails, without reasonable excuse, to comply with the tenant’s notice, he is guilty of a criminal offence, punishable by a fine.
Informal tenancies – cautionary note
Residential agents can lawfully prepare and charge for leases which are not required to be made by deed – leases for three years or less, in possession, at the best rent reasonably obtainable without taking a fine. A lease expressed to start at a future date is reversionary (ie not in possession) when it is granted – Long v Tower Hamlets London Borough Council [6] 2 All ER 683 – and so must be made by deed (and therefore drafted by a legally qualified person).
Exceptions to the new rule
The 1996 Act inserts Schedule 2A into the 1988 Act. This sets out nine circumstances in which assured tenancies are created after the commencement of the new provisions:
Paras 1-3
A landlord may create an assured tenancy by a notice to that effect or by the inclusion of a clause in the tenancy. The landlord may even turn a shorthold into an assured tenancy by notice during the term.
Para 4
An assured tenancy by succession under the Rent Act.
Para 5
Former secure tenancies.
Para 6
An assured tenancy arising by virtue of Schedule 10 to the Local Government and Housing Act 1989 on the expiry of a long residential tenancy at a low rent under Part I of the Landlord and Tenant Act 1954.
Para 7
A replacement tenancy for an existing assured tenancy. This provision prevents a landlord from turning a pre-existing assured tenant into a shorthold tenant by simply granting him a new tenancy after the start of the new Act. In such a case, provided that the landlord and tenant are the same as in the old tenancy (whether the premises are the same or not) the new tenancy is assured also.
There is an exception to paragraph 7. Sub-paragraph (2) allows the new tenancy to be a shorthold one if the tenant serves a pre-tenancy notice (in such form as may be prescribed) on the landlord. One reason why a tenant might serve such a notice could be in return for a reduction in rent. But the loss of security of tenure and the likelihood of future rent increases renders such a course of action doubtful unless the tenant is given a substantial term.
Perhaps landlords will wish to take advantage of this provision by offering rental or other inducements in the hope of turning an assured tenancy into a shorthold. One can readily imagine a landlord drafting the notice and sending it with a covering letter asking the tenant to sign and return it. The landlord will then send off the tenancy agreement (to which the notice referred) for the tenant’s signature and, hey presto, the tenant has signed away his security of tenure!
Para 8
An assured tenancy which exists by virtue of section 5 of the Housing Act 1988. The statutory periodic tenancy which arises on expiry of the contractual assured tenancy will still be an assured tenancy.
Para 9
New assured agricultural occupancies will not be shortholds unless a pre-tenancy shorthold notice is served by the landlord on the tenant. Such a shorthold notice cannot be used where the parties to the new tenancy are the same as an existing assured tenancy.
Comment
The problem not addressed by this part of the legislation is uncertainty about the terms actually agreed and the likelihood of disputes. Surely it would have been much better if the Act had simply required certain key terms of shorthold tenancies to be put in writing at the outset, with failure to do so punished by the creation of an assured tenancy. The requirement that the landlord makes a written statement of the terms does not guarantee that those were the terms agreed.
This is explicitly recognised in section 20A(5), which provides that the landlord’s statement shall not be regarded as conclusive evidence of what was agreed by the parties to the tenancy in question (otherwise the landlord could make up the terms as he went along). So, in the absence of writing, the court will have to have regard to other evidence.
While evidence of the actual rent may be relatively easy to establish by the records of cheques etc, the start date, rent review and length of the term may be less easy to ascertain. And, if there are other unwritten terms of the tenancy, the landlord has no duty to provide a statement as to them. The scope for misunderstanding, let alone deceit (on both sides), is unfortunate. And it is difficult to see how the duty to provide a written statement will avoid this because there is no guarantee that it will be accurate.
Richard Smith LLB is a solicitor and principal lecturer in law at Sheffield Hallam University.
