Last week, we discussed the difference between a contractual tenancy and an assured shorthold tenancy (AST). This week, we’re carrying on the conversation by thinking about situations that may cause a contractual tenancy to become an AST and what landlords and tenants must do in this circumstance.
Assured shorthold tenancies and semi-permanent homes
What would be the situation if the tenant declared that the property was not going to be their only or principal home but circumstances changed later on?
Less permanent methods of employment have led to an increase in short term employment contracts and more people are having to travel greater distances for employment. This has led to the option of a ‘pad in town’ becoming a more practical and affordable alternative to a daily commute. In this instance, if the individual is renting the property in their own name they will have a principal residence elsewhere and are likely to return to that home at the weekend. It is likely that the tenant’s driving licence and insurance addresses is registered at their main home and, for instance, that their bank account and credit cards statements are posted to their main home too. The applicant’s declaration of whether the property will be their principal residence will determine the type of tenancy you prepare: either a contractual or an AST.
Moving from a contractual to an assured shorthold tenancy
Imagine a scenario where we have a tenant in a property who ordinarily resides from Sunday evening to Thursday morning and has quite rightly signed a contractual tenancy. There is a good chance that the deposit exceeds the maximum five week plus deposit under the Tenant Fees Act, the deposit was probably not registered and the How to Rent guide may not have been issued. Unbeknown to the landlord or agent, the tenant’s marital situation has changed and the tenant is now living full time in the rented property. It is unlikely that the tenant will bother, or even be aware of the need to notify anyone.
By the time that anyone finds out, the contractual tenancy will have become an AST because the property is now, in practical terms, the tenant’s only or principal home. The gas safety record and EPC were required for the contractual tenancy anyway but where do we stand in relation to the tenancy deposit and How to Rent guide?
The subtle differences
The tenancy deposit was received at a time when the tenancy was not an assured shorthold tenancy agreement. The requirements in the Housing Act 2004 relate to a deposit ‘received in connection with’ an AST. The deposit was not received in connection with an AST; it was received in connection with a contractual tenancy. Therefore, it does not need to be registered or protected and prescribed information is not required. The amount of the deposit when received in connection with the contractual tenancy was not limited, meaning any amount over the five week limit is not a prohibited payment under the Tenant Fees Act 2019.
There is a subtle difference regarding the tenancy prescribed information: the How to Rent guide. Section 39 of the Deregulation Act 2015 requires the provision of the tenancy prescribed information to the tenant ‘under an assured shorthold tenancy’. So because the tenancy has become an AST, the tenant is due to be given the relevant guide.
This would be an unusual set of circumstances, but it’s not outside the bounds of possibility. A renewed tenancy with the same tenant under the above circumstances would almost certainly be an AST by default, even if a contractual tenancy was signed.
As we saw in Street v Mountford 1985, the court considered the circumstances to determine the type of agreement that existed between the parties. In this instance we know a contract exists (rent payable for a term and exclusive possession) and the court is likely to determine that the tenant has an AST.
Whilst nothing wrong was done in the first instance, reliance on only or principal residence is vulnerable to a change of circumstances. Where this vulnerability exists, landlords and agents should continue to use the contractual tenancy initially but consider offering the comparable protections of the Housing Act. This may include increasing the landlords’ notice period in line with the requirements under Section 21 using the relevant Section 21 to give that notice.
Landlords and agents should consider registering the deposit with a deposit protection scheme and only take a deposit that does not exceed the deposit limits set by Tenant Fees Act. The deposit protection legislation whilst not requiring the registering and protection of a contractual tenancy deposit does not preclude it either. If the contractual tenancy was later found to be an assured shorthold tenancy, it can at least be argued that the protections given to the tenant match those required by the Housing Act and that breaches of deposit protection legislation and the Tenant Fees Act are avoided.