Contractual tenancy or an AST? What's the difference?

By Jonathan Daines

Two people signing a contractual tenancy

Contractual Tenancy or AST?

In our previous article ‘Tenancy or Licence’, we saw in the case of Street v Mountford 1985 that a court will look at the facts to establish what type of tenancy exists rather than what was intended, created or negotiated. In a similar vein and following a timely question we will consider under what circumstances you could or should have a contractual tenancy as opposed to an assured tenancy and in particular the common form of assured tenancy, the assured shorthold tenancy (AST).

So what is a contractual tenancy?

A contractual tenancy is known by a number of different names the most popular alternatives being a non-Housing Act tenancy or a common law tenancy. The reference to the Housing Act is of course the Housing Act 1988 which gave us assured tenancies offering greater protection to the tenant and, of course, the ability to end an AST under section 21 of the Act. The origins of a contractual tenancy are from Common Law and therefore not written down in a single legislative document.

How is an AST different?

Section 1 of the Housing Act gives us the meaning of assured tenancy and says that a tenancy will be an assured tenancy if the tenant, or each of joint tenants, is an individual and that ‘the tenant or, as the case may be, at least one of the joint tenants occupies the dwelling-house as his only or principal home’. The third requirement in section 1 is that the tenancy is not an excluded tenancy.

Schedule 1 of the Housing Act 1988 gives us a list of tenancies which cannot be assured tenancies (are excluded). Of particular note, and well known, is tenancies at a high rent, which is currently set at rent exceeding £100,000 per annum (£8,333.33 per month) but also less well known tenancies of less than £250 per annum. With rents at these levels, it does not apply to many tenancies. Also listed are business tenancies i.e. where the purpose of the let is business i.e. Rent to Rent, Care Homes etc., holiday lettings and where there is a resident landlord.

If therefore a tenancy has any of these characteristics or all the tenants are not individuals or if it is not the only or principal residence of at least one of the tenants, then the tenancy is not covered by the Housing Act 1988 and therefore must be something else.

If the tenant is not an individual, then who is the tenant?

The tenant would have to have an identity, such as a company, a limited liability partnership or a local authority, and therefore the tenancy cannot be an assured shorthold tenancy because Section 1 of the Housing Act tells us it cannot be.

If the tenancy is outside of the Housing Act then compliance with Housing Act requirements is not required. Some notable exclusions here would be deposit protection legislation, the Tenant Fees Act 2019 or the requirement to provide the tenancy prescribed information i.e. the How to Rent guide. So, for instance, under a contractual tenancy a deposit in excess of the five week limit set out in the Tenant Fees Act 2019 is permitted and the deposit does not need to be registered.

If the tenant is a company, not an individual, then this is unlikely to change without the knowledge of the landlord as a change of tenant has the effect of creating a new tenancy and therefore this would have to be agreed.

In next week’s post, we will be covering what kind of situations may cause a contractual tenancy to become an assured shorthold tenancy. In the meantime, why not take a look at our 30-Point Landlord Checklist? Download it for free here.

About Jonathan Daines

After having worked as a high street letting agent for over 5 years, I believed there was a better way of helping landlords find tenants without the unnecessary expenses. And so in 2008, lettingaproperty.com was born and has since let over 8,000 properties across the country. I am very proud of the service levels we offer and to have achieved a 99.3% recommendation rate on reviewcentre.com. If you have any questions about our business, please do let me know. I look forward to hearing from you.

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