Assured Shorthold Tenancy Agreement Procedures

Background

The Housing Act received royal assent on 15th November 1988 after considerable debate, keeping Parliament occupied for a total of over 250 hours.  The issues were at times bitterly contested by the opposition parties as the provisions laid down in the Act were far-reaching.   The Rent Acts had for many years kept a firm stranglehold on rent levels and the general freedom of landlords.  Part I of the new Act heralded a fresh and market-oriented approach to the legal relationship between landlord and tenant, and through the Assured Shorthold Tenancy, provided a means whereby the landlord could be certain of his right to repossess his property.

In some cases, this has led to landlords adopting a false sense of security.  As we have recently seen in the case of Panayi v Roberts (described in more detailed later in this article) there is no protection if the agreement is not properly drafted and the prior notice of Assured Shorthold Tenancy under Section 20 of the Act is incorrectly completed.   An incorrectly drafted Assured Shorthold tenancy may in fact be interpreted by the courts as an assured tenancy leaving tenants more carefully protected under Assured Tenancy rights.

The significance of these issues for the practitioner are immense;  the landlord can sue his agent for damages or losses as a result of negligence.  The decrease in market value of the property in assured tenure will generally run into thousands of pounds and several such claims have been reported. Familiarity of the Act is also important to the property professional who is frequently called upon to draft letting agreements or amend standard forms.  The person preparing the agreement will occasionally be asked to liaise with solicitors on behalf of both parties so 'knowledge is strength'.  A person operating without proper knowledge or support may also inadvertently cause an assured shorthold agreement to be invalidated.  A common example reported is where a break clause is written into the contract allowing both parties to terminate with two month's notice at any time.  Strictly speaking, this is no longer an assured shorthold tenancy (see section on 'Special conditions' ) and tenants could claim the fuller security of an assured tenancy against the landlord.

Why Is a Contract & Notice Required ?

Letting Agreements are required for a number of reasons.  Firstly, they lay down the terms of the letting in advance for both parties to agree.  Secondly, they are the landlord's primary safety net in case of problems or a dispute.  A verbal understanding is subject to ambiguity and a significant proportion of verbal tenancy agreements end up in the courts for this reason. 
Most importantly, the Housing Act 1988 and other previous legislation now demands that various statutory requirements have to be met in order for the landlord to claim his necessary legal powers.  The most widely known example is perhaps Section 20 of the Housing Act which defines the scope of the Assured Shorthold Tenancy and requires that a Notice of Assured Shorthold tenancy in the prescribed statutory form is served on the tenant prior to signing the tenancy agreement.   There are however additional statutes that need to be carefully considered when granting a tenancy and we shall explore these shortly.

Definition of the shorthold tenancy

An assured shorthold tenancy is a kind of assured tenancy which offers the landlord a guaranteed right to repossess his property at the end of the term.  In fact, it does not necessarily have to be 'short'; so long as it is not too short (ie less than six months) the shorthold1 tenancy may be used for any term thelandlord wishes to offer.  The shorthold has the following important features:

a first shorthold tenancy must be for a fixed period of at least six months;

the landlord must serve notice in the proper form

There shall be no power for the landlord to terminate the tenancy before the initial six month, and thereafter he must serve at least two month's notice. The landlord and tenant can freely agree the rent but the tenant does have the power in certain circumstances to refer the rent to the rent assessment committee.

The Shorthold Notice

Most practitioners in the field should be familiar with the Notice of Assured Shorthold in its current format.  The form was updated last year2 with such little prior warning that many professionals were still using the old incorrect form into the later part of the year.
The original purpose of the notice was to alert prospective tenants to the fact they were being asked to sign a shorthold tenancy agreement which conferred considerably less rights of tenure that its brethren and this was a concern of the opponents of the Act.  In fact, the only thing 'assured' about the shorthold tenancy from the tenants point of view is that the landlord can get the tenant out !
In practice between 80-90% of tenancies now granted by private landlords are under the Assured Shorthold type of tenure and most of the original anxieties are unjustified.

Statutory Form

The original form of the notice is prescribed by the Assured Tenancies and Agricultural Occupancies (forms) Regulations 1988 (SI 1988 No. 2203), Form No. 7.   Given that the Act specifies that it is to be given in the prescribed statutory form, practitioners should take care to follow this stipulation.   Several versions in circulation have omitted to include the 'health warnings' (ie section starting 'Special Note for Existing Tenants' ) and without these the notice is strictly speaking invalid.   As mentioned previously, the original prescribed form has now been amended (operative April 1st 1993) to include reference to the new Council Tax system.

Serving the Notice

We mentioned earlier that Section 20 of the Act required the service of a Notice of Assured Shorthold Tenancy. The Act gives us no guidance as to how the notice is to be served but only when: - before the tenancy is entered into.
The following guidelines should be observed:

- POSSESSION.  Do not let tenants into possession of the property before serving the notice and granting the tenancy.  Doing so could be argued to have established an assured tenancy up until the period when the notice had been served and the agreement signed.  The resulting agreement would not then be a shorthold.

- TIMING.  If possible, try and serve the notice a day or more before signing the tenancy agreement.  The 'health warnings' on the notice recommend the tenant to take advice from a solicitor or Citizen's Advice Bureau if there is anything he does not understand on the form.  A tenant could therefore claim to be pressured into signing if not given the chance to do so.

- EVIDENCE.  The Act lays down no requirements for evidencing that the notice has been served.  In considering a repossession case, a judge will generally ask to see the notice that was served and may also ask you for further proof if the tenant denies receiving one.  It is therefore prudent to keep a copy of the notice and ask the tenant to sign a statement to the effect that he read the notice before entering into the tenancy agreement.

- JOINT TENANTS.   It is essential that the notice is also served on all the tenants and again, non-observance of this requirement of the Act will cause the tenancy to fall back into the Assured form with full security of tenure.

Panayi v Roberts

The general advice above is that landlords and their agents must take great care when drafting and issuing the Section 20 notice and the tenancy agreement.  The first reported court decision has demonstrated just how important such details will be to the court when considering whether a particular tenancy should be deemed to conform to the requirements of an assured shorthold in Section 20.
In the Panayi v Roberts case3, the plaintiffs granted to the defendant an assured shorthold tenancy for 12 months starting on November 7th 1990.   The landlord later issued possession proceedings for the property.  Possession was disallowed on the basis that the notice had been incorrectly completed.
The notice had been completed for the initial term of the tenancy with the start date as November 7th and the end date as May 6 1991 whereas the tenancy agreement signed was to run until November 6th 1991.   The learned judge  rejected the validity of the notice so drafted.  The legislation required that both dates were to be cited and a form with an incorrect date was not "substantially to the like effect".  It was thus declared that, without a valid prior notice, the tenancy was not an assured shorthold and the landlords could gain possession only by establishing a statutory ground.

- RENEWAL.  The requirement for  a notice may be dispensed with for renewal of the same  tenancy (or substantially the same) where both landlord and tenant(s) are also the same4.The Tenancy Agreement
In contrast to the Section 20 notice where the versions served for each and every tenancy will be identical, the format and contents of the assured shorthold tenancy agreement will differ according to the particular style and taste of the person drafting the agreement or lease document.
Each legal practitioner will have his or her pet clauses and the legal profession are notorious for making derogatory comments about each other's work.

Essentially the exact form and content of the tenancy agreement is in fact of less importance than that of the notice as we have already discussed earlier.  It is  theoretically possible that an assured shorthold tenancy agreement could be made orally (provided of course that the pre-tenancy notice was served) although it would be an odd thing to do having gone to the trouble of procuring the notice.  It would also be unsatisfactory from a number of other aspects as we shall go on to consider.
The first observation to make is that the agreement need not be tedious and lengthy.  There is a strong movement afoot to overhaul some of the previous excesses of the legal profession and the use of plain English in legal documents  is gathering strong support.  The required detail can be contained within as little as one or two pages if necessary which makes it quicker for all parties to read and understand and theoretically cheaper for the lawyer to draft (although I have yet to come across one willing to volunteer this information directly !).

Many of the obligations of landlord and tenant are now defined in statute (eg repairing obligations of the landlord are defined by the Sections 11 & 12 of the Landlord and Tenant Act 1985) and therefore their inclusion within the letting agreement is mainly for information purposes (unless the landlord wishes voluntarily to exceed his statutory obligations).
A starting point for verifying the soundness of your drafted tenancy agreement will be to check the information included as to the main terms, dates, and names of the parties to the agreement.   The dates and names should of course agree with those cited on the section 20 notice.   This section must always be completed fully, clearly and unambiguously (eg; is the rent quoted as being monthly or quarterly ?).  Should a court be called upon to interpret the agreement, it might uphold the contra preferentum rule where ambiguity is resolved against the party preparing the agreement or else conclude that those parties had still to reach agreement concerning those uncompleted portions (in which case, the agreement as a whole might be declared void).

Checklist

The following is not intended to be an exhaustive list of every clause that needs to be included in a letting agreement.  It does however cover the more important clauses and some additions as a result of improved drafting practice and recent case law.

COUNCIL TAX.  Generally the  tenant is legally liable for the council tax charge under the new local government finance regulations.  Many letting agreements still contain references to rates and community charge and these should now be replaced.

ASSIGNMENT.    Many letting agreements contain a clause which provides for assignment to take place 'subject to consent of the landlord'.   For short term residential lettings, the provision of assignment is increasingly discouraged and unnecessary.  Many building societies are forbidding assignment totally and this is now preferred practice.

FORFEITURE CLAUSE.   The Act5 requires that a forfeiture clause be included in the terms of the tenancy in order for repossession to  be made by the courts under any of the 16 prescribed grounds in Schedule 2 of the Act (whether that provision takes the form of a provision for re-entry, for forfeiture, for determination by notice or otherwise).

POWER OF ENTRY.    It is prudent to reserve the landlord (or his appointed agent) the powers of entry and inspection into the property.   The landlord only has a statutory right of entry in order to carry out essential repairs (Landlord and Tenant Act 1985). 

SECTION 48 NOTICE.  A recent judgement in the appeal court (Hussain v Singh and others6) left one landlord high and dry in his pursuit of rent arrears.  Section 48 of the Landlord and Tenant Act 1987  clearly states that "A landlord of residential premises shall by notice furnish the tenant with an address in England and Wales at which notices (including notices in proceedings) may be served on him by the tenant".  The lesson of the above and other judgements7 is that compliance with section 48 is vital and a notice in the appropriate form should always be served.

Special Conditions

Special conditions are often inserted into standard contracts to reflect the requirements of landlord, tenant or some other party (eg building society).   Care needs to be taken with such additions or amendments to the standard contract.  Incorrectly worded, they can affect the whole meaning or jurisdiction of the agreement.
For example, a break clause is often included in the tenancy agreement giving either or both parties the ability to terminate the agreement before the original termination date.  Where such a break clause is used within an assured shorthold tenancy agreement, it will be important to state that such power to terminate the agreement may only be exercised after the initial six months as the agreement could otherwise be held to be in contravention of the basic requirements of the Assured Shorthold tenancy under Section 20.

Stamping

Another unappreciated fact in the profession is that legally, all leases needed to be stamped8.  If it is not, then the document cannot be admissible as evidence in court or before an arbitrator.  The Stamp Office operates under the jurisdiction of the Inland Revenue and a fine may be levied for late stamping. 
Although the stamp office is quite efficient in processing the documents and turning them around quickly, it is a good precaution to take copies of  the two documents sent for stamping (master and counterpart) as documents do from time to time go missing in the post.

Signing

The letting agreement must be signed by all of the tenants and this should be done before handing over possession.  In the few occasions where this cannot be arranged, the most secure alternative is that the absent tenant gives a written authority or power of attorney for someone else (perhaps a partner or joint tenant to sign on their behalf )Witness
A space is often left on tenancy agreements for the signature and details of a witness to be recorded.  Although this is not a statutory requirement, it is yet another device to safeguard the landlord's interest in case the tenant disputes the validity of the agreement.  A witness can be any individual (in contrast to a statement made under oath that must be witnessed by a solicitor) but not a 'junior' (ie under 18 years of age).
Although  not mandatory by any means, it is still good practice to carry out whenever possible.  For this reason, tenants should ideally go to the firm's office to sign the letting agreement.

 

 

References
1.  References to a "shorthold" tenancy mean an assured shorthold enancy under the Housing Act 1988; and references to "the Act" mean that act.
2.  Assured Tenancies and Agricultural Occupancies (Forms) (Amendment) Regulations (SI 1993,No 654) Form No. 7.
3. Panayi v Roberts [1993] 28 EG 125
4.  Housing Act 1988, Section 20(4)
5.  Housing Act 1988, Section 7(6)
6.  Hussain v Singh [1993] 31 EG 75
7.  See also Dallhold Estates (UK) Pty v Lindsay Trading Properties Inc [1992] 1 EGLR 88 and Cambridge County Council v Faulkner (awaiting appeal)
8.  Stamp Act 1891