The Assured Tenancies (Amendment)(England) Order 2010

Commencement:

The Assured Tenancies (Amendment)(England) Order 2010 comes into force on 1st October 2010.

Scope:

This Order applies only in England. It does not apply in Wales, Scotland or Northern Ireland.

The Order increases the existing ‘high rent’ upper limit for assured shorthold tenancies from £25,000 per annum to £100,000 with effect from 1^st October 2010.

Legislative Context:

The Housing Act 1988 (“the 1988 Act”) introduced assured tenancies from 15 January 1989. The Act provides that all tenancies take the form of assured tenancies or assured shorthold tenancies unless they come within one of the exceptions set out in Schedule 1 to the Act.  One of these exceptions defined a high rent threshold of £25,000 per annum.  Above this rent threshold a landlord was obliged to operate the tenancy outside the statutory framework of the Housing Act 1988, and such tenancies took effect as common law or ‘general’ tenancies.

The recent legislation amends paragraph 2 of Schedule 1(2) of the Housing Act.  The effect of the Order is to increase the existing upper limit for assured (including shorthold) tenancies from £25,000 per annum to £100,000 with effect from 1^st October 2010.  It seems likely that the new rental threshold may affect the existing rights of those landlords and tenants who have already taken out tenancy agreements prior to the introduction date, as well as having consequential issues for tenancy deposits (see below).

Raising the threshold to £100,000 brings all tenancies, except those with the very highest rents, under the protection of the Housing Act 1988 and restores the position intended in the original legislation, to exclude only the tenancies at the very top end of the market. Also the threshold will not need to be reviewed again for several years.

Pre-existing Tenancies:

Tenancies granted prior to 1st October 2010

As announced by Government earlier this year, the Order is expected to apply to existing tenancy agreements granted prior to the introduction date.  In this case, a general tenancy agreement with an annual rent of between £25,000 and £100,000 per annum will automatically become assured shorthold on 1^st October 2010.  It is hoped that Government will issue further and more detailed guidance on these transitional cases in due course.

 Tenancies granted prior to 28^th February 1997

The new threshold will have an effect on assured tenancies entered into prior to commencement of the Housing Act 1996 (“the 1996 Act”) on 28^th February 1997, which have subsequently stopped being assured because the rent increased to above £25,000. This group of tenants will not have been served with a notice under section 20 of the 1988 Act. The s.20 notice informed the tenant, prior to commencement of his or her tenancy, that they were being granted an assured shorthold tenancy rather than a fully assured one. This means that when the threshold is raised, those tenants will again become assured. Because they were never served notice under s.20 and entered into their tenancy agreements before the law changed on 28 February 1997 they will automatically become assured tenants.

 This means that a landlord would not be able to recover possession by giving two months’ notice which is possible for landlords of assured shorthold tenants. It is not anticipated that this will affect a large group of tenants because the bulk of tenancies will be entered into after this date and will automatically be assured shorthold tenancies.

 Deposit Protection

The Housing Act 2004 made provision for a tenancy deposit scheme for the purposes of safeguarding tenancy deposits. Landlords of all assured shorthold tenancies entered into on or after 6^th April 2007 had to protect their tenants’ deposits in a recognised scheme.

For those common law tenancies entered into on or after 6^th April 2007, and which will become assured shorthold tenancies when the rental threshold is increased, landlords should take care to protect their tenants’ deposits in a recognised scheme. Failure to comply with this requirement may leave the landlord liable to penalties, and also mean that a landlord will not be able to use notice-only possession (under section 21) to recover his or her property.

Recommended Action:

Letting agents and landlords should consider the following actions:

ESSENTIAL:

• Check all existing general tenancies to identify affected tenancies. Not all general tenancies will be affected so the company lettings, non principal residence and resident landlord exclusions will continue to apply
• Set up deposit protection cover for any tenancies identified as becoming assured shorthold tenancies as a result of these provisions including the statutory required information – see Letting Factsheet 24b.
• Inform landlords of the new Order and their consequences, particularly that tenancies which become assured shorthold tenancies on 1^st October 2010 cannot be terminated by the use of a Housing Act 1988 section 21 notice until 31^st March 2011. This is as a result of the provisions section 21(5) of the Housing Act 1988.

RECOMMENDED:

• Check tenancy agreements to see whether they comply with:

1. The requirements of an assured shorthold tenancy agreement as set out in the Housing Acts 1988 and 1996. There may be a need to upgrade the tenancies to meet these requirements, and
2. The requirements of the tenancy deposit protection provider. (Note – The Dispute Service has detailed requirements for inclusion in tenancy agreements set out in Clause G and these will need to be included in a tenancy agreement if this deposit protector is used.)

• Ensure that tenants of properties affected by these changes are informed.

New General Tenancies created before October 2010:

Tenancies which are currently excluded from coverage by the Housing Act 1988 by virtue of their high rent will still need to be created. There would seem to be two options as to how this should be handled by landlords and their agents:

Immediate AST

• An assured shorthold tenancy would be created from the start.
• All the protections such as deposit protection would be in place from the start.

Postponed AST

• Create general tenancy agreement from the start but put the extra terms found in an AST in the special conditions section to come into force on 1^st October 2010.
• This is more strictly correct but there is a danger that once the tenancy has commenced items such as protecting the deposit and issuing the relevant information notes might be overlooked come 1^st October 2010.

Sources of Further Information:

This summary is intended to assist landlords and letting agents to understand the effect of the Regulations.  At the time of writing, Government has not published any transition provisions or related guidance and so the law is unclear on how these transitional cases will be treated – this Factsheet represents our best interpretation of an unsatifactory state of current housing law.  In the absence of further legislation incorporating appropriate transition provisions, only the courts can provide an  authoritative interpretation