Letting Handbook 3

Back to contents Other Tenancy Types Agricultural holdings Agricultural holdings are contracts for an agricultural lease or tenancy of land where the tenant is not an employee of the landlord when the tenancy is granted (i.e. a tenant farmer who is not employed by his landlord). A tenancy under which the dwelling-house is comprised in an agricultural holding cannot be an assured tenancy where the dwelling-house is occupied by the person responsible for the control of the farming of the holding. A tenancy of an agricultural holding used to fall under the protection of the Agricultural Holdings Act 1986 (an Act consolidating the earlier law), and conferred lifetime security of tenure to both the tenant and any successor (although this right of succession was later repealed for tenancies granted after July 11 1984). However, tenancies for a fixed term of between one and two years fall outside the protection of Agricultural Holdings Act 1986. For this reason, landlords frequently used these shorter tenancies (sometimes known as Gladstone v Bower tenancies) to avoid giving statutory security to short-term tenants. The Agricultural Holdings Act 1986 has now been superseded by the Agricultural Tenancies Act 1995 (ATA) which took effect on September 1 1995, although the Agricultural Holdings Act will continue to apply to agricultural lettings which commenced before this time. ATA creates a new class of ‘farm business tenancy’ and security of tenure no longer applies to these new tenancies. But these tenancies will endure on a year-to-year basis until terminated by at least 12 months’ prior written notice.Tenancies with High and Low Rental Values High rents Under the Housing Act 1988, tenancies where the annual rent is greater than £100,000* cannot be assured (or AST). It is to be noted that the £100,000 figure is annualised and therefore if the proportional monthly rent is more than £8333.33 per month for a shorter term (e.g. only six months), the letting is still outside the Housing Act 1988. Generally, these tenancies operate primarily under the common law rules. They have little statutory security of tenure and consequently at the end of the tenancy, no Section 21 notice or indeed any other notice is required. The tenancy will simply be of a contractual nature between landlord and tenant with few statutory provisions. The original ‘high rent’ provision in the Housing Act 1988 related to rateable values. Following the introduction of council tax in 1990, the Act was amended to a £100,000 pa rent limit. *Prior to 1 October 2010, a lower annual threshold of £25,000 applied Low rents Similarly, a tenancy cannot be an assured tenancy if either no rent is payable, or if the rent is below a certain threshold (Sched. 1, part 1, s3). Low rents are defined either as: where the rent is less than £250 a year (£1000 a year in Greater London) for tenancies entered into after 1st April 1990, or where rent is less than two-thirds of the rateable value of the dwelling-house (see full text of Act) for tenancies entered into on or prior to 1 April 1990.The Letting Handbook 6-13 © The Letting Centre 05/2017

Back to contents Other Tenancy TypesBusiness Tenancies A person or entity will be a business tenant if: • possession of the premises is held under a tenancy; and • the tenant occupies at least part of the premises • the premises or that part of the premises are occupied for the purposes of carrying on a business. Business tenants are protected under the Landlord and Tenant Act 1954. Like the statutory codes applying to residential tenancies, there are two main effects to the statute; security of tenure and rent control. Business tenancies have the general right to have their tenancies renewed. A business trading from a particular location will come to be known in the locality over time, building up goodwill and reputation. This goodwill together with the high costs that can be associated with fitting out commercial properties needed protection. A business tenant will also be entitled to compensation for improvements. Rent control is provided under the 1954 Act to prevent landlords forcing rent rises on tenants significantly over the market rate. Tenancies under the Landlord and Tenant Act 1954 will be continued automatically and the landlord will need to follow a procedure specified in the Act before the tenancy can be brought to an end. These rights are similar to those available to tenants occupying under residential tenancies, yet there are important differences between the codes. The codes are mutually exclusive. They provide different security of tenure and procedures for ending the tenancy. A tenant holding a business tenancy under the Landlord and Tenant Act 1954 will generally have greater security than the tenant holding an assured shorthold tenancy under the Housing Act 1988. Position regarding mixed use The Landlord and Tenant Act 1954 provides that a tenancy will come under the protection of the 1954 Act if the premises are occupied for the purposes of a business carried on by the tenant ‘or for those and other purposes’. Where those ‘other purposes’ are residential, then there will be an inevitable conflict between the two statutes. The landlord may want to argue that the letting falls under the residential statutes whereas the tenant, in order to gain greater security of tenure, or simply to complicate matters for the landlord, may claim protection under a business tenancy. In law, the two sets of statutes are mutually exclusive. If a tenancy falls within the 1954 Act, then it will be excluded from being an assured or AST tenancy. Where there is mixed residential and business use, it will be important to determine which statute will apply. Under the Landlord and Tenant Act 1954, the business use of a premises must be a significant purpose of the tenant’s occupation of the premises. Considering such cases is not easy, but it will be a question of fact and degree. At one end of the scale is the tenant who is perhaps employed, merely bringing work home in the evenings. At the other end is the tenant who runs his business entirely from home. There are plenty of cases of partial business use that fall between the two above examples. It is generally accepted that a residential tenant may wish to bring home papers or other work to complete after work, and this would not normally lead to an assumption of business use. When considering the borderline cases, it is often useful to look at the case law on the subject.The Letting Handbook 6-14 © The Letting Centre 05/2017

Back to contents Other Tenancy Types Mixed use business/residential tenancies - case law The intersection between business tenancies and assured tenancies was examined by the courts in the case of, Brewer and another v Andrews [1997]. The tenants rented an eight bedroom house in Newquay on an assured shorthold tenancy in May 1993. The agreement contained a clause that limited its use to a single private dwelling. The tenants then used the property as a guest house, (this is how it had been used previously) and in September 1994 the tenants stopped paying rent as they were aggrieved about certain items of disrepair. The landlords gave two months’ notice that they required possession, later issuing proceedings for possession and recovery of rent arrears of £3,150. The tenants claimed protection on the basis that their tenancy was a business, and not a residential tenancy. The Court of Appeal held that possession was correctly awarded. Firstly, the tenants could not deny that the house was let on an assured shorthold tenancy. The purpose of the original tenancy agreement was clear to all parties and the surrounding circumstances, like the fact that the property had been previously used as a guest house, would only be relevant where the purpose of the tenancy was not clear. The restriction contained in the lease made it impossible to infer an intention to let for business purposes from the history and setting of the premises, its assessment for rating purposes or the presence of so many bedrooms. In an earlier case, Cheryl Investments Ltd v Saldanha [1978], a tenant ran his importation business from his rented flat in Knightsbridge. He installed a telephone, typewriter, files etc. in the flat. No other business premises was used by the tenant in this case, and the company notepaper gave the telephone number of the flat, and the address as a PO Box in Knightsbridge. The court held that the business use was a significant purpose for which he was occupying the flat and that he was a business tenant. Solutions There are no simple solutions for the landlord attempting to grant a tenancy in this situation. The laws for residential and business tenancies have been formulated as independent sets of rules that were never designed to be used together. The rules are mutually exclusive so that a business tenancy is excluded category under the Housing Act 1988. Equally, residential tenancies are excluded under the Landlord and Tenant Act 1954 (the primary framework under which business tenancies operate). It is likely that this boundary between residential and business tenancies will become increasingly relevant in the future as more and more people work from home. Indeed, many rental properties, particularly in urban areas are specifically marketed as ‘mixed use’. In these cases, it is common to use a business tenancy which excludes the Landlord and Tenant Act 1954. This is permitted under s38A of the Act and Schedules 1 and 2 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, but for such an agreement to be valid, the landlord must serve on the prospective tenant a ‘health warning’ at least 14 days before the parties are committed to the lease and the tenant must sign a declaration agreeing to contract out of the Act. If the 14 day period is not possible, then the tenant would have to sign a statutory declaration before a solicitor that they had not received and read the ‘health warning’ and accepted its consequences. Sections 35 and 36 of the Small Business, Enterprise and Employment Act 2015 establishes a new concept of a ‘home business tenancy.’ This allows landlords to permit residential tenants to run a home business without the tenancy falling within the protection of Part 2 of the Landlord and Tenant Act 1954 (so long as tenants are not permitted to run any other kind of business from home). A home business is a business of a kind that might reasonably be carried out at home, for example, this could include an internet business, a financial consultancy, an advertising, copywriting or translation service. The landlord’s consent to a home business must be provided either through the terms of the tenancy agreement or by the landlord’s subsequent consent or agreement to such a home business.The Letting Handbook 6-15 © The Letting Centre 05/2017

Back to contents Other Tenancy TypesLicences In current law, all people who rent residential property from a private landlord have some degree of protection from eviction from their homes. The type and degree of protection that the tenant will hold depends largely on the type of occupancy. As we saw in chapter 4, there is a lesser class of occupation called a licence - which is not, strictly speaking, a tenancy at all. Generally, licensees enjoy less security of tenure than tenants. Pre-Housing Act 1988 licences Prior to the Housing Act 1988, landlords who wished to avoid or evade the tenure and rent control provisions of the Rent Act 1977 attempted to do so by having those who wished to occupy residential property sign documents purporting to grant licences rather than tenancies. The licence normally reserved the landlord the right to share occupation so that the tenant did not have exclusive possession. Because the purpose of many of these licences was a ‘sham’ arrangement designed to avoid the provisions of the Rent Act, a number of these arrangements were studied by the courts who came to the conclusion that, in some cases, the occupiers were in fact tenants not licensees (as claimed by their agreements). It was held that whether an occupier holds a licence may be measured (amongst other things) by whether the occupier had exclusive use or possession of the premises, the level of attendance or other services (e.g. provision of bed- linen, window cleaning etc.) and other matters. Under the current legal framework provided by the Housing Act 1988, the practitioner will find little reason to grant contractual licences. With the guaranteed rights of possession offered under assured shorthold tenancies, there are no significant advantages to be gained from using a contractual licence. Tenant or licensee - Exclusive Possession The majority of people who rent residential accommodation are tenants, but a few people are in fact only licensees. Unfortunately, there is not a clear distinction between the two types; the difference is not defined in any legislation. The best way of explaining the difference is by looking at the borderline cases and individual circumstances. A tenant is someone who has a legally binding right to occupy a property and exclude other people from it; this is known as exclusive possession. Thus someone who pays rent on a house or flat for their sole occupation is usually a tenant. It is settled law that a tenancy exists where EXCLUSIVE possession is granted for TERM for a RENT. A licensee is merely someone who has the permission of the owner to be in the property, but does not necessarily have the right to exclude others from the premises, or the right to assign or sublet the accommodation. Typical examples of licensees are: • Lodgers • Persons visiting a household as guests • Children living in the parental home • Visitors staying in a hotel or hostel A licence can take one of two main forms; a bare licence or a contractual licence. A bare licence is a licence granted without any valuable consideration and there is no intention to create binding legal relations (e.g. letting a friend sleep on your sofa over a weekend). A fundamental feature of the bare licence is that the licensor can revoke the licence at any time. Once that period has expired, he or she becomes a trespasser. At the other end of the scale, the contractual licence is a formal arrangement to occupy (e.g. a room or a flat) premises in return for regular payments. This arrangement can give rise to rightsThe Letting Handbook 6-16 © The Letting Centre 05/2017