Letting Handbook 3

Back to contents The Tenancy AgreementLegal Requirements Whilst it is perfectly legal, at present, to create a short residential tenancy purely by oral agreement, it would not be good practice for the reasons stated in earlier sections. There is no standard or statutory form that the agreement must take and, for this reason, tenancy agreements come in all shapes and sizes; many lawyers, letting agents and landlords have their own preferred drafting styles and standard clauses. The main legal requirements in creating short leases are summarised below: • Whilst there is little formality required for creating shorthold residential tenancies, assured shorthold tenants under the Housing Act 1988 are entitled to demand a written statement of the terms of their tenancy. (HA88, s.20A) • An agreement for a term of more than three years must be in writing and by deed. (ss.52-54 Law of Property Act 1925). • Neither party to a lease is permitted to charge the other party for any solicitor’s costs for preparing the tenancy agreement unless the parties agree otherwise in writing (Cost of Leases Act 1958). • The terms of the tenancy must be fair, and written in plain and intelligible language (the unfair terms regulations are discussed further below). • In some cases, it will be necessary to serve certain notices on the tenant prior to signing the tenancy agreement. See section entitled ‘Notices’ below. Additional Requirements * Energy Performance Certificates (EPC). Since 2008, it has been a legal requirement that the landlord shall furnish the tenant(s) with an EPC at the earliest opportunity during the letting process. Since 6 April 2012, an EPC must be commissioned before the property is made available for rent * Tenancy Deposit Protection (TDP) Any tenancy deposit accepted in connection with an assured shorthold tenancy must be protected within one of three statutory schemes (for all new tenancies commencing on or after 6 April 2007). See chapter 10 for more information. * Section 47 & 48, Landlord and TenantAct 1987. Sections 47 and 48 make statutory requirements that apply to all types of residential tenancy agreement. Under section 47, a landlord is required to supply his/her name & address on any rent demand or other demand for payment (service charge etc.). If this is not supplied, the law states that any portion of the amount due which includes a service charge is not payable. Whilst this is a grey area, many lawyers choose to interpret the tenancy agreement as a form of rent demand and take the view that the landlord must supply his actual address on the tenancy agreement (in addition to the address of the letting agent). Other lawyers take a more pragmatic view and say that there is no recent case law to support this interpretation, and that the landlord and his family are entitled to their privacy and safety, and that a business address or the agent’s address is sufficient. Non compliance with section 47 has only very minor repercussions for private rented sector landlords - any service charges payable under the lease will not be collectible until the section has been complied with. Under section 48, the landlord is required to supply an address in England and Wales at which notices can be served. Unlike section 47, the case law is clearer and supplying the agent’s address is sufficient for compliance with section 48. Landlords living overseas should take particular care to provide the tenant with such service address as a tenant may legally refuse to pay any rent due until compliance with section 48 has taken place.The Letting Handbook 9-9 © The Letting Centre 05/2017

Back to contents The Tenancy AgreementUnfair terms in consumer contracts At the time of writing, tenancy agreements, as with other types of consumer contract, are subject to Part 2 of the Consumer Rights Act 2015 which replaced the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) on 1st October 2015. The UTCCR made a significant impact on the style and content of modern tenancy agreements. Tenancy agreements which had, for generations, contained obscure legal terms and phrases with established meanings can now be declared invalid because they are not intelligible to the layman. Other tenancy terms with onerous implications for the tenant could also be declared unfair and thus invalid. The impact of these regulations on modern tenancy agreements has been very significant, and the benefit for the consumer has been positive. Agency agreements can also be caught by the Consumer Rights Act where the landlord is a consumer, for example, if the landlord rents out one property but has another job which pays their main income. The unfair terms will not apply where the landlord rents out a large number of properties and the rent provides the main income as the landlord is likely to be a business consumer. Anything that is said or written to the landlord by or on behalf of the agent about the agent or service will be treated as a term within the contract where the landlord has taken this into account when deciding whether to enter into the contract. This requirement is subject to anything that qualified the term, was said or written to the landlord on the same occasion and any change to it that has been expressly agreed between the parties before entering into the contract. The Consumer Rights Act sets out the following requirements: • agreements and notices must be prominent and expressed in plain and intelligible language • agreements and notices must be fair so as not to prejudice the balance of rights against the consumer • contracts for services must be perfomed with reasonable care and skill and within a reasonable time Fairness The unfair terms under the Consumer Rights Act apply a test of fairness to notices and most standard terms in tenancy agreements. The regulations state that any notice or term declared to be unfair will not be binding, with the exception of the ‘core’ terms of the agreement (which set the price or describe the main subject matter of the agreement). A notice or a term in a consumer contract will fail the test of fairness ‘if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.’ Contractual imbalance is created where a term or notice gives powers to the landlord that he would not otherwise have, or protects him in a way that puts the tenant at a disadvantage. The requirement of good faith in this context is one of fair and open dealing. Openness requires that any written notice or terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that the supplier should not, whether deliberately or unconsciously, take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any factor listed or analogous to those listed in Schedule 2 of the Regulations. A consumer notice (which includes an announcement, whether or not in writing, and any other communication or purported communication) is a notice that relates to the rights or obligations between a trader and a consumer or excludes or restricts a trader’s liability to a consumer. A notice does not have to expressly apply to a consumer but it must be reasonable to assume that it is intended to be seen or heard by them. If a term in an agreement or a notice could have different meanings then the meaning that is most favourable to the consumer will prevail. Under the previous regulations the test of fairness didThe Letting Handbook 9-10 © The Letting Centre 05/2017

Back to contents The Tenancy Agreement not apply to individually negotiated terms but the Consumer Rights Act does not include this provision, only the core terms are exempt. Plain Language The Regulations require the use of plain and intelligible language. Contracts must be intelligible to ordinary tenants without legal advice. This means using normal words in their usual sense in short sentences, and avoiding legal jargon, statutory references, elaborate definitions and extensive cross referencing. If there is any doubt about the meaning of a written term, the interpretation most favourable to the consumer shall prevail. Examples: The examples below are tenancy agreement terms that were scrutinised by the Office of Fair Trading (OFT) and declared to be either unfair or unintelligible to the consumer. Plain English It is agreed that the Tenant will indemnify the Landlord against any costs or debts resulting from non-payment of electricity, gas or other outgoings related to the Property. The OFT regard the term ‘indemnify’ to be a legal term whose meaning is not readily understood. The supplier was requested to reword the agreement so that the Tenant agreed to be responsible for any unpaid bills or other costs resulting from unpaid bills Break Clause It is agreed that the landlord may terminate the tenancy agreement on giving two months’ written notice. The OFT would regard the above break clause in a tenancy agreement as unfair as it creates unfair rights in favour of the landlord (i.e. tenant is not allowed an equal right to terminate). Penalty for late rent payment The Tenant will pay £5 per day when the rent is in arrears This type of clause would be considered by the OFT as a financial penalty. Fixed amount penalty clauses are not generally allowed unless they truly reflect the likely loss or costs incurred by the landlord as a result of the breach. Enforcement Traders are encouraged to resolve matters out of court and use Alternative Dispute Resolution (ADR) in the first instance such as negotiation, mediation, ombudsman scheme etc. Enforcement of these regulations takes place directly through the courts. A tenant or a landlord may challenge the fairness and legality of any particular clause and the judge may decide to remove the clause in its entirety from the agreement. A similar process also occurs regularly during the ADR process in tenancy dispute resolution; adjudicators often refuse to support portions of a landlord deposit deduction on principles of fairness under these regulations. Finally, the tenant may refer an agreement to their local trading standards department who hold powers (via the CMA) to ask a business to stop using offending standard terms or agreements. Further Guidance A guide to the application of these regulations entitled Guidance on Unfair Terms in Tenancy Agreements is available online, originally published by the OFT and now adopted by the Competition and Markets Authority. A summary of the guidance and information on the unfair terms regulations is given in Letting Factsheets 10 & 10b (see Appendix).The Letting Handbook 9-11 © The Letting Centre 05/2017

Back to contents The Tenancy AgreementTerm of the tenancy The ‘term’ refers to the length or duration of the tenancy. There are several issues to be considered: 1) Minimum term. There is generally no minimum term that can be granted. Thus in practice, a tenancy can granted for any term from one or two days upwards. Alternatively, there may be no fixed term at all if the tenancy is granted as a periodic tenancy from the outset. 2) Maximum term. There is no maximum term for assured tenancies under either statutory or common law. 3) Length of term considerations. There are various rules and provision with respect to the length of the tenancy term: • 6 Months. Where an assured shorthold tenancy was granted under the original Housing Act 1988, there was a restriction that the tenancy had to be granted for a minimum initial term of six months. Where this restriction was invalidated (perhaps even by inclusion of a break clause which could allow the tenancy to be determined before the initial six months had elapsed), the tenancy would become an ordinary assured tenancy.For new-style assured shorthold tenancies granted after February 28 1997, there is no statutory restriction on the length of the initial term. This is replaced by a similar restriction which prevents a court granting a possession order for such tenancies before the initial six months has elapsed. • 8 months. This is the maximum length of term that may be granted under the Housing Act 1988 for an assured tenancy which was previously let under a holiday letting, and where the landlord requires to use this ground to recover possession at the end of the tenancy - Ground 3. • 12 months. For furnished lettings of less than 12 months or more, a tenancy agreement used to attract stamp duty at a reduced rate. This is no longer the case since the new SDLT stamp duty system was introduced in 2002, but some landlords and agents have adopted the habit of drafting leases for a term of ‘one year less one day’ for this reason. • 12 months. This is the maximum length of term that may be granted under the Housing Act 1988 for an assured tenancy which was previously let as a student letting (by specified education establishment landlords), and where the landlord requires to use this ground to recover possession at the end of the tenancy - Ground 4. • 3 years. If the term exceeds three years, the agreement should be re-drawn as a deed and executed under seal (Law of Property Act 1925 sections 52 and 54). • 7 years. If the agreement is for seven years or more, then the statutory repairing obligations (provided under the Landlord and Tenant Act 1985) will no longer apply. 4) Rent Increase Mechanism. If the term is to exceed one year, the landlord would be well- advised to consider including a provision for rent increase within the tenancy agreement. See ‘Rent Increase’ section below.The Letting Handbook 9-12 © The Letting Centre 05/2017