Letting Handbook 3

Back to contents Granting and Managing the Tenancy2. Granting and Managing the Tenancy Only when all checks and references on the prospective tenant have been satisfactorily received is the landlord in a safe position to grant the tenancy Type of tenancy Since the introduction of the Housing Act 1988 on 15 January 1989, the majority of private residential lettings came under the system of assured and assured shorthold tenancies. The legal framework was further amended on 28 February 1997 whereby such lettings on or after this date became automatically an assured shorthold tenancy (AST). Therefore, when granting the tenancy, an assured shorthold tenancy agreement is the most common form of tenure. There are however, several notable exceptions: • lettings where the landlord lives in the same house as the tenants • lettings where the rent is over £100,000 per annum • business tenancy or company letting • holiday lettings In the above situations (a complete list and more details are provided in chapter 5), the letting will fall outside of the control or statutory provisions of the Housing Act 1988, and a ‘common law’ or ‘contractual’ tenancy will normally result. Tenancy Agreement Although in previous times, tenancy arrangements were less formal (and there is still no legal requirement that a tenancy agreement shall be in writing unless the tenant requests one), landlords are well-advised to have a properly drafted and written tenancy agreement. The agreement will normally be drawn up by a letting agent or a solicitor although simple standard forms of agreement may be obtained from a legal stationer. Where there are several tenants, then all tenants in the property need to be included on the tenancy agreement; this is generally known as a joint tenancy.The Letting Handbook 2-1 © The Letting Centre 05/2017

Back to contents Granting and Managing the Tenancy The agreement should contain: • the main terms and conditions of the letting • any extra terms or restrictions required by the landlord • a copy of the inventory and schedule of condition • any required statutory notices The agreement can be prepared and supplied in advance of occupation. This is helpful in giving the tenant a chance to read the agreement and contained terms before signing. A tenant may sometimes wish to refer the agreement to his solicitor who may request changes before agreeing to sign. Where the property is subject to a mortgage, the lender may also wish to examine a copy of the agreement before agreeing to the letting. N.B. It was a requirement that the tenant was served with a statutory Notice of Assured Shorthold Tenancy prior to signing the tenancy agreement. With effect from 28 February 1997, this notice is no longer required. Signing the agreement All tenants listed on the tenancy agreement will need to sign the agreement. For various reasons care should be taken when signing the tenancy agreement in advance of occupation especially when the landlord does not have vacant possession. It is often easier to sign on or near the day of occupation (see Chapter 9 for more information). Last minute changes to the agreement should be avoided but where changes are necessary any additions, deletions or amendments to the agreement should also be initialled by both the tenant(s) and the landlord (or his representative). Tenancy agreements often include a space for the signature and details of a witness to be recorded. Although this is not a statutory requirement, it is a safeguard for the landlord’s interest in case the tenant disputes the validity of the agreement. Agents often ask tenants to sign agreements at the office in the presence of a colleague who can act as a witness to safeguard against the unusual situation where a person denies ever signing or being shown the agreement in the first place. Prior to Occupation The tenants should normally be expected to make their own arrangements for supply of the main utilities (electricity, water, gas & telephone), otherwise landlords take the unnecessary risk of paying these costs if a tenant defaults. Occasionally, it is not possible to separate the billing of the tenant’s supplies (e.g. resident landlord, HMO etc.) or not appropriate because the property is to be let for only a very short time (e.g. holiday lettings). Because of the delays in transferring or reconnecting the services, this should be done sufficiently in advance of occupation. Local utility companies will be able to advise on their normal lead times. A set of keys (for each tenant) should be prepared, tested and itemised on the inventory.The Letting Handbook 2-2 © The Letting Centre 05/2017

Back to contents Granting and Managing the TenancyFinancial issues One final procedure before allowing the tenants into possession, is to ensure that all money due at the beginning of the tenancy is collected. Normally, this involves collecting the dilapidations deposit, or bond, and the initial rent. Deposit The purpose of the dilapidations deposit is act as security in case the tenant leaves the property owing rent or to pay for any damage or unpaid household bills at the end of the tenancy. There is no longer any limit on what size of deposit can be held, but where a deposit of more than two months’ rent is taken, it could be regarded as a premium which may give the tenant a right to assign the tenancy to someone else or sublet. Equally, it would be inadvisable for the landlord to ask for less than one month’s rent. A major change introduced by the Housing Act 2004 is that most tenancy deposits are now required to be protected by a government-authorised scheme in many prescribed situations - generally when the deposit is accepted under an assured shorthold tenancy. Where applicable, landlords and agents are required to hand over these deposits to the custodial deposit protection scheme, or hold them in a separate account protected by a relevant deposit scheme. Practitioners will also need to follow any deposit scheme rules or guidelines provided by their professional association with regard to the holding of deposit money. You should state clearly in the tenancy agreement the method in which the deposit is to be held and the circumstances under which part or all of the deposit may be withheld at the end of the tenancy. (For more information, see Chapters 9 and 10). The deposit money is effectively held in trust by either the landlord or the agent and the tenant would therefore normally be entitled to any interest gained unless it is otherwise agreed. Rent Rent will normally be payable either weekly or monthly in advance. Rent for the initial period should also therefore be collected prior to installing the tenants Payment All deposit and rent money received prior to occupation should be in cleared funds in order that any cheques cannot be cancelled. There are clearly several methods of payment, some more convenient than others, and the prospective tenant needs to be informed of any stipulations regarding payment with sufficient notice. Bankers Draft. Letting agents normally request that the initial deposit and rent money is paid by either a banker’s draft or building society cheque. These are both very suitable methods of accepting payment because the funds are guaranteed; the cheque or draft cannot be cancelled unless lost or stolen. Furthermore, there is little possibility that a tenant would use a stolen or forged bankers draft. The cheque is issued in the name of the bank and made out to a company or individual. A banker’s draft is available to anyone holding a bank account and banks make a small issuing charge. A building society cheque operates in a similar way to the bankers draft for individuals with building society accounts. Building societies typically do not charge for issuing a cheque. Cash - many landlords and agents do not like handling large quantities of cash. In addition to the obvious security risks, cash is no longer a totally secure payment method due to forgeries.The Letting Handbook 2-3 © The Letting Centre 05/2017

Back to contents Granting and Managing the Tenancy Personal Cheque - cheques run the risk of cancellation or not being honoured by the issuing bank. Although it is possible to guarantee payment using a cheque guarantee card, this will rarely be sufficient to cover the sums commonly involved. In order to verify receipt of funds when accepting normal cheques, it will be necessary to wait at least three working days for the cheque to clear. Alternatively, the recipient can ask for an express clearing service for which an extra charge is usually made. Standing Order - Many landlords and agents now require rents (after the initial payment) to be made by standing order. Using a standard form available from the bank, the tenant will set up an arrangement for a specified amount to be paid to a nominated account on a regular basis. Alternatively, the forms can be completed by the tenant and sent to the tenant’s bank by the landlord. Direct Debit - This is similar to the standing order except for two important differences. Firstly, direct debits operate on a demand payment system; the payment is demanded by the receiving bank. Secondly, the amounts to be paid may be altered by the recipient. Credit Card / Payment Card. Although this is less common, rents may legally be accepted using credit card payment.The check-in It is usual for the person managing the property to be present when installing the tenants. This allows both parties to sign the inventory and ensure that the property is generally in good condition ready for letting. There are occasionally circumstances where this is not possible (e.g. tenant arriving from abroad on a bank holiday) where alternative arrangements may need to be made. The inventory should be checked by both parties in detail at the beginning of the tenancy and any discrepancies and observations annotated to the document. It is also useful for the same person to be checking the tenant both into and out of the property so that the condition can be compared and any damage accurately evaluated. A note of meter readings should also be taken, and added to the inventory. The operation of the various systems and installations (e.g. central heating, water softener etc.) should be explained to the tenants or a set of written details prepared. Safety Checks Any electrical appliances left in the property should be checked prior to occupation. Such checks will either be by visual inspection or by individual testing of the appliances by an electrical engineer. (Further information on safety requirements is given in chapter 8 ) Where there are any gas appliances, copies of the current gas safety certificate(s) must be issued to the tenants. Safety information or instructions relating to any appliances or other equipment should be explained to tenants, or left in a prominent place. Tenants should also be made aware of all emergency stopcocks: • Water mains stopcock • Gas mains stopcock / meter box • Electricity main switch and fuseboxThe Letting Handbook 2-4 © The Letting Centre 05/2017