3.10 Tenancy Agreements
3.10.1 Written Tenancy Agreements
Landlords should be aware of the benefits of written tenancy agreements and the procedures necessary for obtaining such an agreement. Although many short-term tenancies (three years or less) can be created without a written agreement, it is generally not advisable for landlords to allow occupation without first having secured a signed formal tenancy agreement.
3.10.2 Benefits of Written Tenancy Agreements
A written agreement is required by law for fixed-term tenancies of greater than three years, when the tenancy must be produced by deed, with signatures being witnessed. Even in tenancies of three years or less, landlords are strongly advised to have a written tenancy agreement, which the tenants should sign before occupation. The benefits of having a written agreement are:
- it can prevent disputes later over what was agreed
- if there is a dispute, it can help to resolve the dispute more quickly
- a well drafted tenancy agreement will help protect the interests of all parties.
Landlords should note:
- after moving in, occupiers cannot be required to sign a tenancy agreement
- it will be difficult to evict a tenant without a valid tenancy agreement
- the accelerated procedure for recovery of possession (see Chapter 5) will not be available unless the tenancy and required notices can be evidenced from valid paperwork.
3.10.3 Tenant’s Right to a Written Statement
A Housing Act 1988 tenant who does not have a written agreement has a right to ask for a written statement of any of the following main terms of the tenancy:
- the date the tenancy began
- the amount of rent payable and the dates on which it should be paid
- any rent review arrangements
- the length of any fixed term which has been agreed.
The tenant must apply in writing to the landlord for this statement. The landlord must provide it within 28 days of receiving the tenant’s written request. A landlord who fails to provide a statement of tenancy particulars without reasonable excuse, is committing a criminal offence and could be prosecuted and fined.
3.10.4 Implications of Oral Agreements
In law, a tenancy can be created by oral agreement. If a person occupies a property and pays rent, a tenancy will have been created even though there has been no written agreement.
A landlord cannot allow a tenant to live in a property ‘on approval’, on the basis that a tenancy will be granted later. The tenancy will have been created by the initial acts of occupation and payment of rent.
A person exclusively occupying a property and paying rent will legally be regarded as a tenant and be entitled to all the statutory protections provided to tenants under the law.
3.10.5 Preparing a Written Agreement
Although landlords may draw up their own agreements, this is not advisable. Drafting tenancy agreements is a highly skilled job and landlords doing this without legal advice may find that they have actually made their position worse in the very areas where they were seeking to protect their position.
It is far better to use one of the many excellent standard tenancy agreements which are available from landlord associations, law stationers, the larger general stationery stores, the many online services available for landlords, and some local authority housing advice centres. Landlords wishing to alter the terms of a standard agreement should seek specialist advice.
The preparation of a written agreement is the key opportunity for both landlord and tenant to agree the formal terms of their relationship. Both parties should have every opportunity to read and understand the terms of the tenancy which is being created before becoming bound by them.
Following changes to Stamp Duty in 2004, tenancy agreements no longer have to be stamped in order to be valid. The new Stamp Duty Land Tax may still be payable if they are of very high rent value. More details can be found in the Inland Revenue leaflet Stamp Duty on Agreements Securing Short Tenancies available from any Stamp Office. The Stamp Office Helpline can provide more advice on Stamp Duty on 0845 603 0135 and there are factsheets available on http://www.hmrc.gov.uk.
It is best to have two copies of the tenancy agreement signed by both parties with each keeping their own copy.
If the tenant occupies the property immediately, the agreement does not need to be witnessed. If the tenant does not intend to occupy until a later date (for example students signing a tenancy agreement in February and taking occupation in September) it is best practice to have the agreements formally drawn up as a deed and the signatures independently witnessed.
Contracts can be signed electronically but care needs to be taken that the document can be shown to have been agreed by the landlord and tenant. Where the tenancy is to be a deed (not taking effect in possession or greater than 3 years for example) it becomes more difficult electronically because of knowing the signatures were independently witnessed.
Where the tenancy does not need signing in advance and as a meeting will always take place to hand over keys, it might be a good idea to simply provide a draft tenancy electronically so the tenant can read the contents at their leisure, then, sign two copies of the agreement with the landlord at that meeting.
Both parties should be careful when completing the agreements. Make sure they are legible and that they can be read without difficulty in the event of a dispute. Landlords must provide a full, valid and current address in England or Wales. This could be the address of the landlord’s agent or his registered business address. If a landlord does not give an address, this might cause difficulties should any dispute arise.
If no address for the landlord is given at all, apart from being bad practice, the penalty is that no rent is payable by the tenant until an address is given (and the previous rent can then be claimed) but this will cause the landlord difficulties later if there is a need to evict a tenant for arrears of rent.
3.10.6 Unfair Terms in Tenancy Agreements
The Consumer Rights Act 2015 ensure that standard contracts between a consumer and a business are ‘fair’. The unfair terms part of the Act applies to tenancy agreements. Unfair terms are administered and enforced by the Competition and Markets Authority (CMA). The Office of Fair Trading (OFT) which used to administer the unfair terms regulations had issued guidance on the effect of the previous regulations on tenancy agreements https://www.gov.uk/government/publications/unfair-terms-in-tenancy-agreements–2). This guidance can continue to be used because the old regulations have basically been imported into the Act.
The legislation does not cover the core terms of a contract (e.g. the rent and property details) except in so far as they require that the contract must be in plain English.
A standard term is unfair if it creates a significant imbalance between the parties’ rights and obligations to the detriment of the consumer and it is contrary to the requirement of good faith. If a term is found to be unfair it will be void and not enforceable – but the rest of the contract will stand.
So far as tenancy agreements are concerned:
- any clauses which attempt to limit or exclude rights (e.g. legal rights) which tenants would otherwise have had, are likely to breach the regulations and be deemed unfair, unless there is a very good reason for them (which should be apparent from the agreement)
- clauses which impose any penalty or charge on a tenant must provide for or state that the charge should be both reasonable in amount and reasonably incurred
- where a clause states that a tenant may only do something with the landlord’s written consent, this should be followed by the words ‘(consent not to be unreasonably withheld)’ or similar.
Any clauses which are difficult to understand, or which use legal terminology, or words which have a specific legal meaning which may not be understood by the ordinary person (such as ‘indemnity’ or ‘jointly and severally liable’), will also be vulnerable to being found invalid under the legislation.
Here is an example of how this can work
Many landlords would prefer to prohibit pets from their properties and would like a clause in the agreement saying so. However, if the clause just says, ‘The tenant is prohibited from keeping any pets whatsoever’, this clause is likely to be void (ultimately only a court can decide what is or is not fair), and it will not stop the tenant from keeping pets if it is found unfair.
To make the clause more acceptable, it should say something like ‘The tenant is prohibited from keeping pets, except with the landlord’s written permission which shall not be refused unreasonably’.
A clause in this format is not saying a landlord has to give permission. There are many excellent reasons for refusing permission for pets – that they damage the property, that some people are allergic to them, or that the lease with the freeholder may also prohibit pets. If any of these reasons were given it would be difficult for the tenant to argue that the landlord was being unreasonable in refusing permission for a pet. The same words may be a fair term or an unfair term, depending on the context in which they are used.
It is easy to breach the regulations and render clauses invalid by inexpert adaptations. Professionally drafted tenancy agreements sold by reputable publishers and provided by landlord associations will normally have been drafted with these regulations in mind. Note also, that from time to time new cases may be decided or new guidance issued by the CMA which will need to be reflected in the form of tenancy agreements.
Make sure that the agreements in use are the most recent versions and do not use old versions.