Below is an article taken from the Sunday Times which is not especially helpful.
The simple fact is that a tenancy where the rent is greater than £25,000 (£100k from October 2010) per annum can never be an AST but this is a good thing, not a bad thing. It is just as quick to evict a tenant on a common law tenancy (which is the type of tenancy it would be) than it is on an AST. In fact in some cases it can be quicker!
From The Sunday Times – August 19, 2007 – Rosie Millard
The subject of this week’s column is a problem that afflicts landlords lucky enough to own prime rental property that they can let out for serious money. It concerns the assured shorthold tenancy (AST), the crucial document most of us landlords use when we sign up a tenant.
The thing is, it has become rather out of touch, in financial terms at least. It was introduced with the 1988 Housing Act. Since then, the housing market has gone bananas, and rental values – in some areas, at least – have behaved in a similarly vertiginous manner. And, as the tenancy contract has a financial cap on an annual rental of £25,000 per property, it no longer applies to quite a few homes, particularly in London.
In plain language, if you are charging more than £481 a week in rent, then the contract that you may have signed with your tenant is not valid.
Do experts in the field realise this? I am sorry to say, they do not. My first call is to Barry Markham, of the National Federation of Residential Landlords, who behaves as if my news is a bolt from the blue: “If you charge more than £481 a week, your agreement ceases to be an AST? You need a different kind of contract?” Yes, I know, Barry. But what kind of contract? “I’ve never been in the privileged position of using a property that commands that kind of rent,” he says, after a lengthy pause, “but it’s never been brought to my attention by any of our members. And we do have members in London, you know.” All right, all right. He later e-mails to tell me that the federation’s website has the matter in hand and will be advising members accordingly.
So I call Kari Trajer, the lettings manager at Hurford Salvi Carr, a City agency that has plenty of landlords charging more than £481 a week for sexy City pieds-à-terre. What happens to their contracts? “They roll onto a non-Housing Act tenancy agreement,” she says. This is still a legally binding agreement. However, it lacks a crucial element of the good old AST – namely, the fast-track slinging-out element.
“The fast-track system with an AST means that if a tenant is in arrears, you can get them out in three months,” Trajer says. “With a nonHousing Act agreement, the fast track won’t apply. Landlords are still protected, and you will still have the same rights for vacant possession if the tenant is in arrears, but it will take a lot longer. And plenty of landlords aren’t aware of this.”
I see. Can’t you just run a blue line through the financial cap on the AST contract and update it yourself? “No, you can’t,” says Trajer severely. Apparently, this would not be legally binding. Has she had any examples of tenants taking advantage of this posh loophole? “No. At our level, and in our area of town, we have a low incidence of rent arrears, but I can see that in the sharers’ market, these problems might arise,” she says delicately. “And I suspect there will be many landlords out there who are completely unaware their AST has progressed onto a nonHousing Act agreement.”
What should these landlords do? Can’t they simply add a fast-track paragraph into their nonHousing Act document? “No,” says Trajer, slightly wearily. Tampering with official documents, however valid your reasons, will not make the slightest bit of difference. “My advice,” she says, “is that before signing an agreement, you should rereference tenants and check they have an excellent credit rating.”
Stephen Yorke, who has five flats in central London, including two in Norman Foster’s flash Albion Riverside building, Battersea, says: “My flats are all rented for sums above that rate, and I have discussions about the fact that the AST doesn’t apply with the various agents responsible for contractual arrangements with my tenants. I’m assuming that they are on top of it. I have just bought a flat in Cadogan Square, where the expected rent will be above the threshold, and not only the lawyers and agents, but also the lenders, were very alive to this issue.”
Does he think the financial ceiling within the AST should be revisited? “With house-price inflation having done what it’s done, I think a lot of thresholds, such as stamp duty, should be revisited,” he says.
Some landlords, however, have fallen foul of the posh loophole. Robin Lawton has 14 mid-market flats in Southampton, all of which are on ASTs, and one posh flat in London that has left that lowly world far, far behind – it rents out for £700 a week.
Naturally, most of his tenants in this abode, which overlooks the Houses of Parliament, have been from corporate lets. Unfortunately, not all of them have been good lets: “I did rent it out to one company that went into liquidation and defaulted, and I lost about £4,000.
“If it had been rented out under an AST,” he continues, “I’m sure I would have had more of a legal leg to stand on. Since then, touch wood, I’ve never had a problem, because I tend to rent it out to bigger, more established organisations.”
Would he like it to be covered by an AST? “I would be happier if it was, because there is a bit more collective responsibility with an AST. Every landlord is in the same boat.”
The buy-to-let community – we’re not just a bunch of freeloading capitalists.