Advice Sought from Fellow Landlords – tenancy agreement periods and monthly payments

Advice Sought from Fellow Landlords – tenancy agreement periods and monthly payments

9:26 AM, 17th July 2012, About 10 years ago 90

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One of our readers has requested some advice from his fellow landlords reading this Newsletter. I could simply respond but I’m hoping that by publishing his request he will receive more than just my opinion.

“As an avid reader of the Property118 newsletter and the associated discussions I wonder if I may ask my fellow landlords a couple of questions related to Tenancy Agreement Periods & Monthly Payments (PCM).

The background being that my wife and I have entered the landlord position by default in respect of my daughters property (modern 2 bed terrace) – 80% for which we have provided a interest free loan.  She has subsequently got married and now lives in Singapore with her husband and one year old son.

Firstly what rental agreement period would you recommend – 6 or 12 month initial period and what do you see as the pros & cons of each ?

Secondly having had a previous tenant that occupied the property for approximately 3 years we carried out a complete redecoration last February and let it on a 6 month AST Agreement commencing 11/02/12. Since the prospective tenant was not moving to the area until this date and the redecorating was not complete before we agreed that February’s rent would be calculated on a pro-rata basis.  However since our previous tenant had given one months notice such that we were obliged to enter into a pro-rata calculation for January’s rent we determined that future tenancies should be based on a per calendar month basis.  It now transpires that our new tenant wishes to move to a more expensive apartment in the centre of town (Bristol) and has given one months notice but again mid-month and expects a corresponding pro-rata rent calculation, which was exactly what we were trying to avoid by making the rent PCM.  Whilst all references to pro-rata calculations were deleted from the standard agreement I do recognise that by dating the Agreement commencing 11/02/12 we have in some way or other shot ourselves in the foot and have therefore agreed to the tenants request to pay August’s rent on a pro-rata basis.  Accordingly for future tenancies my question is this, if we made the effective date of the Agreement 1st of whatever month was appropriate and regardless of when occupation actually commenced would this solve our problem of mid month terminations?

Your thoughts on the above would be greatly appreciated,  many thanks.  Donald”



Comments

by

21:56 PM, 17th July 2012, About 10 years ago

When I go on holiday the hotel onwer knows I am going to leave after 2 weeks, a tenant does not have to leave. Therefore any tenant that in the past has not kept their landlord informed about their plans, I don't want as my tenant.

by

22:27 PM, 17th July 2012, About 10 years ago

Ian - when a tenant rents a property for a FIXED term of 6 months - why is there a difference? That's what the Law says. A tenant is not obliged to do anything other than leave. I appreciate your opinion - but the law is express - a fixed term tenancy expires 'with the natural effluxion of time'. It's not my opinion - it's just how it is. Should a Landlord penalize them for that, then it would be unfair. 😉

by Robert FitzHerbert

22:51 PM, 17th July 2012, About 10 years ago

Donald, firstly, in my experience an AST is essential. Typically this an agreement written for a year but with an option (on either side) to terminate the agreement after 6 months by way of giving 2 months notice (ie. at the end of month 4). I have found that some letting agents write their tenancy agreements for a fixed period of 12 months and I use both arrangements quite successfully. The key is to find good quality tenants who can produce all the necessary references (including those from employers and previous landlords) and use AST's that are always clear and specific in their detail.

With agreements written for a fixed period of 12 months you have the benefit of knowing that your tenant won't be going after 6 months with all the attendant extra costs but with the downside that if you are not 100% happy with them they are there for the full term, unless they have seriously transgressed. Experienced tenants will often not favour the 12 month fixed period for reasons of flexibility and as the goals for any landlord should be to (a) find quality tenants and then (b) through good management keep them for as long as possible, I tend to favour the former 6 months arrangement which allows sensible flexibility on both sides; however with both arrangements their should always be a requirement in the agreement for 2 months notice on either side.

AST's can be written for rent to be paid monthly from either the start date of the agreement or (say) on the 1st of every month. An agreement must be 'agreed' by both sides and for the sake of clarity as long as the both parties are clear and have agreed the payment terms, anything is reasonably achievable. Tenants will often request monthly payment dates to coincide with receipt of salaries and in this case I would always ask them to make the first payment the normal month's rent in advance plus the pro-rata amount to cover the particular period to the rent payable date that they wish. Likewise, it can also be written that notice can only be given (say) on the last day of the month. By ensuring that 2 months notice is required this ensures the tenant doesn't spring something too unexpectedly on the landlord and allows him ample time to re-market the property well before the end of the tenancy.

Whichever way the agreement is written, the tenants must know their terminal commitment and when I receive their notice, I always draw their attention to this but say that should I find a suitable replacement tenant who wants to move in prior to their termination date and if they are able to move out earlier, then that is of course possible to the benefit of all parties. If the existing tenant wishes to leave earlier that their termination date, then they must realise they have a commitment to pay the rent whether they are still there or not.

So, (a) write the agreement clearly without ambiguity but always considering what is reasonable, (b) ensure that the tenant is clear on the key points concerning notice and dates and (c) re-confirm to the tenant upon receipt of their notice, what the rules of departure and re-marketing are, which of course should be all as per the agreement. If needed, investigate what flexibility they have on their final departure date and agree the implications of this in writing.

Hope this is useful - it comes after 18 years of lettings experience in which time I have never had to revert to solicitors letters and have never lost out through the actions of rogue tenants.

by

6:23 AM, 18th July 2012, About 10 years ago

Hi Mark I think you might have got the wrong end of the stick possibly caused by my poor commentary.
So to state my position which I believe concurs with yours.
I absolutely believe that an AST is a fundamental foundation for ANY tenancy.
My preference is ONLY for 6 months on the basis that it is easier to resolve county court actions to remove a tenant from a property.
I never have bothered with break clauses as I don't see the point.
An AST is worthless from the perspective of ensuring a tenant will remain for the AST period.
Of course the AST is needed for all the other things; but it does not prevent a tenant leaving before the AST period expires.
A LL will stand no chance of recovering the contracted rent for the full AST period as it is just not cost effective to pursue recovery from a tenant; you have to find them first!!!
So if the tenant vacates before the AST expires then the best you can hope for is that no damage etc. occurs which would mean a call on the deposit and that the deposit can be used for the rent that wasn't paid.
Of course one would face an even bigger problem if a tenant just stopped paying rent 2 months before the AST expires.
If you have RGI then you can claim on this, otherwise you will have to possibly evict the tenant or they will just stay there possibly until the AST expires not paying rent and then leave and there will be nothing you can do about it apart from the tortuous county court process.
This is why I have RGI which funnily enogh I am possibly going to have to claim on, which should be interesting!
I thjink the overarching point is that an AST is not a guaranteed way of making a tenant comply with the lease period he has signed.
LL are really up against it as if a tenant doesn't pay rent during the initial AST period or leaves before the AST period expires.
RGI is the only way of recovery of such losses.
I am not sure what the situation would be if tenant left during an AST period and whether you could claim on RGI.
I think the main thing that these problems highlight is that LL need to have a fighting fund to cover losses caused by these tenants not paying rent and leaving before the AST contract expires.

by

6:37 AM, 18th July 2012, About 10 years ago

It doesn't matter what you put in your AST about any notice period being required.
It is illegal to insist on this as it is an UNFAIR term
It is NOT possible to legally enforce any notice period on an AST in it's fixed period.
NO deposit may be withheld if the tenant vacates on the last day of the AST period handing in the keys, subject to there being no deductions required for damages etc.
If you retained the deposit you would be prosecuted by the deposit disputes procedure.
If you gave a negative reference because a tenant left without giving notice you would be committing defamation of character.
You could be up in front of the ICO and have all sorts of problems.
Too many LA and LL have illegal AST's
I have just checked mine which states 1 month's notice minimum, which is an UNFAIR term
I CANNOT enforce it.

by

6:53 AM, 18th July 2012, About 10 years ago

You are absolutely correct about a tenant having no legal obligation twards the LL regarding notice at the AST fixed period expiry.
However whilst a tenant may have complied with the strict terms of the law there is also the matter of other tenant considerations by a LL.
As a LL I would expect a courtesy of at least a minimum 1 months notice and ideally 2 months.
It clearly is really a question of good manners.
Would a LL wish to take on a tenant would has not given any courtesy towards the previous LL regarding the tenancy term, unless the tenant could come up with a plausible excuse as to why they gave no notice.

by Puzzler

8:10 AM, 18th July 2012, About 10 years ago

My understanding is that one month's notice from the tenant is required to end the tenancy at the end of the agreement period e.g. after 5 months, or at any later time when the SPT is in place. I don't think you can stipulate that it has to be at the end of a calendar month. Why does it disadvantage you to have someone leave mid-month? I have an excellent letting agent who allows a period of 10 days between tenants for cleaning, checking, referencing new tenants if found and I have very few (almost no) voids on a portfolio of properties. It just means the property is available at any time within the month depending on the vacating date. I don't believe you can charge them for time when they are legitimately not in occupation, and I don't see why you feel that is unreasonable. If you stick to the pcm rule you would have to be vacant at least one month for the checks to be carried out unless you had a tenant lined up before the other left which would be tricky given they only have to give one month's notice. So you would likely have longer voids.

by

8:48 AM, 18th July 2012, About 10 years ago

Firstly I always advise my clients to go for 6 month tenancies - if you are having problems with your tenant 6 months isn't too long to wait to start the possession process, however 12 months can seem forever especially if your tenant starts causing problems in month 2 of the tenancy.
Also I always advise that the monthly payments start and continue on the start date of the tenancy, ie if the tenancy startes on 1st of the month, rent is due on the 1st, if the tenancy startes on 15th month, rent is due on the 15th. This makes it easier when the tenancy becomes periodic it avoids any confusion as to the correct tenancy period for calculating the dates for the Section 21 Notice.
Rebecca Brough
Fidler & Pepper
01623 448331

by Robert FitzHerbert

9:00 AM, 18th July 2012, About 10 years ago

I understand Paul's comments concerning the enforceability (or lack of it) in respect to the various contract terms, however I believe he and some other commentators are missing my point here. I sent 35 years working in the contracting industry and have had to put together more contracts than I can remember. It doesn't matter how comprehensive the agreement is, one reality always remains - if you have to go to law to resolve a contractual issue then all parties have failed! The same applies to landlord and tenant issues, which is why I stressed the importance of the Agreement as being more of a "road map" for a successful journey than a tool to beat the tenant with or visa versa! What is enforceable or unenforceable won't be discovered anyway until a judgement by the court is made, by which time it is too late and all the parties are either out of pocket or out of credibility.

My advice is always to spend more time ensuring that the agreement is not only legally reasonable but that the parties really understand the document as far as their obligations are concerned on the big issues - ie. commitment on time, payment, notice, termination and release of deposits. If these are clearly understood by both parties and trouble is taken in selecting good tenants, life with the law doesn't have to be seen as inevitable!

by Robert FitzHerbert

9:02 AM, 18th July 2012, About 10 years ago

I
understand Paul's comments concerning the enforceability (or lack of it) in respect to the various contract terms, however I believe he and some other commentators are missing my point here. I sent 35 years working in the contracting industry and have had to put together more contracts than I can remember. It doesn't matter how comprehensive the agreement is, one reality always remains - if you have to go to law to resolve a contractual issue then all parties have failed! The same applies to landlord and tenant issues, which is why I stressed the importance of the Agreement as being more of a "road map" for a successful journey than a tool to beat the tenant with or visa versa! What is enforceable or unenforceable won't be discovered anyway until a judgement by the court is made, by which time it is too late and all the parties are either out of pocket or out of credibility.

My advice is always to spend more time ensuring that the agreement is not only legally reasonable but that the parties really understand the document as far as their obligations are concerned on the big issues - ie. commitment on time, payment, notice, termination and release of deposits. If these are clearly understood by both parties and trouble is taken in selecting good tenants, life with the law doesn't have to be seen as inevitable!

Subject: [property118] Re: Advice Sought from Fellow Landlords – tenancy agreement periods and monthly payments


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