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

13:26 PM, 3rd October 2012, About 9 years ago

Assuming the rent is paid by standing order or direct debit, it is very likely the tenant will have money in the bank on the 1st, as most people get paid towards the end of the month.

by Mark Alexander

18:37 PM, 3rd October 2012, About 9 years ago

Hi Recardo

A few questions if I may please:-

When you issued a new tenancy agreement did you re-protect the deposit? If not, BEWARE, you could be fined 3 X the deposit amount so it's well worth considering this before making waves.

Has your tenant got a good job?

Did you get a guarantor agreement?

Did you purchase Rent Guarantee Insurance when you renewed the tenancy.

All of the above affect your likelihood of being able to enforce the contract conditions.

I think Paul Barret's practical advice is good however, I don't necessarily believe that the only choice you have is to suck up the losses if you found the right tenants and got your due diligence right.

Regards

Mark

by Recardo Knights

9:38 AM, 5th October 2012, About 9 years ago

Hi Mark
As the start of the tenancy tenancy was taken out in December 2005 and deposits did not have to be protected then, I did not think the deposit had to be protected every year. I have always refunded deposits so paying for deposit protection every year seems to a cash cow for companies taking fees from people who never use their services. I have re-protected all other deposits taken after 2006 only because I do not want a savy tenant claiming 3 years rent refund.
She has an average job with no guarantor,and i Have no rent Guarantee.
She is one month in arrears, has not had a rent increase for 2 years and says she can't afford to catch up, but wants a larger place at a higher rental.
All new AST's are done through a letting agent for an average fee of £350, as most of my properties are 90 miles away. They do the checks and due diligence, but are mostly after the fee.
I told the tenant she was free to move as long as she gave me two months notice and paid the rent to the notice period.
Paul's advice is good except for going on to a periodic term. Again the tenant only has to give me 1 months notice (not enough time for a replacement), but I have to give the tenant 2 months notice?
I think the majority of tenants prefer to do a 12 month AST for their piece of mind. I always write to them 3 months befor it expires to ask if they would like to renew. if they do not I can then give them notice with plenty of thime to find a new tenant. To date this has never happened

by

11:15 AM, 5th October 2012, About 9 years ago

You are correct Recardo with the way you do your AST's; but they only work because you have normal tenants who comply with the AST terms.
This is how it should be, especially if these tenants want a good reference.
But we know there are a minority of tenants who are not bothered what AST they have, they will leave whenever they feel like it without any notice if that is their fancy whether in a Fixed Period or not.
Normal tenants will want to comply with your perfectly acceptable arrangements; but a tenant doesn't have to.
Remember another Fixed period would not retain a tenant if they really had to move.
They would suffer the damaged tenant reference.
There is always a mug LL out there who will rely on a LA reference which is as much use as a chocolate teapot, and you won't bother suing in a County Court for failure to pay contractual rent for thre remainder of the fixed period.
I think if you just issued a 6 month AST along with Mark's Deed of Assurance; it would carry far more weight than a long AST
Using a 12 month AST means you have to use Section 8 if there are any problems.
At least with a 6 month AST you only have to wait 6 months before you can apply for a no fault PO.
I have never had a request from a tenant for a 12 month AST as I have effectively always verbalised Mark's Deed of Assurance
Remember aswell there is NO legal requirement to give you ANY notice whatsoever when wishing to terminate an AST fixed period.
Of course we all have a notice period in our AST but it is an unenforceable condition.
We could not besmirch a tenant's reference if no notice was given and they vacated on the last day of the Fixed term AST.
Of course manners and courtesy is what most normal tenants will adhere to, so in these cases your AST and notice protocols will probably work.
I think the way you have managed things so far has worked on politeness of both parties and you have been fortunate.
Not all tenants are like that though, are they!!!?
As far as deposits go just phone mydeposits and they will tell you what the situation should be; but don't use your real name.

by Mark Alexander

14:15 PM, 5th October 2012, About 9 years ago

Recardo, I hate to be the one to break this news to you but you MUST protect the deposit again every time you create a new AST, even if it is with the same tenant. On this basis any decent advisor you tenant speaks to will tell them to complain and get up to 3 times their deposit refunded plus their deposit. You counter argument, however, could be that the tenant is still responsible for the rent for another 10 months.

What a mess!

However, I also think your letting agent had a duty of care to you to inform you of this so I think they too are at least partially responsible. You should at least raise this with them.

You could tie yourself up with litigation over the unprotected deposit for this AST and recovery of losses resulting in the agents negligence and for early termination from the tenant. However, do you really want that hassle? If not, perhaps it's worth just chalking this one up to experience. You money, your time, your choice.

Wishing you well.

by Recardo Knights

8:56 AM, 6th October 2012, About 9 years ago

Hi Mark & Paul
Thanks for your advise I'm sure it was also helpfull to other landlords. Maybe the deposit protection fee should be looked at as it does seam unfair for a LL to pay the fee every year because they provided a happy tenant with a new AST. Same tenat, same property, NO new deposit it was taken and was protected in other cases 3 years. The company was not asked to adjudicate every year, nor will they be when the tenant leaves. So money for old rope.
In this case I will ask the tenant to use her deposit of £600 taken 2005 to cover the current rent of £625 if she makes up the shortfall. If she say no I will refund her deposit now, and chase her for any damages later if needed.
Am I right in understanding that if I let an AST run into a periodic tenancy the original protection is adiquate as no new AST was given, and no new protection is required? If so why is the 7 year old case so different. Same tenant same property with £25 rent icrease in 7 years.
So do I sound like a rouge landlord because I have to keep paying for something I don't want or need. A dposit scheem may give a tenant more piece of mind as they have 5 pieces of paper I'v had to print and send to them, it does nothing for me.
As i said earlier because of the distance I use a letting agent to find the tenant. I meet them on moving day or as soon as posible, keep in regular contact with 2-3 quick inspections a year (don't need a canabis factory). I then ask them 9 months later in a letter if they would like to stay on with the inflection that if say no or don't know I will contact an agent to View and market the property, an a letter of notice is on its way.
If they say yes they want to stay (never had on say no) I then do my own AST for the next year, and every year after untill a new tenant is needed.
Regards
Recardo

by Mark Alexander

9:35 AM, 6th October 2012, About 9 years ago

The law says that when a new tenancy is created the deposit must be re-protected. I didn't draft that law. Had I done so I would have included a provision for deposit rollover protection for tenancy renewals. As you say, it's money for old rope and paperwork for the sake of paperwork but the law is the law.

An alternative strategy would be to offer your tenants an annual "deed of assurance". The tenancy agreement would remain statutory periodic and you would not need to re-protect the deposit. The tenant would know that if you do serve notice within the 12 months you will pay them compensation which can be as much or as little as you want to offer. Remember, it's a negotiation.

Instead of having to pay out for deposit protection you could charge a small fee to your tenant for preparing a new "deed of assurance". That way you will be growing your income and not your expenses or liabilities. It also gives you control whereby you can make a commercial decision on serving notice if your personal circumstances change. A new 12 month AST puts all the control into the hands of a tenant whereas a "deed of assurance" gives both landlord and tenant more choices.

by

10:42 AM, 6th October 2012, About 9 years ago

When you say the distance involved is prohibitive.
If you work out the costs of you managing the property compared to what you would pay a LA, I think you'll find it is cheaper you doing it.
And you are correct in LL having to produce all this paperwork; but we have no choice.
Quite frankly there is NO need to keep producing AST's.
LA like doing this as it generates fee income.
ANY change to an AST and you MUST issue a new DPC.
This is why I use Section 13 for rent increases as it saves the tenant or rather me having to pay for a new DPC.
If the tenant wants a new AST with possible amendments to it, then I would do so but the tenant has to pay the 'admin fee' for the DPC as a LL is NOT allowed to charge a tenant fior a DPC.
If I was you I would just have a 6 month AST and then all proceed onto a SPT and add a letter like Mark's Deed of Assurance.
Doing things this way will avoid any confusion for you and all those silly fees which are completely unecessary.
I don't think you need a LA to manage these things.
You could even give authority for a tenant to carry out works or have them carried out on receipt of estimates for the work needed.
This would save you a lot of hassle.
Your tenants seem to have been OK and I'm sure they would have done things correctly with minor repair works.
The deposit law changed some time in April this year.
I think if you search Mary Latham's posts on this site, she posted chapter and verse about everything a LL need know about the revised deposit regulations.
She has also posted extensively about this and many other LL related issues.
You would do yourself a great favour if you took an afternoon off and read ALL her posts.
You WILL find yourself considerably enlightened once you have read them all.
And yes the same AST can remain inforce for ever along with the original DPC for that deposit.
I very much doubt that all the paperwork you keep producing has or will have the effective of facilitating retention of your tenants.
They would have stayed regardless of these AST's you keep producing.
I think you will find it is the LA that is driving production of tis paperwork as they gain considerable fee income from renewals.
And as we have discussed an AST will NOT retain a tenant if they wish to leave before the Fixed term expires.
Renewal fees are a complete waste of time for the LL and tenant; but NOT of course to the LA.
Still speak to mydeposits about your deposit situation.
Hopefully she leaves and if no rent has been paid for the last month she will expect you to use the deposit for rent arrears, so she shouldn't be any the wiser if there are deposit issues.
I have an idea that a tenant can dispute a deposit 6 years after the tenacy has ended.
But you may end up having to refund if she knows about the new regs; which is unlikely.
However do contact mydeposits on 020 82753260 and they will give you definite advice as to what your situation or rather your 'friend's' is!

by Mark Alexander

11:44 AM, 6th October 2012, About 9 years ago

Hi Paul

I would never use a section 13 notice, they are impersonal. It's far better to go and have a chat with a tenant. This gives you an opportunity to have a look at the property too. Clearly Recardo already does this. When a rent increase has been agreed with a tenant I agree to confirm what's been agreed by email and ask them to respond with their confirmation. That's all that is required in law.

If you issue a section 13 one of two things will happen,; either the tenant will move out or they wont. A chat over a cuppa avoids the need to wait two months and the outcomes are identical, save for possibly increasing the rent a month earlier. You are much more likely to persuade a tenant to stay on and pay an increased rent over a cuppa that hitting them with a section 13 notice too.

by

13:51 PM, 6th October 2012, About 9 years ago

No I didn't explain in detail; but yes I entirely concur with your methodology.
I do indeed discuss the situation and then I send the agreed Section 13.
I have never just served the notice without discussion with the tenants.
So I do subscribe to the way you do things
The Section 13 I send effectively just confirms the rent increase and obviates a new AST with all the ramifications that that causes. and that I have after discussion eventually arrived at.
I think every tenant has managed to beat me down from my original proposed increase amount!!.................................I am so weak!!


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