The evolution of the Private Rented Sector – Deed of Assurance

The evolution of the Private Rented Sector – Deed of Assurance

0:36 AM, 27th June 2013, About 11 years ago 116

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TMW now agree to three year AST's - Stupidly in my opinionWhy on earth would The Mortgage Works “TMW” agree to three year AST’s?

More to the point, why would landlords and tenants?

It has always been legally possible for landlords to offer AST’s for up to 3 years and indeed in theory for any fixed term though a term longer than 3 years, even by one day, means the agreement must be executed as a Deed and witnessed. However, until now, you would almost certainly be in breach of your buy to let mortgage conditions if you agreed to a tenancy of more than 12 months. TMW have broken the mould by agreeing to allow landlords to offer 3 year AST’s. However, in my opinion they are doing nobody any favours including themselves.

I have read Shelters arguments about offering stable rental contracts and to some extent I can see where they are coming from. However, I think the concept of longer term AST’s are potentially dangerous for landlords, tenants and mortgage lenders. Perhaps the most compelling evidence for this belief is that Shortholds first made their appearance courtesy of The Housing Act 1980 in the guise of Protected Shortholds. These tenancies had to be granted for a minimum 5 year term and came with other restrictions on notice being given and rent increases.

Although an improvement on the then Secure tenancy regime The Protected Shorthold was not popular with Landlords and the lesson was surely learned with the improved terms applying to Assured Shortholds as introduced in the Housing Act 1988 and amended since.

The concept behind 3 year AST’s

three year AST conceptPeople with children in schools and also retired people want more security of tenure but not at the risk of being tied to one property if their circumstances change. What these tenants don’t like is the idea of a landlord having the ability to serve notice on them after just six months regardless of whether they have been model tenants and just got settled or not.  I sympathise with that and I’ve met several people who have been in that exact position. Indeed one of my former employees was forced to move twice in less than 18 months through no fault of her own. She was a model tenant but in one case the landlords decided to move back to their former property and in the other case the landlords decided to sell. My employee had a disabled daughter and it was very important to her to keep her daughter settled in the same school. She had done nothing wrong but had to deal with a lot of stress and worry, not to mention the expense of having to move.

The problems with three year AST’s

If a landlord grants a three year AST there is no ability to gain possession on “no fault” grounds under section 21 of the Housing Act 1988 unless there is a break clause that can be operated to shorten the originally stated fixed term. This of course defeats the object of a longer term tenancy, certainly from the tenant’s viewpoint. What this means is that there is absolutely no way to legally evict a tenant during the first three years unless the tenant is in breach of their tenancy agreement as mandatory possession will not be available to the Landlord.

What’s wrong with that? I hear you say.

Well just consider a few “what if” examples:-

  1. What if the landlord falls ill and needs to sell to raise cash?
  2. What if the landlord dies?
  3. What if the landlord goes bankrupt?
  4. What if interest rates go up and the landlord can’t afford to pay the mortgage and needs to sell?
  5. What if the landlord desperately needs to move into the property due to an unforseen change in circumstances, e.g. a marriage breakdown?
  6. What if the landlord get’s divorced?

The list is a very long one already and I could go on. The killer blow for me from a landlords perspective is that if the tenant doesn’t comply with the tenancy agreement the only way to get possession before the end of the fixed term is by mutual agreement with the tenant, or by serving a section 8 notice for the breach. This can be and often is challenged though the serious arrears Ground 8 is a mandatory ground, whereas a section 21 notice cannot be challenged other than on its legal validity and ability to enforce it. The reality though is that possession cases under section 8 can be challenged and dragged through the Courts for several months. That could mean months of no rent or a tenant who abuses a landlords property or occupants of neighbouring properties.

My advice to all landlords is not to offer more than a 6 months AST in most cases, 12 months for some student type accommodation where re-letting part way through the academic year is more difficult.

Why would a lender agree to three year AST’s?

Why would a lender agree to three year AST's?To do so is crazy in my opinion.

I’ve read David Lawrenson’s points of view and whilst I concur that a lender “could” appoint a receiver of rents until it is possible to serve a section 21 notice I just can’t see why lenders would agree to that. Perhaps they are doing it just for a bit of positive PR from the do-gooders and hoping that landlords aren’t stupid enough to actually offer three year AST’s?

The mind boggles!

The bottom line for a mortgage lender is surely the ability to be able to recover their debt as quickly as possible if they need to isn’t it? Agreeing to a three year AST not only devalues their security but it also massively limits their recovery options for up to six times longer than they need to commit to, i.e. 3 years instead of six months.

Is a three year AST really that attractive to tenants either?

What if their circumstances change? Do they really want to be tied into paying their landlord for the full three years? Do they really want their estate to be charged rent for the entire contract period if they die? Committing to a three year tenancy cuts both ways. Most tenants would prefer the flexibility of a tenancy with a Council or a housing association because they are not tied in for a fixed period but do enjoy greater rights of tenure. However, Housing Associations only provide around 50% of the UK rental stock with the other half being provided by the Private Rented Sector.

Deed of Assurance could be a far better alternative

A Deed of Assurance is a relatively simple legal agreement which sits alongside an Assured Shorthold Tenancy Agreement “AST”. It is a separate agreement between landlord and tenant which does not affect the landlords rights to serve notice or to obtain possession, therefore it does not affect the rights of a mortgage lender either. However, it does offer tenants peace of mind.Deed of Assurance

From a tenants point of view, a Deed of Assurance provides far more flexibility than a long term tenancy because they are only tied in for 6 months and can then move on if they need to. What a Deed of Assurance offers in addition to an AST though is peace of mind.

A Deed of Assurance is a document in which a landlord promises to pay an agreed level of compensation to a tenant if possession is obtained within a given time period. I have never had to pay out compensation and because I’m in the business to provide quality tenants with quality accommodation long term I see absolutely no reason why I would ever need to.

The compensation amount offered by the landlord can be anything but obviously the idea is to agree something which is meaningful to both parties. For example, I offer to pay anything between £1,000 and £5,000 compensation if I obtain possession within the agreed period, providing the tenancy conditions have been observed impeccably by the tenant of course.

Similarly, the agreed period can be as long or short as makes sense too. Typically I offer 3 or 5 year terms but I would happily consider a longer period if the circumstances were right. What this means to the tenant is that if I obtain possession within the agreed period I will pay out compensation. This doesn’t stop me serving notice on a model tenant, it just means that if I obtain possession the tenant is compensated for their inconvenience.

But what if the tenant has not complied with the tenancy? Well that’s covered too. If the tenant does not comply the compensation isn’t payable, that’s very carefully worded into the Deed of Assurance by the solicitors who drafted it. Obviously there could be a dispute over whether the tenant had complied with all of the reasonable conditions in the AST and in that case the tenant would have to make a claim against the landlord for the compensation through the Small Claims Courts.

Deed of Assurance is not for everybody – by offering a Deed of Assurance a landlord is agreeing to pay compensation if they obtain possession of a property within a time scale they commit to with their tenant. It doesn’t always make sense for a landlord to make such a commitment but in some circumstances it can pay dividends. If in doubt, take professional advice.

What do others think?

The simplicity of the Deed of Assurance is its strength. Chief Ombudsman Lewis Shand Smith confirmed this by saying “The Deed of Assurance clearly sets out what the tenant can expect from the landlord and vice versa. In a sector where clarity might be lacking, this is a fantastic development”.

What’s the point of offering a Deed of Assurance?

Demand is very high from tenants who want/need greater assurance from their landlord that they are not going to have to move after just six months even if their tenancy has performed impeccably. Whilst a Deed of Assurance doesn’t actually provide tenants with any greater security of tenure, it’s certainly the next best thing. It’s a landlords opportunity to put his money where his mouth is, or perhaps more to the point, it’s a tenants opportunity to ask a landlord to do so when a landlords says words along the lines of “if you comply with your tenancy you can stay here for as long as you want”.

In practice, by providing properties which appeal to the types of tenants who want extra peace of mind in terms of stability they are also prepared to pay for that peace of mind. Many of my properties are typical family homes near to good schools, otherwise they are suburban bungalows which appeal to baby boomers and retired people. When I explain what a Deed of Assurance is to them they love it and often choose my properties over comparable properties for that reason alone. In many cases I’ve had several people bidding against each other to move into one of my properties despite there being plenty of comparable alternatives at lower prices. The reason they are prepared to pay more is for that peace of mind and legally documented assurance.


If you have the right type of properties to attract long term, good quality tenants, don’t stitch yourself or your tenant up with a long term AST or Shelters Stable Rental Contract. Consider the benefits to all concerned of offering a Deed of Assurance instead. Give your tenants the peace of mind they want and an incentive for them to perform to your requirements impeccably. It’s then a true win/win situation. Tenants know that if they perform you will have to pay up if you take possession of your property. On the flip side you may well stand a far better chance of being able to attract the tenants you really want, a premium rent and less voids periods too.

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18:02 PM, 29th July 2013, About 11 years ago

The old saying "... if it ain't broke, don't fix it...." springs to mind.

I started letting property in 1988 as a direct result of the newly introduced AST's I suspect the vast majority of landlords on this forum did or now do for the same reason.

Make agreements too long, too complex as well as introducing draconian measures for landlords or over-protection for tenants could send us back to the bad old days before AST's where small, private landlords who now seem to house half the country will withdraw from the market and the housing shortage will become a housing desert. That's also when landlords who use nasty practises rather than attend court will flourish. We need to heed the warnings of history as it has a strange habit of kicking us up the bottom. Remember :-

Even the government is adopting a "no tenancy should be for life" policy in the social housing sector as they recognise how this ties up larger properties once the children have flown the nest. Surely, the current AST's just echo this and give the tenant the opportunity to downsize as their needs change. It also enables a tenant lumbered with a bad landlord to move and vice-versa.

I'm happy with my 12 monthly renewable agreements despite the fact I rent long-term, as it seems are my mainly long-term tenants.


Mark Alexander - Founder of Property118

18:22 PM, 29th July 2013, About 11 years ago

Reply to the comment left by "r01 " at "29/07/2013 - 18:02":

"I’m happy with my 12 monthly renewable agreements despite the fact I rent long-term, as it seems are my mainly long-term tenants."

That's fine if everybody is happy.

However, what if the very best tenants wanted more assurance?

Would you risk giving them a longer tenancy term and only having the option to get possession based on section 8 in the knowledge of how difficult it is currently to obtain possession on that basis or would you consider the Deed of Assurance?

In all honesty, I wish the Deed of Assurance wasn't necessary, but sadly it is, especially in my market which, I fully accept may be very different to yours based on property type, tenant type, location, demand and a variety of other factors.


19:41 PM, 29th July 2013, About 11 years ago

Reply to the comment left by "Mark Alexander" at "29/07/2013 - 18:22":

It's never come up for me so far Mark.

I let my own properties which are clustered together, so personally meet all tenants and to date have found they are happy to accept my assurances. I also provide my prospective tenants with contact details of my existing tenants (with their agreement of course), who happily provide any information they need. If I was renting direct from a landlord I would ask for more information on him or her so I consider this only fair as I ask for references from them.

Perhaps it's because I'm a hands-on landlord but It's also possibly our respective market-places as you suggest - I'm entirely in the Herts/Bucks area. I don't let anything larger than a 3 bed semi, which interestingly is currently let to a couple who previously rented around the corner from a landlord who disappointingly wanted the property back. They have a couple of children settled in the local school and thought their last property was long term, so were careful to "check me out" before signing the AST.

And yes, of course I would consider other alternatives if the situation warranted it.



PS - I loved your comment somewhere about being recently married & very much in love so not likely to divorce.... if only life were that simple eh??

john lown

20:02 PM, 29th July 2013, About 11 years ago

If you are in the business of letting for income rather than capital gain, your tenants are paying as thy should looking after the house, what indeed is the need for a 3 year agreement and it's ramifications.

We have only long term tenants, 80 % have resided in excess of 6 years.
Perhaps we look after them too well, but they are content and PAY.

Mark Alexander - Founder of Property118

20:12 PM, 29th July 2013, About 11 years ago

Reply to the comment left by "r01 " at "29/07/2013 - 19:41":

Your latest tenant fits the exact profile I look for. Whenever I get a person like that viewing I tell them about the Deed of Assurance immediately. This increases my chances of getting those tenants I'm sure.


20:41 PM, 29th July 2013, About 11 years ago

Reply to the comment left by "Mark Alexander" at "29/07/2013 - 20:12":


It would be interesting to see if they would have been swayed by a Deed of Assurance.

They are a really nice professional couple & I'm due to do an inspection of the property in a couple of weeks so I'll make a point of running the idea by them to see what they think and give you some feedback.


Mark Alexander - Founder of Property118

21:02 PM, 29th July 2013, About 11 years ago

Reply to the comment left by "r01 " at "29/07/2013 - 20:41":

If it's explained properly no tenant will ever object to a Deed of Assurance as it only improves their position, it will never make anything worse for them. Word of caution, if you tell your current tenants about the Deed of assurance they may well ask you to offer one. If you then decline it might unsettle them.

I suggest you mention it to the next perfect prospect in a similar position if you are going to try this. Of course you will never know for sure whether that's the reason they take your property but it certainly will never be a reason for them not to take it.

All I can say is that since I've been offering Deeds of Assurance I believe have done more deals with the types of tenants I really want.

As I've said in a previous post, this may just be a comfort blanket for me. Having said that, plenty of others are using Deeds of Assurance too and I've only ever received positive feedback from those who do.


21:31 PM, 29th July 2013, About 11 years ago

Hi Mark

Personally I would never offer an A.S.T longer than 12 months...Why?

The Tenants generally have more immediate rights than the Landlord.

If the tenant is in arrears it takes time to process the legal notices.

The tenant can appeal the legal notices in court and drag out more rent free time.

Some managing agents believe that you cannot take possession until the end of the tenancy agreement.

Having been on the receiving end of tenants that deliberately seek to live rent free for as long as possible and then start to damage the property I will never issue a tenancy longer than 12 months.

My personal recommendation is 6 months followed by a periodic tenancy.

Wishing You Success
John Hayman

Mark Alexander - Founder of Property118

21:39 PM, 29th July 2013, About 11 years ago

I fully concur with your recommendations John. I combine this strategy with the offer of a Deed of Assurance to make my offer even more attractive to the very best tenants whom I really want to live in my properties long term.

Joe Bloggs

22:01 PM, 29th July 2013, About 11 years ago

presumably the mechanism for rent increases would have to be set out in the original TA, Until there is parity and fairness, this is not in landlords interests unless it commands a much higher rent.

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