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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Mark Alexander - Founder of Property118

22:37 PM, 29th July 2013, About 11 years ago

Reply to the comment left by "Joe Bloggs" at "29/07/2013 - 22:01":

I think you need to read the whole thread before reaching that decision, it certainly makes sense to me.

Fed Up Landlord

12:12 PM, 30th July 2013, About 11 years ago

Having read some of the mortgage contracts I had with BOI ( yes I am caught in that particular trap) then the thought struck me that if the lenders can draw up mortgage contracts that cover all eventualities (special conditions) then it is not beyond the abilities of the legislators and the PRS to come up with an AST that has break clauses inserted if certain things occur. Now these would have to be quite prescriptive. From a landlords point of view then number one is paying the rent. If the rent is not paid, or there are any breaches of the AST then effectively, "the extended AST is off". But- likewise the tenant could invoke a break clause if the landlord breached his obligations. There would need to be a body to oversee this....lets call it the Tenancy Protection Service... (TPS) where there would be an arbitration system...or we could extend the remit of the deposit protection schemes as if the tenant breached the landlord would try and recover the deposit. Now here's a radical thought.With an extended AST ( over 12 months) how about the landlord depositing a bond with the TPS with the tenant depositing one with the DPS? Having made this suggestion I am closing down my email and going away for a bit as I know what comments will come flying back!! But if this was ever accepted then the eviction procedure would have to be much simplified and Local Authorities not encouraged to give tenants the advice of "stay there until you are evicted". We all know why they do it because of the shortage of LA housing stock but in the long run it does not benefit the tenant as they invariably will not be able to rent in the PRS again with a CCJ. And they carry a debt around with them for a long time.


14:37 PM, 30th July 2013, About 11 years ago

Reply to the comment left by "Gary Nock" at "30/07/2013 - 12:12":

Aaaaaaaarggggghhhhh. Not another body, more paperwork, additional deposits - blah, blah, blah ..... Enough already.....

Although, if they make me the head of the TPS on £650k plus gold plated pension, expenses, official car etc., etc., I'd definitely think it a good idea.


15:18 PM, 30th July 2013, About 11 years ago

Reply to the comment left by "Gary Nock" at "30/07/2013 - 12:12":

Gary I don't think you should be concerned about emails flying your way; the whole point is to discuss the dilemmas that we LL face; principally the main issue of non-rent payment.
Basically we are just 'brainstorming' how such a situation could be more effective for all parties involved.
The present system as you alluded to encourages tenants to do the wrong things and ultimately damages them in the long run for a very short term gain.
The LL is also damaged.
So clearly we have an unsatisfactory state of affair for all parties.
As it appears this site is being monitored by the 'powers that be'; itt would make sense if motivated LL; especially the real professional ones would come up with some ideas of how the eviction process may be managed for the advantage of all who are involved in such a process..
This might be an unrealistic and completely idealistic way of considering the issues; but it has got to be worth a good discussion!!
You might even find the likes of Shelter making comments on this site about the eviction problem.
All are welcome to contribute; no interests are excluded, then perhaps there might be some clearer proposals as to how this major dilemma for the PRS industry could be solved.
As an amateur I am more than content to see what ideas the professionals come up with, and then possibly adding my pennywort!!?

Cosmo Anayiotos

19:32 PM, 30th July 2013, About 11 years ago

what a minefield. ?!!!
I started to respond to this but realised I was just waffling !!!
yet this is my subject.

let me explain; everyone wants security. the tenant wants security of tenure, the landlord wants a secure tenant to securely pay his mortgage.
it's called a "symbiotic relationship" . no relation to live yoghurt.

the problem is, all this takes responsibility. but the only ones involved with any responsibility are the landlords.
the tenant has no real duty to pay the rent even under a contract there is no benefit to any tenant to pay the rent as the law protects them. there is no benefit with any council to take responsibility with non-paying tenants as they still get the council tax. the only looser is the landlord. yet he has all of the responsibility. regardless if the tenant pays or not.

so now lets look at the longer term agreement idea. a 3 year term with some tenant only paying the deposit and a couple of months rent creates a very serious problem for any landlord.

the irony is, non payment of any product or service is commonly known as theft.
except accommodation.

targeting this anomaly would certainly open far more opportunities for both landlord and tenant. making both of them equally responsible giving both greater security in equal measure.

please don't tell me " it can't be done"
just think of Neil Armstrong, Frank Whittle, Stephenson, Brunel, Cook, Tim Berners-Lee, A.G. Bell, Mark Alexander.......the list is endless.

it only takes one man to change the world.

Bernard Adey

11:50 AM, 5th August 2013, About 11 years ago

Not much to add realy my wife and I run our letting business as a suppliment to our pension income we are now at the stage were either one of us could pop our clogs at which point all our assets go into trust. The trust will of course take over the portfolio, as niether we or the trust have any interest in living in the rented properties the situation is not likely to arrise that we would be compromised by offering a three year agreement. Although we deem it unlikely a dispute may arrise between the beneficiaries of the trust as to a decision to hold or sell may arrise so I can see no reason for us to offer a three year term. Our properties are one bedroom flats in London our tenants are always (so far) young proffesionals who have never asked for more that a twelve month agreement. Although we have had hold overs of seven years in one case and three and a half years in another. Shortest let has been over a year even on a six month agreement and voids have been minimal longest being two months including about one month during renovations and christmas. Treat your tenant properly, keep your property in tip top condition, hit break downs of appliences promptly, charge fair but realistic rents, and they will stay. Why compromise your situation will long term agreements ? I do like the idea of the deed of assurance and would be willing to offer it to some tenants as long as they stack up on the employment and income references.

andrew townshend

17:21 PM, 15th August 2013, About 11 years ago

no i would never give more than a 6 month a s t , you just never really know what you are taking on, you may well need to get rid of that tenant from hell a s a p. however that said i am a landlord that is in it for the long term, i have some good tenants that have been with me for 15 to 20 yrs, thats how i like it, why would want to evict a good tenant?

Mark Alexander - Founder of Property118

17:25 PM, 15th August 2013, About 11 years ago

Reply to the comment left by "andrew townshend" at "15/08/2013 - 17:21":

I completely agree Andrew, what do you think of the deed of assurance?

Colin Childs

18:50 PM, 15th August 2013, About 11 years ago

Reply to the comment left by "andrew townshend" at "15/08/2013 - 17:21":

And if the majority of rental property was let on 3 year tenancies? What would be your position then. As from a tenants point of view. Security of tenure for 3 years would be extremely attractive. Better than having the worry that your LL intends selling up in 6 months time.

Mark Alexander - Founder of Property118

19:01 PM, 15th August 2013, About 11 years ago

Reply to the comment left by "Colin Childs" at "15/08/2013 - 18:50":

Hi Colin

I think you have missed the point.

Did you read the whole article?

If so, please explain why you think a tenant would want to lock himself into a three year contract when the alternative could enable him to walk away from a 5 year Deed of Assurance after just six months and without penalty if he really needed to but his landlord couldn't get him out within 5 years without paying hefty penalties?

I am a landlord and that's what I offer my tenants because it's better for me too, as explained in the article. It's a true win/win IMHO - if you think different please explain why.

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