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.

To purchase the Deed of Assurance document template please see below. The price is £97 for unlimited personal use.

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Jonathan Clarke

17:33 PM, 27th June 2013, About 11 years ago

I`m happy there is an option for 3 years . It may be useful to some. You can plan 3 years ahead but its never going to be a 100% cast in stone plan so you build in whatever contingency plans suit your risk profile and what your personal goals are.
I could die tomorrow so a 12mth AST if issued today could still mean a potential 364 day problem. Dying does get in the way of life sometimes!

I probably wont use the product because I don`t need to . The only situation i can see it being useful is if i was letting the property to a council or HA who looked to at least 3 years but maybe 5 when I investigated that as an option .

17:44 PM, 27th June 2013, About 11 years ago

I have always run 12 month AST's and not found any problems. Some of my tenants, and I have had only three tn the last 15 years at one of my properties, have understood that they can stay as long as they wish, but their AST is renewed each year along with a rent review.
My properties are handled by a very good agent w as they pay the rent and look after the proho does all the hard work.
I do not envisage using a Deed of Assurance as all my current and previous tenants know that I will work within my AST's.
I would never need to get them out as even if I was to die, my life insurance would cover any mortgage on the property.
They know that they can stay as long as they want, and as long as they pay the rent and look after the property I am happy to go on renting to them.

Howard Reuben Cert CII (MP) CeRER

17:47 PM, 27th June 2013, About 11 years ago

"Dying does get in the way of life sometimes" LOL, yes it can be quite inconvenient .... unless you plan for that too


Mark Alexander - Founder of Property118

18:08 PM, 27th June 2013, About 11 years ago

@Ian Ramsey - how do your tenants know that you will not ask them to move out through no fault of their own after just one year?

Mark Alexander - Founder of Property118

18:32 PM, 27th June 2013, About 11 years ago

@Roger Buston said

"The nub of the matter, simply put, is that if a Tenant is going to let you down , bluntly, in the real world , and if the Tenant has no funds to attach a Court Order to, it matters not a jot how long the actual term of the AST is : 3 months or 3 years ………"

Of course it makes a difference! It makes a HUGE difference!!!

The shorter term AST allows you to go for possession under section 21 after 6 months.

You have to wait 36 months for that same luxury under a three year AST.

How many possession orders have you obtained for your clients in the last 12 months under section 8 vs section 21?

I tend to believe what Landlord Action say as they have obtained possession orders for over 20,000 landlords and their preference is section 21 wherever possible.

Mark Alexander - Founder of Property118

18:55 PM, 27th June 2013, About 11 years ago

@Michael5 - I would very much like to work with mortgage lenders on solving this problem for all parties, i.e. lender, landlord and tenants.

As you say, where there is a will there is a way.

The first lender to do this properly will benefit from major PR as it will be PRS the equivalent to the invention of the seat belt or the air bag in the motor industry.

The biggest problem to get in the way is the do-gooders who want things all one way and refuse to support progress, a certain housing charity immediately springs to mind at this point.

Anthony Endsor

20:29 PM, 27th June 2013, About 11 years ago

Well it seems to me, TMW have simply given in to pressure from the likes of Shelter and other Anti-Landlord charities and associations.
It's all totally wrong, and certainly not something I'll be considering doing. Shelter couldn't care less about the possibility of the tenants not paying, or anything else that could go wrong for the Landlord, as long as the tenant is happy. And you're right Mark, it is crazy. It devalues the security for the lender as well as puts the Landlord in a more difficult position for the reasons you have stated.
So why else would TMW do this?
It's such a shame that the likes of Shelter are going against Landlords so much. The very people who could help them if they were only prepared to offer some sort of support, but such is life.
As far as I'm concerned nothing will change. My tenants will get a 6 month AST and like it. Then if they don't pay they know where the door is, assuming they haven't kicked it in of course. (Which wouldn't be the first time in my case)

paul johnson

20:31 PM, 27th June 2013, About 11 years ago

I think there is an issue with some tenants [very few] who don't feel secure. I think it is mainly the LL's with just a few properties who cause these problems[sometimes through no fault of their own].I have read Mark's "Deed of Assurance" section before and i would regard that as the only option i would consider.I have never been told by a tenant that they feel insecure so have no need for it. With my tenants the way we present ourselves gives them the impression that we are a serious business and would not be throwing them out unless their side of the bargain is not maintained.However at the lower end of the market where i am, I will have massive problems with a 3 year AST for all sorts of reasons. My only fear is that TMW have opened a can of worms here, that by trying to steal a march on their competitors they've opened the door to those people who want long term leases for tenants without the guarantees that LL's need to operate their business.At the moment TMW has just given us an option....but I can see someone trying to make it law

20:54 PM, 27th June 2013, About 11 years ago

Check your emails.

Louis Parker

21:01 PM, 27th June 2013, About 11 years ago

I agree with you Mark there are just too many potential problems with the three year AST
But I did learn something with regard to the deed of assurance that is a good and worth knowing Thank you
Some of my tenants have been with me a number of years the longest is 14 years and I have some others close to 7 years.
I have always told the tenants that I am in it for the long term which has usually been enough for them

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