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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Colin Childs

23:04 PM, 29th June 2013, About 11 years ago

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

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

In the UK the property letting market is in it's infancy. Considering it's barely 15 years since the term was even invented. BTL is no different to any other business. People shouldn't be in the sector if it's not backed by a long term business plan. Which should cover the eventualities listed.

Terry Lucking

6:35 AM, 30th June 2013, About 11 years ago

Morning Mark -

“We need a much faster mechanism to end an AST during the fixed term if longer term ASTs are to become a real option for the PRS”

….. what would you suggest?

Courts to hear the application within 30 days of application under ground 8. Change the procedure to allow a bailiff warrant to be issued at the time of the possession order using the 14 day minimum time only. This would enable a tenancy to be brought to vacant possession for rent arrears exceeding 2 months in 90 days (32 rent arrears+14 section 8+30app to court+14effective date for bailiff warrant)
If courts are too busy or too few maybe gov could enable RPT’s to have powers to end tenancies.

The number of times landlords (novice or experienced) ask us to end tenancies for reasons other than rent arrears or serious social issues is extremely rare. If/when a situation arises that was not brought to ours or the applicants attention before a tenancy started and we felt the tenant had been unfairly treated we offer a free application for a new tenancy if they rent with us again. Maybe we should consider disclosing the ownership profile of a property to applicants to help them assess the potential longevity; i.e. residential mortgage; BTL mortgage; professional investor; short term landlord?

Andrew Taylor

8:06 AM, 30th June 2013, About 11 years ago

Terry, I totally agree that prospective tenants should be given a full profile of the landlord who owns the property they are looking to rent. Its both fair and right. We live in a world of management reporting, why should a letting agent not be able to discuss some key variables regarding a landlord.... say...

(1) length of time in industry
(2) number of properties
(3) accreditations
(4) complaints against them
(5) any convictions
(6) Maintenance history

I often wonder why forward thinking letting agents do not allow landlords to create profiles on their web sites, surely this would be a great way of retaining clients? Why do letting agents not rate their landlords, or offer their own kite mark to landlords. It would encourage good practice by landlords.

What's the point of investing in being a good landlord and not shouting about it from the rooftops. Good letting agents justify higher fees based on the cost of the superior service they offer. It should be exactly the same for good landlords, my rents higher because of the superior service you receive as a tenant.

Mark Alexander - Founder of Property118

10:34 AM, 30th June 2013, About 11 years ago

Good morning Andrew and Terry

Now we are getting somewhere Gentlemen.

We definitely need to improve possession time scales - I question whether the Courts are capable of dealing with Terry's ideas but I do have an alternative suggestion.

I totally support the need for landlord profiles, not hosted on a letting agents websites though but independently on a centralised system. That was always my longer term vision for The GOOD Landlords Campaign.

This is my idea of the perfect scenario.

Instead of licencing landlords they are given two options. 1) become accredited through a recognised Landlords Accreditation scheme - e.g. NLA, MLAS, LLAS etc., otherwise they must employ the services of an accredited agent who is a member of a redress scheme and also has professional qualification, PI and CMP - i.e. ARLA, NALS, RICS, Law society, UKALA etc. This might also serve to unite support from the various professional bodies for the schemes too.

If a landlord is expelled from an Accreditation Scheme membership the only way for them to continue to let properties is via an accredited letting agent.

I would suggest a substantial fine for non-compliance, e.g. £10,0000 per property.

Enforcement and administration of the above could be managed along much the same lines as Deposit Protection whereby arbitration would be handled independently of the Courts. This would include possession hearings. If a tenancy Deposit Scheme can handle disputes which were previously dealt with by Court, why could this not be extended to include possession hearings? That way the time scales suggested by Terry would be far more achievable and would also free up the courts.

Tenants would easily be able to look up their landlord or letting agents via The GOOD Landlords Campaign website and make informed decisions on renting based on the Member Profile.

More landlords would understand what is required of them in terms of the law.

Good landlords would be easily identifiable by tenants.

Letting Agents standards would be driven upwards.

Professional bodies in the sector would flourish.

Professional bodies would have similar rights to update member profiles as trusted Wikipedians.

Your thoughts please gentlemen.

Andrew Taylor

11:39 AM, 30th June 2013, About 11 years ago

I have always argued that the person dealing on a day to day basis with the tenant needs to be of a professional standard, and the system in place needs a clear complaints / discipline process. If you fail to make the grade - your out. This gives a clear place in the market for agents to show both their value and expertise, frees good professional landlords from being associated with criminal / bad landlords, gives new landlords a clear path to becoming established, pushes bad agents out of the market, and of course most of all - gives tenants an all round better product with greater protection when things go wrong.

paul johnson

12:14 PM, 30th June 2013, About 11 years ago

I totally agree with you Andrew and i've read what Mark has proposed and it certainly makes sense as a starting point and i agree with most of what he proposed. I've argued on this website under a different topic that we have to behave proffesionally, its the only way.I mostly deal with the lower end of the market [in my area the LHA is 400 pm for 2 bed 450 for 3]one of the lowest in the country.I issued 3 Sec 21 this month.I've had all the horrible stories that all LL's can scare you with[and more]However I make a profit, a salary, Its a business and if the only way you can make it work is by being unproffesional then get out.Then professional LL's can get together and put the case for things that really matter ie: Universal Tax credits, Politically slanted changes to the Law,eviction laws, Longer contracts etc etc, Instead of everytime we open our mouth we get the words "Rachmann" thrown at us.

Ben Reeve-Lewis

13:17 PM, 30th June 2013, About 11 years ago

Very interesting article Mark and the comments too.

As you know I am on a bit of a mission myself to find ways for landlords and tenants to get along better. I do agree with David though. Security is a massive issue for tenants in the PRS as more and more families rent where previously they would have bought or been social housing tenants.

As a tenant I have suffered myself when a landlord who guaranteed the agent that we would be there for 2 years said he wanted the property back after only 4 months because his job contract had ended. It cost us a fortune to relocate and cost him absolutely nothing, although the agents refused to market his property for sale because of his duplicitous behaviour. (Eric Walker’s old Bushells outfit, lovely people – where you now Eric?)
On a strictly legal tip, as many will know an assured shorthold tenancy has been the default tenancy since 1997, so if there is no written contract it is always presumed to be an AST but under the Law of Property Act 1925, if a fixed term is to be for 3 years or more then there has to be a written contract. Fixed terms over 7 years kick over into a lease and the tenant then becomes liable for repairs.

Every tenant that I interview with a problem claims the law is all on the landlord’s side and every landlord says the same about tenant’s rights. As an enforcer of these rights and liabilities I am firmly of the opinion that they are fairly equally balanced, depending on the context but I like your deed of assurance idea.
My only issues with it are that many small landlords couldn’t afford the pay-outs, especially those you cite as examples who have themselves suffered job loss or relationship breakdown, so I’m not sure it would work across the board.

I think the time it takes to evict with the accelerated procedure makes a mockery of the name and I’m all for shortening eviction times. I wrote an article in the Guardian last year asking why eviction times couldn’t be shorter and done as a simple administrative court process by a tribunal. given that the delays have more to do with overstretched county courts than anything else. The trade-off for tenants being more security guarantees. Losing a home through no fault of your own, when you have been a model tenant does little for tenant’s sympathy towards landlords.

This is broken relationship that needs repairing and becomes more pressing as more people become PRS tenants. Landlords are reliant on a tenant’s circumstances being stable to guarantee their income and tenant’s need the same from landlords if they are to retain their home, so I’m all for longer tenancies for those that want them and a deed of assurance too, which will help professionalise the industry.

Mark Alexander - Founder of Property118

13:46 PM, 30th June 2013, About 11 years ago

Thanks for your supportive comments Ben. The biggest problem with the Deed of Assurance is awareness. Letting Agents and tenants don't know about them and for this reason they are seldom offered or requested. Once awareness improves a database of who is offering them needs to be created. I agree that a lot of people are not in a financial position to offer them and I think it is only fair that tenants should be in a position to distinguish between the two. I doubt very many landlords would offer them if they could not afford to.


How to increase awareness?

Where to start on changing the posession procedures?

Ben Reeve-Lewis

14:40 PM, 30th June 2013, About 11 years ago

Awareness is certainly the key but I dont think even Shelter would have a problem with it. They may even get behind it. Also, right across the board so many councils are looking to build links with the PRS and that would appeal to them too. I doubt at the moment that many would actively get on board because frankly most council managers dont know their arse from a hole in the ground and I wouldnt trust them to run a bath, let alone a council department but if other people get behind it then even these bureaucratic dimwits will catch on eventually.

Yvette Newbury

16:08 PM, 30th June 2013, About 11 years ago

I am writing to agree with Terry Lucking above. My husband and I have been renting properties since 1986 and have never been asked for more than a 12 month tenancy. Those tenants who extend for longer (another 12 month term) ask for a break clause in case their circumstances change. Even so, we have tenants who have been in situ for 6 years. Occasionally prospective tenants have asked our circumstances eg. are we just renting the one property and is there a danger we might want to move back into it, and we have been able to reassure them of our situation. My nephew recently was looking for a rental property for himself and his pregnant girlfriend and was concerned they may be moved on, what could he ask to find out if that could happen. There are no guarantees but I told him that this is less likely with a landlord who rents multiple properties, not someone who is renting whilst they are overseas with their job, for example.

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