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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David Lawrenson

18:41 PM, 30th June 2013, About 11 years ago

Great comments by Ben and Mark here, and others too.

What I find incredibly odd is that some councils are busy creating their own accreditation schemes at great cost when existing commercial schemes that demonstrate some competence are already in place they could use.

I rather like Mark's proposal.

Good debate - but it is a shame that so many of the personal finance journalists have really missed the real issues here - though in a standard 800 words piece the nuances of the debate cannot really be captured

As with so much in life the issues are actually complex and the solutions need working through.

But it is so easy for those who don't understand the issues to say things like - "impose rent controls" or "license all landlords". Simple minds create simple solutions (not New Gold Dreams) unfortunately... (80s joke!)

Mark Alexander - Founder of Property118

19:16 PM, 30th June 2013, About 11 years ago

Yvette, your son and his girlfriend could have asked for a Deed of Assurance. A decent portfolio landlord would be far more likely to agree. If the letting agent didn't know what a Deed of Assurance is then it would be very easy to find out with a Google search.

Would a letting agent be allowed to disclose their landlords circumstances under the data protection act?

Yvette Newbury

19:34 PM, 30th June 2013, About 11 years ago

Mark, yes you are right but he wouldn't dare ask for anything and wanted very general advice - in which case I stand by what I said. The letting agents I have experienced in the past seem to have no idea on what they should and shouldn't do as they are letting agents in between other jobs, so will divulge anything if they think you are interested. I met with one who was clearly drunk and nearly threw up whilst I was viewing with him. I reported him to his office and he was sacked later that day.... sorry but my experiences with estate agents has been very poor on the whole, but I've no doubt there are a few gems out there.

22:36 PM, 30th June 2013, About 11 years ago

I have to disagree with Ben's contention that the law is reasonably stacked in the favour of both LL and tenant!!!
This is NOT the case!
I have lost over £250000 and 2 properties due to wrongun tenants who have been able to get away with everything as the courts or councils won't advise where a tenant is and then you have the problem of serving civil court papers if you ever find them.
All a tenant has to do is walk away with no real effective likelihood of a LL ever being able to recover the total losses from that tenant.
This effect of this is that I now only rent to tenants who pass RGI checks and whom I then obtain RGI policies.
The law is 100% in favour of the tenant.
Even at a bare minimum LL should have the legal entitlement to have a tenant removed as soon as 2 rent payments are missed; which effectively means 1 month and 1 day for monthly rent payment in advance.
NO County Court involvement should occur.
BUT if the LL lies to police about rent not being paid when it has; then they should be arrested fro fraud and the tenant should be put back into the property until matters have been resolved providing the tenant continues to pay the FULL rent.
Very few LL will lie if they know they could end up being arrested for advising police they hadn't been paid the full rent as per normal AST payment timescales.
Tenants would know they have an arrest warrant hanging over the head of the LL if he lied about non-rent payment.
I don't know many LL that would lie about rent NOT being paid to get rid of a tenant when they face risk of immediate arrest.
99% of the 42500 eviction carried out last year were for RENTAL ARREARS!!
So I don't think we will have many LL arrested for incorrectly advising police that rent hadn't been paid on time.
If a tenant lies about paying the rent then they should be arrested for fraud.
That should stop both LL and tenant lying about whether rent payments have been made or not!!!?

Ben Reeve-Lewis

8:38 AM, 1st July 2013, About 11 years ago

Oh come on Paul, how many times have we had this disagreement? You cant take your personal story and apply that to the day to day experience of thousands of landlord tenant disputes. There are reasons why shelter complain that people in my position dont prosecute enough rogue landlords, half of it is there arent enough staff or resources and the other half of it is simply that legal minutia usually leaves the tenants without any redress.

Anyway I dont want to sidetrack this thread. I have been working with several fledgling tenant's rights groups of late. A new breed of them, a growing army even as so many more are renting instead of buying. They are more politcially savvy and media aware. I think the deed of assurance would be something they would be keen on. I'll have a chat to them about it

Mark Alexander - Founder of Property118

9:43 AM, 1st July 2013, About 11 years ago

Thanks Ben and I whole-heartedly agree. For somebody like Paul, who has has properties repossessed and his personal fortune severely damaged due to bad tenants, I sympathise with him and to some extent I can understand his jaded perspective of the law.

However, I also recognise the other side of the argument. When people like you receive promises from landlords which are broken and end up severely affecting your life that isn't right either. Your story of being offered a property to rent for two years, only to be served notice after four months is an increasingly common one. The impact on your life, not just personal finances could be equally as dire as the impact of Paul's none paying tenants. You could end up bankrupt if you don't have the money to pay for removals and you could also end up losing your job and places in school for your children if you can't find a similar property at a similar price in the same area.

The problems being discussed in this thread are very real. The solutions to some of us are very obvious. The big question is how do we communicate this?

If money was no object I would have 30 second adverts running in every cinema in the UK to raise awareness of the Deed of Assurance. Landlords are unlikely to offer these unless and until the very best tenants start to ask for them. Most good professional landlords want good long term tenants. The amateurs and particularly the accidental landlords who can't or will not commit long term to good tenants need to be identifiable. There are plenty of tenants who just want to rent a place for 6 or 12 months whilst they are working on a contract or renting between buying and selling so it's not like these landlords will lose out. It's just about being able to sort round pegs to go into round holes and square pegs into square holes in my opinion. If toddlers can manage that I'm sure the PRS will also manage in time.

Ben Reeve-Lewis

11:55 AM, 1st July 2013, About 11 years ago

My experiences are very common in the buy to let end of renting where so many amateur landlords are operating on a wing and a prayer. In our case we could have dug our heels in and waited for him to evict us in the usual manner but we aren’t those kind of people and also it would harm our reputation with future landlords if we did that.

I see so many people being subject to retaliatory eviction but perhaps even worse in damaging the relationship between landlords and tenants is the even more widespread fear of it. I was talking to a tenant the other day who lives in appalling conditions but she just asked me where she stood and didn’t want me to approach the landlord for fear that she hasn’t got the funds yet to move if he decides to evict for complaining.

Speaking more professionally than as a tenant I am not against rent control or licensing, so am clearly one of the ‘simple minds’ that David refers to (Remember I know where you live David haha) but I am also strongly of the opinion that if we are to mend the PRS, technical solutions aside, we have to work on repairing the relationship between landlords and tenants.

I’m not for going back to the old Rent Act. That was a see-saw with tenants firmly at the top but now the see-saw has gone the other way. Just like negotiating between warring parties in Northern Island or Palestine a solution can only be reached where reciprocal concessions are given by both sides. An easier, faster eviction process with more chance of recovering arrears? I have no problem with that, but what are landlords going to do in return? The deed of assurance seems like a good bargaining tool.

Not my area of expertise but I wonder if the smaller landlords could insure themselves about having to end a tenancy early because their personal circumstances have changed?

Mark Alexander - Founder of Property118

12:52 PM, 1st July 2013, About 11 years ago

Interesting point Ben and one which Howard may wish to comment on in terms of insurance. Funnily enough, Howard wrote to me only last week to discuss loss of earning insurance, primarily for tenants but i'm sure the same principals could also apply for landlords.

Over to you Howard .... 🙂

Mark Alexander - Founder of Property118

13:17 PM, 1st July 2013, About 11 years ago

Further considerations for Ben. good old Pareto's 80/20 theory works for the PRS too. Therefore, it stands to reason that 80% of all PRS property is owned by just 20% of landlords. To put it another way, 20% of all landlords own 80% of all PRS property.

Therefore, whilst there are a lot fewer portfolio landlords compared to amateurs and accidental landlords the portfolio landlords pretty much control the market.

I would also suggest that Pareto's 80/20 rule applies to the problems in the PRS too and I'm going to stick my neck on the block here and suggest that 80% of problems are caused by 20% of landlords and in the majority of those problems will predominantly be associated with amateur or accidental landlords.

Would you agree?

If so, it makes sense for portfolio landlords to differentiate themselves and for tenants to be aware of those differentiators doesn't it?

Ben Reeve-Lewis

13:42 PM, 1st July 2013, About 11 years ago

Oh Mark….the nub of the problem indeed and I agree with all your figures, Pareto does indeed work here.

To be honest most of the harassment and illegal eviction problems take place at the lower end of the spectrum, scumbag landlords finding scamming tenants, usually through adverts in newsagent’s windows. Or the modern version, a property portal who I probably shouldn’t name, who make no attempts to regulate their users (A studio flat in Bayswater for £600 a month as I saw last week?????? Perleeeeeeeze. Although to be fair, if you are fronting up money to come and work in the capital and improve your family’s chances from Cairo you aint gonna know Bayswater prices from the Old Kent Road.

On your point about separating portfolio landlords from amateurs? Well there is a difference. I cant remember the last time I received a complaint about a portfolio landlord. My case is again an ideal illustration. I’d never rented before having always been a home owner (knackered by an unfaithful spouse) and even a landlord at one point. My troubles were with an amateur buy to let guy actijg in his own self interest. Conversely my current developer landlords have been great. Three times we called them about hot water coming and going and after the third time they simply replaced the boiler without quibble and this year they didn’t even raise our rent when we renewed. They know the value of good tenants.

But for your deed of assurance to work we will need buy in from more than the seriously minted, although it’s a start

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