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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14:47 PM, 2nd July 2013, About 11 years ago

Our buy to let mortgage is with The Woolwich and they allow AST's of upto 24 months.

Ian Ringrose

16:31 PM, 2nd July 2013, About 11 years ago

The “Deed of Assurance” will be truly useful when there is a search box for it on RightMove, until then I don’t expect to get more viewings by offering a Deed of Assurance. I will explain the concept to any possible tenants if I think it will help me get a higher rent, or best of all, the tenant chooses to pay a one of payment to get the Dead of Assurance, so showing me they are committed to the long term.

Having to pay the tenant £1K to get rid of them when if I wished to sell a property is no different to having to pay my mortgage provider a charge if I sell before the lock is over. In both cases, it makes it clear to the other party that I do not intent to sell up soon, without stopping me from doing so.

As to Bens point about ‘the law is reasonably stacked in the favour of both LL and tenant’ I don’t agree as the civil law is only as good as your ability to enforce it, and there is no effective way to enforce an judgment against most problem tenants as you can’t take something that a person does not have.

andrew townshend

18:34 PM, 2nd July 2013, About 11 years ago

i would be happy to offer longer tenancies on condition i could get rid of bad & non paying tenants quickly & cheaply, but that is not going to happen is it.

Ben Reeve-Lewis

19:39 PM, 2nd July 2013, About 11 years ago

Ian I think Mark's point about the deed of Assurance is that it plonks a new and very useful tool into the market place that helps both landlords and tenants that may go some way towards obviating the need for licensing and pointless prosecutions.. It's not complete yet but I recognise it as a bridge that may well heal the rifts between both parties because nothing is going to change while each side is at the respective ends of their see saws.

Again I dont want to sidetrack this thread but on your point about not agreeing that law is evenly balanced, I obviously dont expect you to agree, no landlord ever does, that was the point behind my comment. And no tenant ever agrees either but I am fairly unique in having spent the last 23 years as the man in the middle sorting out the mess.

For every example you can give me about landlords failing to gain redress from bad tenants I could probably match you about X5 in anecdotes about tenants who, because of the vicissistudes and vagaries of the legal niceties dont get justice against the worst of the worst.

The beauty of the Deed of Assurance is it goes some way towards getting us all away from the bollocks of Newham and Shelter and may create a space for negotiations.

Mark Alexander - Founder of Property118

20:16 PM, 2nd July 2013, About 11 years ago

Hi Ben

You will never be accused of not wearing your heart on your sleeve will you?

OMG I thought I was outspoken!!!

I take it you are not worried about your bosses reading your comments?

@Andrew - the beauty of the Deed of assurance is that both landlords and tenants can have it both ways providing they play by the rules. If they don't then all bets are off 🙂 Far better than landlord and tenant having to commit absolutely in my opinion. Somebody once described the Deed of assurance to me as permanent engagement to never get married.

Ben Reeve-Lewis

20:39 PM, 2nd July 2013, About 11 years ago

In councils there are pay grades that are considered politically sensitive and you arent allowed to make comments about what you think. I'm not on that payscale.

I started as an 18 year old working in homelessness night shelters and moved into family hostel work, homelessness investigations, Tenancy relations and housing law training, which I do for councils and housing associations from Cornwall to Newcastle. Housing issues are all I'm qualified to talk about. It wasnt by choice, it just worked out that way and having seen everything from people, literally, dying from drink in doorways, through various changes in laws that saw a denuding of rental properties because tenant's rights were put above landlord's rights and the swing from that perspective to one where a tenant can lose their home through no fault of their own and the coming shit-storm that is going to be benefit capping (this month) and universal credit I can safely attest that the renting system as it stands doesnt work for either landlords or tenants.

The system relies on civil remedies for landlords that never stack up and criminal remedies for tenants, mediated through the likes of me that will never work either, because enforcement officers such as TRO's planning enforcement and environmental health are looking to prosecute the small number of bad landlords and getting nowhere because of lack of staff and resources and a criminal justice system that doesnt back us up.

There has to be a third way, independent of the civil and criminal system that allows landlords and tenants to talk to each other and make arrangements that meets each party's needs. I have no faith that the current system.

Newham think they can batter landlords into submission and licence them to death, Shelter keep sending us FOI requests that simply ask "How many complaints have you had? - How many have you prosecuted?" Neither of these approaches does anything to address the needs of landlords and tenants but do wonders for point scoring and promotion (probably to payscales where they can no longer comment haha)

Heart on sleeve? Yeah It aint just a job to me. I really think there is a problem here but a problem that can be solved. There are things I dont like about the current, common landlord mindset and things I dont like about tenants attitudes either. I'm not convinced that the solution is merely legal one however


22:48 PM, 2nd July 2013, About 11 years ago

My mind is whirring at all this.

On a slightly different tack, has anyone considered offering a three year AST with break clauses at let's say 6 months, 12 months then every month thereafter for the remainder of the agreement as a way around the recent deposit protection case to effectively offer the same flexibility as a periodic tenancy after 12 months but removing the need to return and re-protect the deposit each month, for two of the three years at least? This is only an idea I had after reading the post about TMW 3 yr AST's.

Perhaps this could address a number of issues such as the clear initial intention of a long term let subject to the various parties circumstances not changing, but offering the flexibility if they do. Of course the break periods could be anything although in my experience most tenants don't want long term commitment which is why many agreements go to annual renewal or periodic after the initial 6 or 12 mths even though some tenants stay for many years.


Andrew Taylor

8:44 AM, 3rd July 2013, About 11 years ago

I do think this is an issue that comes down to how you manage the landlord - tenant relationship. How secure a tenant feels in their rental home will to a great extent come down to how we communicate with them as landlords. Its all about building trust on both sides.

I have found in no way a standard 6 month tenancy followed by a periodic has adversely impacted on any of my tenants wanting a long term home - 60% of my properties have the initial tenant still in residence. I have also found that when a tenant has wanted move on one months notice has been more than enough for them, and most have given me two or three.

All I can see a 3 year fixed term doing is impacting on my use of a S21 during the extended fixed period? I can not see any other benefit for me as a landlord.

Mark Alexander - Founder of Property118

8:58 AM, 3rd July 2013, About 11 years ago

@Andrew - the theory is that you could hold your tenants responsible for paying the rent for the full three years even if they wanted to move. The reality of that is that it just doesn't happen though. If a landlord did try to enforce it he/she would appear to most as a greedy **BEEP** and the costs weighed against the chances of recover would, in most cases, render the exercise to be futile. Therefore, I agree with you.

Andrew Taylor

9:19 AM, 3rd July 2013, About 11 years ago

I never understand agents or landlords who try and force a tenant to stay in a property they no longer wish to live in. Happy tenants are likely to pay the rent and look after their home, unhappy tenants are far less likely to.

A paying tenant who wants to leave or a non-paying tenant who wants to stay - I know which one I would go for every time!!!

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