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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Ian Ringrose

11:03 AM, 3rd July 2013, About 11 years ago

-> 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!!!

With break causes in a 3 year AST, could you not define the cost to the tenant and the landlord if they decide to end the AST before the 3 years is up. E.g. the tenant must give 1 months’ notice and pay £ 1080 reducing by £30 for each month they have paid the rent on time for. The landlord must pay £2000 but only if the tenant leaves without a S21 having to be enforced and had always paid the rent on time etc.

Mark Alexander - Founder of Property118

12:00 PM, 3rd July 2013, About 11 years ago

@Ian - yes that might work too, but I think the Deed of Assurance is likely to be far more simple and cost effective for all concerned. But then I would say that wouldn't I?

Andrew Taylor

12:32 PM, 3rd July 2013, About 11 years ago

But would it not be simpler just to be in a periodic with no need for either side to have to exercise or pay expensive break clauses. If I am a good landlord with a well maintained property the tenant will want to stay, if I have a good tenant who pays the rent and looks after the property I will want them to stay.

Until the law is changed to allow non-paying tenants to be removed in less than 6-8 months why would any landlord support longer fixed term AST's.

Mark Alexander - Founder of Property118

13:22 PM, 3rd July 2013, About 11 years ago

Just a quick reminder to all following this thread and in particular those of you who have expressed an interest in the Deed of Assurance that the document template is made available to all Members of The GOOD Landlords Campaign which costs as little as a £50 one off donation to support. Please see >>>

Mary Latham

20:26 PM, 27th July 2013, About 11 years ago

To go back to the original post. For me this is why this has happened

"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?"

But as we all know the market is changing and most local authorities, RSL's and other organisations that house particular client groups are offering long contracts to private landlords so that they can increase their "stock" and meet their statutory duties. I know that one of the problems has been that landlords cannot do this because the lender will not allow them to take these contracts. Allowing 3 year lets is half way to solving the problem, the other half is allowing landlords to let to tenants who have been nominated or placed by a third party and also those who are on benefits.

There has been a lot of talk about rent to rent recently and this move will also facilitate the growth of this market - whether or not that is a good thing depends on many things including who the head "renter" is but that is another discussion.

Personally I prefer to offer a 6 month fixed terms followed by an SPT or a Contractual Periodic from day one. I use my credentials as a long term landlord to help my tenant to feel more secure because I absolutely understand that people need security and to put down roots and if they are good tenants that is what I want for them too. One the other hand if they are not good tenants I have to consider my own financial security and that means that we must both have the possibility to end the tenancy if it is not working for either of us

Follow me on Twitter@landlordtweets

Mark Alexander - Founder of Property118

22:12 PM, 27th July 2013, About 11 years ago

Reply to the comment left by "Mary Latham" at "27/07/2013 - 20:26":

Hi Mary

I'm not sure whether you've not got around to reading this full thread yet but I thought the discussion and thread drift part way through would have been have far more interest to you.

You make some very good points though, especially with regards to Rent 2 Rent although I doubt very much that TMW thought that one though.

Perhaps for me the Deed of Assurance is a comfort blanket. Competition in my area is very high for the types of tenants I target. There are several properties forming large estates owned by "old money" families which have no mortgages on. They tend to let them on 5 year leases as opposed to AST's. I'm often competing against that.

To give you a few examples of tenants I've taken on this year.

My Riverside penthouse is let to three international helicopter pilots who are here on a 5 year contract with an oil company. They are rarely at the property at the same time and go home to their wives and homes in their own countries when they are not working. They get an allowance to live in hotels but prefer not to. They prefer to have a place which feels like a home and they also prefer city living to the alternative of a barn conversion out of the City. For them, the potential of being asked to move by a landlord was their greatest fear due to the inconvenience it would cause them. Price was not an issue as between them they earn well over £250k pa. The Deed of Assurance gave me the opportunity to effectively "put my money where my mouth is" and I'm certain that sealed the deal for them, especially as I had intentionally over priced my property at the time as I wanted to use it myself over the Christmas period so I advertised it at a premium rate knowing that I could reduce it later if necessary.

Another example was a lady who gave up a very high powered banking job in Central London to look after her elderly mother who is suffering from dementia and in the latter stages of her life. This property is a high quality suburban 4 bed detached house. There were several for her to choose from but again the offer of a Deed of Assurance was the deal clincher for mine as stability was very important to her too. Since she's moved in she's been spending money on the property as if it was her own!

In both cases I'm sure that other established portfolio landlords had competing properties to offer but it was the added assurance of a money backed promise which was the little difference that made the big difference to my offering.

Yvette Newbury

23:43 PM, 27th July 2013, About 11 years ago

Reply to the comment left by "Mary Latham" at "27/07/2013 - 20:26":

Only when reading Mary's comments have I realised that I do exactly the same thing - use my credentials as a long term landlord to assure my tenants that should they wish to extend after the end of the fixed term it will not be a problem.(as long as tenancy agreement terms adhered to, property looked after etc of course). If this wasn't evidence enough though I would happily use the Deed of Assurance, it's a great idea.

Mark Alexander - Founder of Property118

23:50 PM, 27th July 2013, About 11 years ago

Reply to the comment left by "Yvette Newbury " at "27/07/2013 - 23:43":

I use the Deed of Assurance from day one, if the tenant, I have nothing to lose and everything to gain. My rights are unchanged and if my tenant fails to abide by the conditions of the tenancy I don't have to pay any compensation.

Alan Loughlin

13:37 PM, 29th July 2013, About 11 years ago

On the site where we have several properties agreements longer than 12 months are not permitted by the freeholder without incurring hefty licensing fees.

17:22 PM, 29th July 2013, About 11 years ago

Probably just repeating what I may have already stated.
Firstly however it would seem that this thread and this site along with probably other LL based sites are being taken note of by the powers that be!
That is most gratifying to hear.
I'm sure most us think we are just moaning about the state of the industry to eachother without anyone in power taking the slightest bit of interest in what we say.
The fact that we effectively only lobby eachother and not any govt bodies means that no one could accuse these sites of lobbying govt for any selfish agenda etc.
However we do express genuine concerns and I'm sure govt etc has now rather belatedly realised the efficacy of such sites in being able to recognise the voices of the true industry professionals and their genuine concerns for what is going on in this vital industry for the UK economy.
There are massive political issues wrapped up in this industry; which I'm sure has not been lost on this govt.
PRS LL are needed and I'm sure that govt can see form the various posts that PRS LL are trying to achieve a viable business which will assist govt in delivering the services that the populace needs; which is not goinig to be addressed by govt.
We can be part of the housing solution; but presently as things are constituted in Housing law; LL are withdrawing from certain types of letting.
ONLY govt has the power to change things to ensure that PRS LL may invest in this industry unfettered by silly housing law which effectively protects tenants from LL even when the tenant choose NOT to pay rent.
This is the major reason why I will only rent to certain tenant types under certain conditions because of the way the housing laws are presently constructed.
I have NOTHING against ANY tenant type and would more than happy in letting to ALL and sundry subject to certain conditions.
The MOST important condition for ME is; the ability to have removed from my property ANY tenant or occupier who refused to pay 2 months rent for WHATEVER reason.
I would wish that should that situation occur then I; as the LL would have the discretion to remove the tenant with police assistance if necessary after 2 missed rent payments.
For rent payments made in advance that would 1 month and 1 day!
There would be NO requirement to use ANY civil be involved.
Perhaps before I could remove the tenant I would be required to validate to the council that I had not been paid the 2 months rent.
I wouldn't have a problem with that.
Once the immediate eviction issue for rent arrears ONLY has been sorted than perhaps we come to AST terms.
Anything more than a 3 year AST requires it to become a deed; which is a load of hassle and brings us to the principal constraint on PRS LL on AST lengths; namely the mortgage lenders who specify no AST length to be more than 1 year!!
Lenders allowing long AST lengths means NOTHING until the eviction question has been resolved.
Once it has then I would have NO issue with AST lengths for 3 years or less.
There would have to be a revision of the S21 law as S 8 is generally useless as savvy tenants can put off eviction by remaining 1 month in rental arrears.
I believe that all the normal process of housing law that presently occur may necessarily remain.
The ONLY one that needs changing is to ensure that LL have the ability to quickly remove tenants who refuse to pay rent.
Whatever needs to changing to ensure this may occur is needed as a matter of urgency.
Most LL want long term tenants and rather than being portrayed as money grabbing Rachmans would much prefer to have long term stable tenants!
Providing we could do this without the impediment of NOT being able to remove those tenants in timely fashion in the event they refuse to pay rent for whatever reason, then I believe that PRS LL would offer tenancies to everyone in the knowledge they could easily repossess their property in the event tenants don't pay the rent.
Lenders may offer long AST terms now; but NO LL in their right mind would offer such an AST length if the eviction law remained the same!!!
LL being given the ability to remove non-rent paying tenants quickly with police assistance if necessary would NOT always do so.
Having such a quick eviction possibility puts the LL back in control of his property.
ONLY a LL with RGI or possibly a guarantor has a similar amount of control over a non-rent paying tenant; though it would still take the usual long period for courts to evict the non-rent paying tenants, but at least the LL receives his rent via the RGI company;, so isn't bankrupted!!
We LL are trying to provide a good service; but we expect to be PAID ALL the time whilst that service is being used by the tenant or rather for the time the tenant has contracted to take on the tenancy.
Because of the useless eviction laws we PRS LL are compelled by law to provide a service to someone who doesn't have to pay for that service whilst they actually use it.
The fact that the service is where someone lives is totally irrelevant.
PRS LL offer such a service on commercial terms; and expect to be paid according to the commercial agreement they have come to with a 3rd party.
If that agreement is broken the PRS LL expects the property to be returned to him immediately.
This patently does NOT happen in the UK.
Therein lies the problem.
Giving LL the opportunity would not see thousands of homeless tenants on the streets; because the tenants would make every effort to pay their RENT.
Those that still refused to pay arrears et would probably be offered payment plans by LL who prefer NOT to have to evict if at all possible.
However the LL could do tthis knowing that if the tenant did NOT comply the LL could remove then immediately with police assistance if required.
LL recognise tenants have payment problems; but presently all a tenant has to do is thumb their nose at a LL who then would take months to evict and who would most probably suffer damage; theft and further rent losses!
The other problem with long AST's is the problem of rent increases.
It is all very well an AST stating only incremental increases will occur annually ; say in line with CPI; but this fails to address the circumstances when market rents have massively increased due to changed local conditions and a LL wishes to take advantage of such greater increases than may be achievable than say CPI increase.
PRS LL therefore require the ability to offer the property at the greater rent increase to the existing tenant and if that tenant refuses the increase, for the LL to be able to evict quickly if the tenant refuses to vacate.immediately.
Most tenants if that was to occur would stop paying rent; knowing how long it would take to evict them.
From the LL perspective it wouldn't make much financial sense to propose a large rent increase; only to find the existing tenant refuses to pay any increase and then stops paying rent altogether.
Such a situation restricts the LL at setting his rent at a rate he feels the market will bear and is therefore an unfair restriction on how much money he may make.
NO business should operate under such constraints and yet this is what occurs with the PRS!!!
So long term AST's whilst a valuable contribution to tenancy stability do not address the MOST important issue of timely eviction in cases of ONLY rent arrears.
We await with interest govt and stakeholders' considerations as to how they will address this MOST important issue to the PRS.

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