Types of Tenancy - Assured and Assured Shorthold Tenancies

These types of tenancies are governed by the statutory code set up in the Housing Act 1988, which was amended slightly by the Housing Act 1996. Today's vast majority of tenancies will be assured shorthold tenancies, and both assured and assured shorthold tenancy can charge a market rent for the property.

The Main Differences Between an Assured and an Assured Shorthold Tenancy

Assured Shorthold Tenancies

Assured shorthold tenancies (ASTs) are now the 'default' type of tenancy. If a property is let and does not fall into one of the exceptions outlined below, it will automatically be an AST. If a property is let without a written agreement, which is most unwise, that too will generally be an AST.

An AST can be for any term (the rule requiring them to be for a minimum of six months was abolished by section 96 of the Housing Act 1996), although the vast majority of tenancies are for at least six months.

The main benefit of ASTs for landlords is that they can recover possession of the property without needing a reason, provided any fixed term has expired, and the proper form of notice has been properly served. The notice is known as a section 21 notice, as the landlord's right to recover possession and the notice procedure is set out in section 21 of the Housing Act 1988.

Assured Tenancies

The non-shorthold version of the assured tenancy gives tenants long-term security of tenure, and tenants are entitled to stay in the property until they choose to go, or the landlord can gain possession on one of the grounds listed in Schedule 2 of the Housing Act 1988. Possession under the 'no fault' section 21 procedure is not available for assured tenancies. Before 28 February 1997, assured tenancies were the 'default' type. Some of the assured tenancies today were created by mistake through landlords not following the proper procedure required to create an assured shorthold tenancy. Landlords should seek advice if they are unsure which type of tenancy applies.

Choosing an Assured or an Assured Shorthold Tenancy

The vast majority of landlords will wish to create an assured shorthold tenancy. If the property is subject to a mortgage, most mortgage companies will also insist that all tenancies are assured shorthold tenancies. A landlord might consider letting a property under an assured (not shorthold) tenancy, where recovery of possession will not be required if the landlord wishes the tenant to have security of tenure (for example, a tenancy agreement with a family member or former employee).

Landlords should proceed with care and seek legal advice before agreeing to an assured tenancy. It will entail the loss of the right to recover possession, perhaps during the landlord's lifetime, as these tenancies can be passed on to spouses.

Setting Up an Assured Tenancy

If a landlord wishes to create an assured tenancy, the landlord can do this by giving notice to the tenant, clearly stating that the tenancy being created is an assured tenancy rather than an AST. There's no prescribed format, and it's best done as part of the tenancy agreement, but it can also be a separate form of notice, served either before or after the tenancy has been entered into.

Tenancies Which Cannot Be Assured or Assured Shorthold Tenancies

In some circumstances, the statutory codes set up by the Housing Act 1988 will not apply. Some other Acts of Parliament may govern the tenancy or be subject to the agreed terms of the contract (usually called contractual tenancies) and the underlying 'common law'.

Tenancies excluded from being assured or assured shorthold tenancies are:

• where the tenancy began, or agreed, before 15 January 1989 (this will typically be governed by the provisions of the Rent Act 1977)
• where the property is not the only or principal home of the tenant
• where the rent is more than £100,000 a year
• where the rent is £250 or less a year (£1,000 or less in Greater London)
• a company let
• the tenancy has been granted to a full-time student by an educational body such as a university or college
• a holiday let or
• a letting by a resident landlord, i.e. where the landlord and tenant live in the same building as initially constructed (most commonly where landlord and tenant share some part of the accommodation, this is usually a licence/lodger situation, not a tenancy).

In the circumstances set out above, the tenancy will be governed by the contractual agreement or the common law if there is no agreement. Note that the chief significance of a property not being an assured or an AST is that the procedures for recovery of possession are different.

Tenancies Which Can Be Assured, but Not Assured Shorthold, Tenancies

The following tenancies cannot be assured shorthold tenancies:

• those where there is an existing tenant with an assured tenancy. The landlord cannot convert an existing assured tenancy into an AST by issuing a new tenancy agreement. This applies whether or not the fixed term in the tenancy agreement has expired.
• an assured tenancy which the tenant has succeeded to on the death of the previous regulated (pre-1989) tenant under the 'succession' rules,
• an assured tenancy following a secure tenancy as a result of the transfer of the tenancy from a public sector landlord to a private landlord
• an assured tenancy arising automatically when a long leasehold tenancy expires.

Fixed-term Tenancies

An assured or assured shorthold tenancy may be a fixed-term tenancy, which lasts for a fixed number of weeks, months or years. The tenancy agreement will set out the length of the fixed term.

Most tenancies have a fixed term of either six months or a year, but the fixed term can be of any length, although advice should be sought if agreeing to a fixed term of more than three years as particular procedures apply. After a fixed term has expired, it can be allowed to 'run on' (see below), or a new fixed-term agreement can be entered.

Periodic Tenancies

An assured or assured shorthold tenancy may be a periodic tenancy that runs indefinitely from one rent period to the next. (This is sometimes known as a rolling tenancy). There are two types of periodic tenancy. The contractual periodic tenancy is periodic because the contract says it is periodic, typically because the initial letting was set up as a periodic tenancy. The second type is a statutory periodic tenancy, and this exists because a fixed-term tenancy has expired, the tenant has remained in the property, and no new agreement has been set up.

Periodic tenancies can exist either from the start of the tenancy or after the fixed term of a tenancy expires. The periods of the tenancy are defined by the rent payment periods. The tenant pays rent, typically a week or a month. If the tenant occupies on the fifteenth of the month and pays rent in advance on the fifteenth of each month, the periods will be the fifteenth to the fourteenth.

When setting up an AST, it is essential to identify the dates the rent is payable and whether it is payable in advance (the norm) or arrears (the exception). This clarity ensures that if a fixed-term AST ends and a statutory periodic tenancy arises, both landlord and tenant know what the tenancy periods are and can give the correct periods of notice.

If tenants remain after the fixed term, they do not become 'squatters' and do not acquire additional rights if they stay as a periodic tenant for a long time.

Initial Period of an Assured Shorthold Tenancy

An AST tenancy can be set up as a periodic tenancy, but the landlord and the tenant usually agree on an initial fixed term. There is no minimum fixed term prescribed by law. Still, regardless of what the landlord and tenant agree, under the section 21 possession procedure, a judge cannot grant an order for possession during the first six months. This means that even if a fixed term of less than six months or a periodic tenancy is agreed from the outset, there is not a guaranteed right for the landlord to recover possession until the initial six months have expired.

The landlord can also seek possession during this initial period or a fixed term under some statutory grounds for possession in Schedule 2 of the Housing Act 1988. The most important of these is for non-payment of rent, but see the separate section on possession claims for more information.

These rules do not apply to non-Housing Act 1988 tenants (see the list of exclusions above).

Non-Housing Act 1988 tenants can be evicted at the end of a fixed-term by serving notice to quit to end a periodic tenancy, or for breach of tenancy (including non-payment of rent), by applying to the court. Comparatively, few tenancies are non Housing Act 1988 tenancies, and they can only be created in the particular circumstances set out above.