As a landlord, it is important to understand the difference between fixed term and periodic tenancies. In a nutshell, a fixed term tenancy is where there is a certain end date to the tenancy. The minimum fixed term for a Assured Shorthold Tenancy was originally set at 6-months which is why most agents use 6-month fixed term tenancies as their “default” tenancy length. Whether this is wise is another matter – see later. With a fixed term tenancy, a tenant must ask permission first from the landlord if the tenant wants to leave before the term expires.
A periodic tenancy, on the other hand, recurs from week to week, or month to month or quarter to quarter normally depending on when the rent is next due. A periodic tenancy does not have a certain end date and can continue indefinitely and will recur automatically until one of the parties brings it to an end by giving notice.
So which of the two should you, as a landlord, use when agreeing to a tenancy? Ideally, you should go for a fixed term tenancy and here is why;
- peace of mind knowing you have secured a rental income for a known period of time (so perhaps a 12-month tenancy is more valuable to a landlord than a 6-month tenancy, and if that is true then perhaps an 18-month agreement is even more valuable? So why are agents fixated on 6-month tenancies?)
- it brings your tenant to the negotiating table at the end of their contract, giving the landlord the opportunity toreview the rent before granting another fixed term. Whilst it’s true that a rent review can be built into a fixed term agreement this can prove a negotiating obstacle at the start of the tenancy. However leases for two years or longer will typically have annual rent reviews built in.
- If a tenant wishes to end the tenancy prematurely, they need to obtain landlord consent and can be asked to pay the landlords costs in finding another tenant. This means that the landlord will secure an uninterrupted income stream and minimise their costs.
As for the disadvantages of having a periodic agreement:
- the tenant is in control and can dictate when they want the tenancy to end, unless the tenancy agreement stipulates otherwise the tenant will normally be able to give notice equal to the rental period, usually one month but the landlord is constrained by law to give two months notice to end a tenancy which is or started as an Assured or Assured Shorthold Tenancy.
- opportunities to review the rent can be over-looked unless the landlord or agent is assiduous with the monitoring of all periodic tenancies.
- And, don't forget if you allow a tenancy to become a periodic one, it is deemed in law to be a new tenancy and you will need to re-issue the Prescribed Information again. remember that nasty little court case we told you about last month - Superstrike vs Marino Rodrigues.
Finally, no matter which type of tenancy you enter into always, always have the tenants sign a written tenancy agreement of good quality so that the rights and obligations of the parties are made clear.
In a later article we will explore the circumstances where tenants might request a periodic tenancy and what you can say and do to keep them happy but protect your interests.