Government releases proposals for longer term tenancies

Early last year the government revealed plans to ‘fix Britain’s broken housing market’. The plans were outlined in an official ‘white paper’, which included an admission by the government that it would like to encourage longer term tenancies to provide greater security to tenants.

This week the government stuck to its guns, releasing proposals that would give tenants a minimum three year contract – but allow them to walk away earlier if they wish.

Not surprisingly, the proposals have been met with a mixed response by landlords, who claim that this is not the right response to modernising the current Assured Shorthold Tenancy.

Are tenants in favour of longer term tenancies?

But are tenants themselves in favour of longer term tenancies? While figures show 80% of tenants currently have contracts of six or 12 months, tenancies generally run for longer than that.

The average tenancy in the UK has increased to almost two years, according to recent research by Your Move, but there are regional differences. London is broadly in line with the national average, the South West has the shortest tenancies at just 15 months on average and the Kent town of Sevenoaks has the longest, with the average property being let for 44 months.

The Your Move research shows that tenants are becoming more interested in longer term tenancies. Richard Waind, director at Your Move, said: “Our research has shown that tenants want to feel settled and if landlords can provide a suitable living space and service, tenancy lengths may increase across the UK.”

However, National Landlord Association (NLA) research with tenants found that while 40% of tenants want longer tenancies, 40% do not. More than 50% said they are happy with the tenancy length they were offered, and 20% told the NLA that when they asked for a longer tenancy, they got it.

Richard Lambert, CEO at the NLA, argues that while the current Assured Shorthold Tenancy is not as effective as it could be, the government should be looking to find ways to ensure that tenants are offered the kind of tenancies they need at the time they need them. He argues that this move towards a “more rigid system, more reminiscent of the regulated model the current system replaced,” is politically motivated rather than being a genuine effort to improve how the rented market works for all those involved.

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Are longer term tenancies the solution to the ‘broken housing market’?

It is argued that the current contracts leave tenants at risk of eviction at short notice, without the landlord having to give an explanation, and that longer-term tenancies would stop this practice.

However, Paul Shamplina, Director at Hamilton Fraser, points out that ending a tenancy in eviction is usually a last resort. Shamplina agrees that a lack of security puts a lot of pressure on families who are renting, particularly if they need to move home before they planned to, which can disrupt children’s schooling and add to the uncertainty and costs associated with taking on a new rental property.

But, adds Paul, “the most important factor in determining the length of a tenancy is the relationship between the landlord and tenant. They have to build a trusting relationship with each other. The landlords I speak to generally want to find tenants that will look after their property, pay the rent on time and stay for the longer term.”

Shamplina points out that longer tenancies benefit landlords as they reduce void periods, letting agent fees and added service charges, which all add up. He also highlights the fact that a significant number of tenants leave the tenancy early, breaching the terms of their lease and leaving landlords out of pocket.

With this in mind, Paul is keen to stress the importance of the referencing process – if minimum three year tenancies do become mandatory, securing a good tenant who looks after the property and pays the rent on time will be more important than ever, he says.

Mandatory three year tenancies would also impact on lenders, who would need to make sure that they amend mortgage terms on buy-to-let lending.

Do mandatory longer term tenancies provide the flexibility our evolving private rental market needs?

The private rental market in the UK is evolving as many tenants are favouring the added flexibility that comes with renting, rather than owning a property. While price is a factor, many people are increasingly comfortable with the flexibility afforded by renting a property rather than jumping into homeownership.

Shamplina concludes: “Every landlord is different and is renting their property for different reasons. The same applies to tenants – some will prefer a longer-term tenancy while others may, given the choice, opt for a rolling contract as they are looking to buy. Tenants should of course feel that they have security, but we need to find a middle ground. In my view this would be ensuring that there are break-clauses in longer-term tenancy agreements. We need a flexible solution to suit the changing nature of the market. One size doesn’t fit all.”

Read more about the changing nature of the British rental market here.

A consultation on the minimum tenancy term will run until the end of the August.