Should I Renew My Tenants’ Tenancy Agreement?
Should I Renew My Tenants’ Tenancy Agreement?
Although most landlords and agents will be very familiar with the concept of a “standard” 6-month or 12-month tenancy, how tenancy renewals are handled can be considerably different from one agent to the next. In this article we look at the options that are available and the pros and cons of each.
OPTION 1 – Grant a New Lease
By granting a new tenancy to tenants, both Landlord and Tenant benefit from being able to modify the terms of the original tenancy agreement. From the tenant’s perspective this could include something such as adjusting the rent due date to fit with the date that they receive their salary each month, or from the landlord’s side it is often likely to involve an increase in the rent. The term of the new agreement does not have to be for the same duration as the original tenancy and can in fact be agreed based entirely on the mutual wishes of both parties. A break-clause can always be added if either party are unsure about committing for a further year, however the landlord may wish to restrict such a clause so that the tenancy cannot expire during quiet letting months (e.g. around the Christmas period).
Pros:
A good opportunity for the landlord to re-evaluate the rent payable.
Security for all parties with an element of flexibility if required, by virtue of an optional break-clause.
A new fixed-term tenancy prevents tenants from being able to leave a property at the end of their original fixed term without serving any notice.
Cons:
By signing a new tenancy the ‘Prescribed Information’ (in relation to Tenancy Deposits) must be re-served.
The tenants may be looking to leave shortly after the expiry of the initial tenancy, in which case they may not want to commit unless a very short extension is offered.
By granting a new lease the landlord would then have to wait until 6-months after the commencement date should they ever wish to gain possession via the courts.
OPTION 2 – Allow the tenancy to “roll-over”
As soon as a fixed-term tenancy expires the tenancy will automatically become a statutory periodic tenancy and the terms of the original agreement continue to apply. The tenancy will continue ‘from period to period’ until it is brought to an end by either party which in effect means that each time rent is paid a new tenancy period is created. If tenants pay rent monthly then the tenancy becomes a “monthly periodic tenancy” and therefore either party are required to provide one month’s notice under common law to end the tenancy (NB: if the landlord is seeking to obtain possession via the courts, they must also observe the requirements of the Protection from Eviction Act, which imposes the obligation to serve a minimum of 2 months written notice, regardless of the length of the rent period).
Pros:
This may be the best option when neither party are sure of their immediate intentions, e.g. where the property is being sold, or where the tenants are looking to vacate as soon as their own house purchase has completed.
It avoids the need for all parties to sign additional documentation.
Cons:
There is a risk that the tenants may change their mind about continuing their tenancy on a periodic basis and they could exercise their right to vacate at the end of the original fixed-term tenancy without giving explicit notice.
The required notice period imposed on the tenants could fall to just 7 days (in the event that they pay their rent weekly), which substantially increases the risk of void periods.
If tenants pay rent quarterly or 6-monthly, the minimum notice period on the landlord’s side will mirror this, e.g. if the tenant pays rent 6-monthly, the landlord would be required to give 6-months’ notice and this notice must also expire at the end of a 6-month rent period.
Summary
In conclusion, the best solution is largely dependent upon individual circumstances, however in our experience, in order to protect our landlord clients it is invariably better to opt for the grant of a new lease. This option prevents the tenants from leaving the property at the end of the original fixed term without serving notice and it also allows the landlord to maintain a minimum of 2-months’ notice from the tenant which will substantially reduce the risk of a void period between tenancies.
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