Home Landlords Types of Tenancy Agreements: Benefits and Drawbacks

Types of Tenancy Agreements: Benefits and Drawbacks

by Joe Green

There are many types of tenancy agreements out there. An Assured Shorthold Tenancy (AST) is the most commonly used tenancy agreement in the private residential sector. An AST is usually granted for a period of six months, although this can be longer. This type of agreement is beneficial to student landlords as they can regain possession of their property at any time after the tenancy ends as long as they provide the required notice of two months.

This enables greater security and allows them to prepare for the next academic year, and the new tenants that it brings. The landlord can rely on having the property vacant by this time, although this may change is Section 21 is scrapped by the government.

Student landlords who are operating Houses in Multiple Occupation (HMO) and other types of shared accommodation with multiple tenants have the choice between a Joint Tenancy and Sole Tenancies.

Joint Tenancies

One of the most common types of tenancy agreements is the Joint Tenancy. A Joint Tenancy is where there is one tenancy agreement for the whole property which includes all tenants. This makes all tenants equal and are joint and severally liable to the lease obligations.This means that all tenants are equally responsible for rent payments and for any damage caused. All the tenants share the house and all its facilities and they do not have exclusive possession of any part. Rooms are allocated between the tenants on a tenant agreed basis.

This type of agreement will benefit landlords as there is a greater chance of recovering costs from rent arrears as all other tenants are responsible for them, if one tenant defaults on their rent payments, the other tenants are responsible for making up the difference. This is the same for damage caused by tenants or tenants’ visitors. 

If one tenant chooses to leave midway through the agreement, the landlord will not experience any fall in rental income as the responsibility will be passed on to the remaining tenants.

This agreement provides much more security for landlords, however may discourage some tenants from choosing the property. This may be because they are unwilling to be responsible for the obligations of someone who they do not know well.

There can only be a maximum of four joint tenants, as outlined in the Law of Property Act 1925, anyone in addition to this will be listed as occupiers.

Sole Tenancies

A Sole or Individual Tenancy is where the house is let on a room by room basis, the tenants having exclusive possession of one a specific room but sharing facilities such as the kitchen, bathroom and other common areas. Each tenant signs their own contract and are only responsible for the room they have rented. They are not responsible for any rent arrears or damage caused by any of the other tenants of the property.

While this type of agreement is far less common that a joint tenancy, there are benefits to the landlord. It can allow for the maximisation of rental income, as often a higher rent can be charged. This is the preferred option for students as it limits their liability for the lease obligations. Offering this type of tenancy agreement will not only increase the appeal of the property to potential tenants, but open the property up to a greater number of potential student tenants.

However there are drawbacks to this type of tenancy for landlords. The loss of joint and several liability increases the risk, as other tenants are not responsible for rent arrears or damage caused by anyone other than themselves.

Conclusion

It appears that landlords would prefer Joint Tenancies and Tenants would choose Individual Tenancies. Individual tenancies are becoming more popular, possibly due to the increased competition in the student rental market. The attract the largest amount of students, and limit any potential voids, Individual Tenancies should be used. While some security is lost with these agreements, if all tenants provide a suitable guarantor, the majority of the risk is removed anyway. These are the types of tenancy agreements, landlords need to make sure they choose the right one for them.

References

Shelter England. Accessed 5th December, 2019, from https://england.shelter.org.uk/housing_advice/private_renting/assured_shorthold_tenancies_with_private_landlords 

Keatons. 2019. Accessed 5th December, 2019 from https://www.keatons.com/2019/02/25/letting-to-students-landlord/ 

Landlord Zone. 2013. Accessed 5th December, 2019, from https://www.landlordzone.co.uk/information/joint-or-single-tenancies

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