Tenancy proposal would force landlords into a corner

COMMENT: Compulsory three-year tenancies aren’t as clever as the government thinks they are, says Jeff Doble, founder & chairman, Dexters Estate Agency James Brokenshire, secretary of state for housing, communities and local government, recently proposed the introduction of a minimum three-year tenancy term, with a six-month break clause for both landlord and tenant. This plan is intended to give renters “more security”. [caption id="attachment_948341" align="alignright" width="150"] Jeff Doble[/caption] At Dexters, we promote longer tenancies, so I support the principle here. However, when you scratch the surface it becomes apparent this proposal is a retrograde step and should be reconsidered. Brokenshire suggests the current system leaves tenants feeling insecure. I don’t believe this is the case for the majority. Over the past year less than 4% of our clients asked their tenants to leave. According to the government’s own statistics, the average tenant occupancy is already over four years, and this is echoed by our own experience. The current system already works well. I believe the implementation of this new proposal would unbalance the relationship between landlord and tenant, creating several unintended consequences. Not all landlords are in a position to commit to a mandatory three-year term, be it for personal reasons or otherwise. We have had numerous tenants across London requesting three-year tenancies that could not be fulfilled by their landlord for a number of reasons, including restrictions on the type of tenancy from landlords’ mortgage providers and restrictions from freeholders that only allow for 12-month tenancy agreements. Also, critically, landlords should not have to feel forced to give notice at six months (which, under this proposal, is their only opportunity to shorten the term). In London, a three to six-month let is a short let and on very different terms to a standard tenancy. Long lets start with a minimum commitment by both the landlord and tenant of 12 to 36 months. Both must be free to agree break clauses to suit the situation; a mandatory six-month break clause in every tenancy would wreak havoc on the London market, disabling landlords’ estate management and business plans.  Without the ability to agree a minimum tenancy term, landlords may resort to giving notice every six months in order to retain control Private landlords make up 95% of UK landlords and this proposal would inevitably drive some of them out of the market, restricting supply and, in turn, increasing rents. The government seems to be forgetting there is demand for shorter lets from tenants, for example by university students who only require property from September to May and will often break a tenancy to achieve this. Without the ability to agree a minimum tenancy term, landlords may resort to giving notice every six months in order to retain control. The majority of rental properties are owned by landlords who want long-term tenancies and will commit to them. The introduction of this proposal would mean shorter horizons will emerge for tenants, creating more short-term tenancies. Tenants only wanting six-month lets will be able to masquerade as long-term tenants then break at six months, unfairly disadvantaging the landlord. Landlords could, through no fault of their own, end up footing the bill for successive six-month lettings, potentially driving many to short-let business models, such as Airbnb and SpareRoom, charging higher rents. The number of long-term lettings available at beneficial rents would therefore reduce, driving up prices and putting tenants at a disadvantage. It’s clear that the government hasn’t received enough contribution to this proposal from landlords, lettings agents and managing agents. I have written to Brokenshire suggesting that rather than making three-year tenancies mandatory, all advertisements of rental properties should state the available term. This would ensure transparency with tenants and encourage landlords to commit to longer terms. I would strongly recommend actively promoting three-year tenancies and allowing landlords and tenants to agree break clauses to suit their situation. Another good idea would be producing a recommended three-year AST agreement with a flexible break clause. As the government’s proposal rightly states, although tenants and landlords can already agree longer terms between themselves, the majority choose not to. Informing tenants about approved three-year tenancy agreements will help. The government seems to be proposing to force landlords into something they already understand and appreciate the benefits of. Long-term occupancy means continuity of rent and no void periods, so many already provide a three-year tenancy when both parties agree; landlords do not need compulsion.