Lenders Are Wrong Not To Allow Tenants Longer Tenancies

on 30 January 2013.

The Council of Mortgage Lenders have responded to Labour leader Ed Milliband's call for longer tenancy agreements by warning that such agreements could lead to a rise in rent arrears. They have indicated that a build-up in rent arrears would not only take money out of the landlord's pocket in the short-term, but also that this short-term loss could also affect the landlord's ability to pay their mortgage.

Milliband argues that longer tenancies afford tenants greater security in their accommodation, a sentiment echoed by homelessness charity Shelter.

However, CML have said that such agreements are making lenders nervous because of the increased potential for arrears. At present, lenders prefer to allow landlords to offer six or twelve month Assured Short hold Tenancies within the terms and conditions of the mortgage. The benefit of this is the landlord is then able to regain possession of the property after six months with a two-month notice period should the tenant fall into arrears.

The Council of Mortgage Lenders may again have failed to appreciate the legal definition of an Assured Short hold Tenancy, a common mistake made by many lenders. An AST does not have a statutory definition of 6 to 12 months as understood by many legal teams at the national lenders. It was pre-1988 Housing Act, but since then the definition has been changed and states

"An assured short hold tenancy is a type of assured tenancy which offers the landlord a guaranteed right to repossess his property at the end of the term. In fact, it does not necessarily have to be 'short'; assured short hold tenancies set up after 28 February 1997 can be for any length of time the landlord wishes to offer."

It remains common practice for Estate Agents to issue AST's on a 12 month basis but again, this is more an overhang from bygone days. AST's can be for a 2 month duration (2 month's minimum notice is required for possession) or for 10 years or more.

The term does not invalidate the tenancy agreement so long as the appropriate section 21 notice is completed and the current norm of fixing tenancies for 12 months, does not unfairly decrease the tenant's security of tenure.

In light of the rules for possession, particularly the accelerated Court process to gain possession, the CML appear wrong in their claim that it undermines their security and avoids landlords obtaining possession for rent arrears. It is a concern that such a national body, not supported by law or the national housing charity Shelter, take this view. A longer period neither increases their rights nor decreases their responsibilities.
Extended tenancies do allow tenants to plan longer term.
There is an array of solid evidence which indicates tenancies should be for longer periods. Tenancies are undertaken by both individuals and families who need to make plans for their own life for themselves and their families. Community ties and friends, strong relationships with neighbours, school catchment areas and the impact of moves on the tenant and children can be hugely significant, both financially and emotionally.

Local authorities and housing associations provide longer tenancy contracts, without major difficulty and there is a growing need within the UK, particularly if we move towards greater rental as opposed to ownership culture, to equalise these rights for tenants also in the private sector.

In 2007 the Citizen Advice Bureau produced a damning report on the security of UK tenants on this very issue - it was entitled "The Tenants Dilemma - Your home is at risk if you dare complain"

This report won the author Debbie Crew the Consumer Action Award, presented by the then Chancellor Gordon Brown and the research highlighted that 46% of tenants were often put off raising repair concerns with landlords, whilst 54% where sometimes put off, given the perilous security of tenure and the fears of receiving a s21 notice.

Each year CAB's deal with 72,000 housing related matters ( based on 2005/6 numbers, with little annual change) and 14% of these enquries relate to the security of tenure. This is around 10,000 cases per year. If you add on repair enquiries at another 13%, which potentially create security of tenure issues, this is a national problem and one worthy of the previous Government seeking to address, honouring the CAB worker.

Further, the Statutory Homelessness Statistics (2008) produced by the Department for Communities and Local Government indicated that the ending of an assured short hold tenancy is the 3rd most common reason for loss of settled accommodation among households accepted as homeless.

The Shelter website refers to the security of tenure as an issue which really matters as once a private tenant has found a place to live, the next challenge is for them to hold on to it. Shelter believes for a house to be a home, it needs to be secure.

There seems no real reason not to allow extended tenancies given the accelerated possession procedure. This is a fast track procedure available to a landlord to repossess their property and evict the tenant under any assured short hold tenancy. This type of claim has 3 very important aspects :-

•The landlord must have given the right notice before starting a claim and it must be exactly compliant with the Housing Act rules
•No claim for unpaid rent or other financial claim can be made
•It will still take about 6 weeks after getting an order under the so-called accelerated procedure and even then, some tenants do not leave without attendance by bailiffs.

So security of tenure can be ensured whilst safeguarding both the landlords and importantly the lender's security. The need in the UK is no longer a need for a change in law, but a change in culture and understanding of lenders and landlords regarding important developments, already brought in within this area.
There is clearly a national need for longer term tenancies and there seems no commercially obvious reason why lenders should insist on short term tenancies, save for a misunderstanding and a failure to change their rule books post 1988. The consequence for both landlords and tenants is concerning.

Shelter state that " Unfortunately, the current situation creates a lot of problems for tenants. The lack of security provided by an assured short hold tenancy has a number of negative effects, including: lack of stability, less power for tenants to enforce their rights, and increased homelessness as a result of eviction."

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