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Flexible tenancies: top tips for housing associations

Jon Holbrook's articles on flexible tenancies were published by the New Law Journal last summer.  Click here to access:

– In a fix? Flexible tenancies for local authorities, NLJ, 29 June 2012

– In a fix (2)? Flexible tenancies for housing associations, NLJ, 13 July 2012

Having assisted a number of housing associations and local authorities Jon offers his top tips for housing associations when drafting flexible fixed term tenancy agreements.

1.      Increasing the rent

With periodic assured tenancies the statutory procedure can be used to increase the rent, if needed, but the statutory procedure cannot be used during a fixed term (HA 1988, s13).  So if there isn't a valid contractual basis for increasing the rent the landlord will be left without a mechanism for the duration of the fixed term.

Tip: specify a valid contractual basis for increasing the rent.

2.      'I'm off'

Assured tenants can serve a notice to quit to end unilaterally a periodic tenancy but a NTQ is of no effect with a fixed term tenancy.  Since demand for social housing is usually greater than its supply housing associations will probably want their fixed term tenants to be able to unilaterally end their agreements early.  This can be catered for with a carefully worded break clause.

Tip: include a break clause that allows the tenant a contractual right of unilateral early termination.

3.      'I'm off, but he isn't'

One joint tenant may unilaterally terminate a periodic tenancy by giving a NTQ.  This right has many uses but particularly with a departing partner that the landlord wants to re-house on account of alleged domestic violence.  As above, this can be catered for in a fixed term tenancy with a break clause.  But since rights under a break clause are contractual the agreement needs to expressly allow one joint tenant to terminate early, even if the other(s) do not consent.

Tip: grant one of several joint tenants a contractual right of unilateral early termination.

4.      Possession during assured fixed period

The Housing Act 1988 allows the court to make a possession order before the fixed term ends providing 'the terms of the tenancy make provision for it to be brought to an end on the ground in question' (s7(6)).  Furthermore, the Act states that the provision can take the form of a provision for forfeiture or 'for determination by notice or otherwise'.  Not all statutory grounds can be relied on but the ones that housing associations are most likely to use are available, including the three rent grounds (8, 10 & 11) and breach of a tenancy term (Ground 12).  Suitable alternative accommodation (Ground 9) is not available.  These restrictions do not apply when the fixed term has come to an end (s7(7)).

Tip: ensure there is a contractual right of early termination on all grounds that may be used.

5.      Possession during non-assured fixed period

The statutory mechanisms for terminating a fixed term assured tenancy (HA 1988, ss7&21(1A)) will not apply if the tenancy ceases to be assured.  Housing officers are used to terminating non-assured periodic tenancies with a NTQ.  But with a fixed term that ceases to be assured the landlord will need to invoke either a break clause or a forfeiture clause.  Forfeiture clauses are surrounded with common law rules about their exercise, such as waiver, and once exercised the tenant may be able to get relief, even if his common law tenancy can never become assured again (such as with a previous sub-letting under HA 1988, s15A, when the Prevention of Social Housing Fraud Act 2013 comes into force).  The extent to which break clauses may be used in preference to forfeiture clauses will no doubt be tested in court.

Tip: play safe and include break and forfeiture clauses that the landlord can invoke in specified circumstances.

6.      Assured: Tenant has died and claims to have succeeded

The Localism Act 2011 amended rights of succession for assured tenants, and for periodic assured tenants it allowed statutory rights to be extended with 'an express term of the tenancy [that] makes provision for a person other than ... a spouse or civil partner of the [deceased] tenant to succeed' (s17(1A)(d)).  This provision does not apply to fixed term flexible tenants but the unwary landlord could inadvertently create such a right with a badly worded tenancy agreement.  This is because when an assured fixed term ends by effluxion of time a periodic tenancy automatically arises (s5(2)).  This periodic tenancy will create additional rights if the agreement so provides.

Tip: it's not necessary to incorporate statutory rights in a tenancy agreement and stating nothing about succession in the agreement avoids the risk of inadvertently creating succession rights.

7.      Not assured: Tenant has died and claims to have succeeded

There is a statutory mechanism for seeking possession where an assured tenant dies and the tenancy devolves under the will or intestacy provisions (HA 1988, Sch 2, Ground 7).  But this provision only applies where the tenancy is assured at the time of death.  Where statutory status has been lost at the time of death the fixed term will continue and the statutory mechanism for seeking possession does not apply.  Neither would the landlord be able to rely on a NTQ as it would with a periodic tenancy.  To facilitate possession proceedings the landlord should have both a break clause and forfeiture clause that would enable it to terminate the fixed term early following the tenant's death.

Tip: include a break clause and a forfeiture clause that can be invoked by the landlord if the tenant dies.

8.      'Whether the rent has been lawfully demanded or not.'

There is a reason why this wording is often found in leases.  There is a common law rule that when the landlord forfeits for non payment of rent he is obliged to make a formal written demand before proceedings are issued unless the tenancy gives the landlord a right to re-enter if there are arrears 'whether the rent has been lawfully demanded or not.'  The tenancy should also provide that 'rent' includes other relevant charges such as water, sewerage and fixed service charge (ie not one that comes within L&T 1985, s18(1) for which a prior determination of the amount may be required under HA 1996, s81).

Tip: look at other tenancy agreements to see what terms are used.

9.      'It's unfair.'

Tenancy terms that cause a significant imbalance in the parties' rights and obligations to the detriment of the tenant will be unfair and unenforceable (Unfair Terms in Consumer Contracts Regs 1999/2083, regs 5 & 8).

Tip: look at the OFT's website and particularly its Guidance on unfair terms in tenancy agreements.