Having a strong tenancy agreement is an essential layer of protection for both landlords and tenants. Here's what you need to know.
Tenancy agreements are legal contracts that stipulate the responsibilities and obligations of both the landlord and the tenant. While some landlords may think of it as a bit of an after-thought or feel a verbal agreement is enough if a disagreement arises a poorly written agreement (or verbal one) could result in it being void and result in fines or worse.
A tenancy agreement then is a layer of protection for both the landlord and the tenants and can save both parties a lot of money and heartache down the line. Not to mention avoiding potential penalties that can afflict landlords if they don’t take proper care when managing their properties.
Not having a tenancy agreement is a bad idea for a number of reasons, starting with:
Additionally, if you don’t stipulate otherwise it will be very hard to enforce policies around pets, smoking, redecorating, subletting, etc. All of these could end up damaging your property and costing you money or worse. This may even put you in breach of your insurance or mortgage policies.
An improperly drafted tenancy agreement may not be legally binding. For example, if it conflicts with the unfair terms rules (now part of the Consumer Rights Act 2015) where you are taking away a right a tenant would normally have – your clause needs to provide for the tenant to ask for permission to do whatever it is and say that permission will not be unreasonably refused or delayed.
Many landlords totally fail to understand this and in so doing invalidate sections or clauses of the tenancy agreement, (in particular, pet prohibition clauses. This gives the tenant greater flexibility and control. For example, an invalidated pet clause means they can have whatever pets they want!
With that being said, you don’t have to spend a fortune getting your tenancy agreement drafted up. There are some alternatives. For example, the UK Government releases an updated model shorthold tenancy agreement annually that you can use. Alternatively, services like Rocket Lawyer enable you to create a customisable tenancy agreement at a reasonable price.
There is more to a tenancy agreement than just preventing tenants from doing things you don’t want. You can also put in clauses which help you comply with the law and protect you if your tenants do something which could otherwise make you vulnerable to prosecution.
An example of this is to outline exactly who is allowed to live in your property. This will protect you from potentially breaching HMO relations or right to rent checks.
If you have rented out your property to four tenants sharing – specifically so your tenancy will not become liable for mandatory licensing, you really do not want your tenants bringing someone new into the property.
This would bring the property into scope for HMO licensing, therefore making you liable to penalties and prosecution from the council.
If the Home Office learn that someone is living in your property who does not have any right to rent in the UK they will bring a prosecution or fine you, which is definitely not something you want.
The best way to protect yourself is to have all of the people entitled to occupy the property listed on the agreement.
Landlord insurance policies often have clauses, designed to minimise the risk for the insurance company. For example, the policy might become void if the property is left vacant for more than 28 days. As such, in the tenancy agreement, you can stipulate that the tenant must notify you if they’re going out of town for longer than this period so you can arrange additional cover.
If your tenant then doesn’t tell you, and something happens whilst they’re away, while your insurance won’t cover it, you will have the right to pass on the cost to your tenant.
In this article, we’ve explored some of the risks of either not having or having a badly drafted tenancy agreement. However, there are, of course, more nuances to it that we’ve been able to cover. The type of tenancy agreement for example will depend on the property type (eg. commercial, holiday lets, HMO) and the tenancy type (e.g. assured shorthold tenancy agreement). On top of this, you should ensure your tenancy is kept up to date, and regular changes to legislation means reviewing it regularly.