26th May 2018
Q: My tenancy is coming to an end. Should I renew the agreement, or should allow my tenants to run onto a month by month tenancy?
A: For most landlords this is an age-old question so let’s start at the beginning. Most Assured Shorthold Tenancies (AST) start off with an agreed fixed-term. 6 months is common, which is the minimum term for an AST before a landlord can apply for possession.
AST fixed terms should not normally exceed 3 years as other legal considerations are involved. They can be drawn up for any period for less than six months, but the landlord cannot gain possession until a minimum of six months has elapsed unless the tenant surrenders the property of their own free will.
A periodic tenancy or monthly rolling agreement means that the terms of the original agreement still stand but it has no end date; it simply means that the agreement will keep on going until either party bring the tenancy to an end by giving notice.
Advantages of Fixed Term Tenancies
The fixed-term gives both parties some security as to the length of time the tenancy will last. You can rest safe in the knowledge that you will have rent payments being made for the whole fixed-term period and on the other hand your tenant can rest safe in the knowledge that s/he has a home for the full tenancy period.
At the end of each period you can arrange to renew and increase the rent for a further locked in term. Most experienced landlords let their properties initially on a 6 month fixed-term, unless there are exceptional circumstances most would feel it is not wise to let for longer than this minimum period until the tenant has proved themselves. Only after this would the experienced landlord consider a longer term, say 12 months or more.
Advantages of Periodic Tenancies
When the initial fixed-term ends many landlords prefer to allow the tenancy to lapse into a statutory periodic one, rather than have the tenant sign up for another fixed-term. The last thing the landlord wants is to lose a good tenant, so leaving the tenant alone and allowing the tenancy to become periodic can often be the best strategy.
This also benefits the tenant, as landlords with long term tenants often leave the rent at the original amount for extended periods, again in the belief that increasing the rent may result in a good tenant leaving them. Landlords often take the view that losing a little each month on a lower rent, not only encourages the good tenant to stay on longterm, it is far less of a loss than the expense and risk involved in finding a new unknown tenant.
The periodic tenancy allows a degree of flexibility on both sides: the tenant can leave with a nominal notice period of 1 month and likewise the landlord can take back the property with a nominal notice period of 2 months.
It’s your choice. Whether you as a landlord always allow tenancies to lapse into periodic ones, or you like to renew the tenancy agreement for a further fixed term, perhaps with a rent increase, it is a matter of choice and good business judgement.