When tenant and landlord sign an assured shorthold tenancy (AST), it normally locks both parties into the agreement for a set period of time, whether that’s a year, two years or even longer. There may be a break clause that allows either party to get out of the contract at an agreed point, but otherwise the tenancy will run for the specified time.
As the end of the contract approaches, you’ll need to consider whether you want to renew with a fresh contract or let the tenancy roll over into a periodic tenancy.
Renewing tenancies vs periodic tenancies
If neither you nor the tenant does anything, then when the fixed-term tenancy agreement ends, the tenancy will become what’s called a ‘periodic tenancy’. Rather than being set in stone for a pre-determined period of time, these tenancies roll over on whatever basis the rent is paid (usually monthly). To end a periodic tenancy, either party can give the required amount of notice, which is two months for landlords and usually a month for tenants. You can increase the rent if the tenant agrees or if you issue them with a Section 13 notice, though a tenant can appeal against this.
Periodic tenancies are good because they’re quite flexible. Either party can end them relatively quickly compared to an AST. On the other hand, some landlords and tenants will prefer to renew the tenancy with a fresh fixed-term contract, since this offers more security and also provides an opportunity to amend the terms of the contract if necessary.
When you’re working out whether to renew a tenancy or let it become a periodic tenancy, it’s always worth considering the worst case scenario. In a periodic tenancy, a tenant can leave quite quickly, and might choose to do so at a time of year when you’ll struggle to re-let the property – causing expensive void time. For this reason, a lot of landlords prefer to renew contracts rather than letting them change to a rolling basis.
Often in share houses, one tenant will decide to move out at the end of the fixed term but the other tenant(s) will want to stay, and so will find a replacement. In this case, you’ll need to renew the contract, since the names on the tenancy agreement will need to be correct.
What to do as the end of the tenancy approaches
It’s important not to assume your tenant will leave at the end of the tenancy. They may quite reasonably be expecting that you will just let it roll over into a periodic tenancy. If you do want them to leave (for example if you need to renovate the property or want to move back into it yourself), you need to give the tenants notice of this at least two months before the contract expires. In most cases, this will give them long enough to find somewhere new, but if they refuse to move out at the end of the fixed term then you’ll need to start the eviction process.
In practice, whatever outcome you’re angling for (and if the tenants have been decent, most landlords will be hoping they stay on), it’s a good idea to contact the tenants a couple of months before the tenancy expires to sound them out. Depending on the contract, they may only have to give you a month’s notice if they want to leave at the end of the tenancy, but if the relationship’s decent then they probably won’t mind letting you know their plans, and if they’re going to move out then the sooner you can start thinking about getting replacements in the better.
If both you and the tenants are happy to renew, then you’ll need to agree on a new fixed term and negotiate any rent increases or contract updates.
What paperwork needs to be done?
The contract itself will need completing and signing before the new fixed term can begin. It will need to include the length of the new contract period and the names of any substituted tenants, along with any rent increases and other updated terms. Sometimes new legislation can mean that clauses in a previous contract might have become illegal, so it’s always worth checking that a fresh tenancy agreement complies with the law, and updating it if necessary.
You’ll also need to re-protect the deposit, and to provide the tenant with all the prescribed information about how the deposit has been protected (even though they had it when you first took the deposit). There’s an added complication to this just for the next few years in that legislation has changed and deposits are now capped at five weeks’ rent (or six if the annual rent is £50,000 or more). Most landlords will currently be holding a larger deposit than this, so if you’re renewing a tenancy with a new contract then you’ll probably need to give the tenant some of their deposit back.
You should also make sure they have a copy of the most up-to-date gas safety certificate, though since these need to be reissued on an annual basis, they should already have it.
It’s worth being clear that since the tenant fees ban, the tenant can’t be charged for any of this. If there are any fees to pay, they’ll need to come out of your own pocket.
Tackling the question of rent increases
A tenancy renewal is your opportunity to increase the rent if necessary. You’ll need to be up-front about this with the tenant, giving them plenty of time to negotiate or to give notice if they think the new rent is too high.
No-one likes negotiating rent rises, but remember that it’s better to increase the rent by small increments over a number of years than to suddenly realise you’re charging well under market rate and hit your tenants with a whacking great rent hike.
Given the recent tenant fees ban, many landlords will be thinking about pushing for additional rent increases of 2-3% to cover their losses. While this may be a good idea in some cases (particularly in areas where rents are rising), it’s also worth recognising the value of a renewing tenant. Finding new tenants is time consuming and expensive (with the risk of void time), so it’s usually better to keep a sitting tenant in the property if you can, even if that means achieving slightly less rent.