Periodic tenancies: Landlords beware, even though students or Tenants in receipt of DHSS Payments don’t have to pay council tax you may have to

An Assured Shorthold Tenancy (AST) is the main agreement between a landlord and a tenant which is drawn up for a fixed term – usually 12 months.  When this runs out, a new agreement is put in place for another fixed term.

However, if neither landlord nor tenant signs a new agreement (and agrees to renew the tenancy for a set fixed period) then a Statutory Periodic Tenancy is (unless the Tenancy is drafted so that it specifically provides for a fixed term – say 6 months – and that it on expiry of that term continues thereafter on a monthly basis until determined on notice by either the Landlord or Tenant) automatically established on a rolling basis on the same terms and conditions.  If the tenant wishes to leave, they must give written notice of one month.  The landlord, on the other hand, must give the tenant at least two months’ notice.  So, the landlord is already disadvantaged with a periodic tenancy as the tenant has a clear advantage.

Many landlords allow fixed term ASTs to become Periodic as they believe it gives both parties flexibility to end tenancies.  However as with most things there are of course pros and cons – the main downside for landlords is that when the tenant does leave, it could be at short notice and at a bad time of year like Christmas which could result in an expensive void.

The pitfalls of renting to students with a Periodic Tenancy

Most landlords love renting to students as they generally have parental guarantors and while they generally make good tenants, many landlords elect to allow tenancies to students to become periodic for the flexibility it affords. However, there is now a very serious consideration – one which could prove very expensive indeed.

This arises from the fact that a Landlord remains liable to pay Council Tax on any letting of a property that is for less than 6 months  and a Monthly Statutory Periodic Tenancy is deemed a series of consecutive one month tenancies. While students are exempt from paying Council Tax and can apply for a waiver while they study, for tenancies that last for less than six months, (Periodic Tenancies can be counted as only one month as with each month legally a new tenancy starts) the landlord is liable to pay Council Tax – and they, unlike students, are not exempt. We asked most of our landlords and NOT one knew this and the good news is that it is often not enforced, however it could easily incur them costs of at least £1000 per year for a typical London property and there could be penalties and interest for unpaid council tax.

It follows that if such a tenancy arises and the tenant is either not liable to pay or indeed just doesn’t pay then the Local Council can look to the Landlord to pay the Council tax. A well drafted Tenancy Agreement will provide that the Tenant indemnifies the Landlord for such payments but that may not be effective against a student who has an exemption or a tenant in financial difficulty.

This situation is not a new one but we have heard of a couple of Councils, though not yet in London, that are now starting to enforce this rule in order to increase their income.  This has come as a total surprise to those landlords caught who were unaware of the rule.

Of course, it makes Periodic Tenancies much less attractive to landlords renting to students and we are therefore advising caution as London Councils may follow this lead.  Looking at an average Band G property in some popular boroughs for 2017/18 – Westminster is £1146 per annum, Hammersmith & Fulham is £1679 per annum, Kensington & Chelsea is £1770, Tower Hamlets is £2078 and finally look at poor landlords in Camden where it would be £2834!

The key with this issue and other lettings regulations is to stay informed – most landlords will find that, in the long run, it will be more cost-effective to get a new AST signed with the tenant, especially if they are a student or on some sort of benefit.  It gives everyone clarity and means a Landlord cannot fall foul of this ludicrous loophole

Professional property management

The easiest way for landlords to protect themselves is to use a professional managing agent who will know all the current and pending legislation. To find out more about our professional property management services, call us on 020 7319 9740 or drop us an email.