Saturday, 30 May 2015

Implementing affordable rent

As the Localism Bill returns to parliament, Samantha Hall examines some of the problems facing landlords seeking to introduce fixed term tenancies

The development of thinking around the government’s proposed affordable rent tenancies continues – with the generally accepted fixed term structure giving rise to some serious practical concerns.

To date most have assumed – following the lead given by the government’s consultation Local decisions: a fairer future for social housing and the Localism Bill – that the new affordable rent tenancies would be fixed term tenancies. The National Housing Federation published its model assured shorthold fixed term tenancy agreement along these lines in April 2011.

A significant drawback with fixed term tenancies is that if they are for a duration of three years or more, they need to be executed by deed. Execution by deed is not practical in day to day housing management. Most housing officers undertaking tenant sign-ups would not have landlord authority to execute by deed and so would find themselves unable to complete tenancy agreements. These issues can be overcome, but it does not make for straightforward or smooth housing management. 

A three year plus fixed term tenancy executed under hand rather than by deed, would take effect as an equitable tenancy. There is probably no significant legal detriment in this to either the tenant or the landlord – however social landlords will not want to explain to tenants what exactly the differences are in the two forms – and so again the fixed term model leaves landlords with practical difficulties.

The difficulties multiply with tenancies for fixed periods of seven years or more. As well as being executed by deed, these documents must be registered at the Land Registry, with all the administrative burdens this entails – and the longer the fixed term period, the greater the risk of being caught by SDLT thresholds and the tenancy becoming stampable.

There is a possibility of registered social housing providers avoiding these problems however. The publication of the Tenant Services Authority’s decision instrument Revision to the tenancy standard: affordable rent showed that the TSA is not being prescriptive in relation to tenancy form. This allows landlords to consider alternatives to the fixed term tenancy – for example periodic tenancies with a contractual fetter on possession.

This is a useful flexibility, and one which could allow housing officers to continue tenancy sign-ups free from unnecessary legal and governance complications.

The periodic tenancy would need to be carefully drafted – using an existing assured shorthold agreement for the affordable rent regime would be inadvisable, as the tenancy document would not meet the regulatory requirements. 

In addition to the tenancy drafting, there are other significant matters to be worked through by a landlord seeking to introduce an affordable rent tenancy. These include potential impacts on charitable status and existing nominations agreements and whether any covenants affecting the land or in existing loan agreements are breached by the use of the new tenancy.

Notwithstanding these additional considerations however, the TSA’s decision instrument and its opening up of the possibility of using periodic tenancies at least means that social landlords considering adopting affordable rents tenancies are not limited to the fixed tenancy option.

Samantha Hall is solicitor at Trowers & Hamlins

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