Guide on Contractual and Statutory Periodic Tenancies
Most tenancy agreements are made for a fixed period of time. This is usually 6 or 12 months, though it can be for longer. However, this does not mean that the tenant has to leave at the end of this time. Every tenant with an assured tenancy, including assured shortholds (ASTs) is entitled to remain in the property on a periodic tenancy until either they serve notice and leave or the landlord regains possession via a court order.
To ensure tenants have this right, there are two different types of periodic tenancy that will follow on from the fixed term; contractual and statutory periodic tenancies. Each has specific differences that affect landlords with benefits and drawbacks to each.
This guide will act as a primer for landlords and agents in deciding which type of periodic tenancy they would like to use if they do not use the RLA assured shorthold tenancies, and how to identify what type of periodic tenancy you have.
What is a contractual periodic tenancy?
At its simplest a contractual periodic tenancy means that it is a tenancy running month to month, week to week, etc, that is written into the tenancy agreement. This will mean that a clause will be present in the tenancy agreement saying that periodic tenancy will follow on from the fixed term. For example, the RLA ASTs state that they will continue on in this format in Clause A2.
The vast majority of these tenancies are written as continuations of the fixed term. They will use phrases like 'continue on as a periodic tenancy' or 'carry on from month to month after the end of the fixed term'. In these cases the fixed term and the periodic portion are all part of the same tenancy, which is very important for council tax purposes. Reference to contractual periodic tenancies in this guide are to this type of periodic tenancy clause.
What is a statutory periodic tenancy?
Many tenancy agreements do not have any clause at all specifying how the tenancy will continue after the end of the fixed term.
For these type of tenancies, Section 5 of the Housing Act 1988 steps in to create a brand new tenancy agreement known as a statutory periodic tenancy.
This tenancy will run from month to month, week to week, etc based on the last rent paid. For example, if the tenant pays monthly in the fixed term, then the periodic tenancy will run from month to month. Or if your tenant pays 5 months up front and then makes one monthly payment in the fixed term, then it will run from month to month.
The key point to understand with a statutory periodic tenancy is that it is a brand new tenancy that is separate from the original fixed term. This is very important for council tax, deposits and the service of documents.
How do I spot the difference?
The first thing to do is read your tenancy agreement to see if a clause detailing the periodic tenancy exists. If one does, then it will normally be a contractual periodic tenancy.
If no clause exists, or the clause specifically states that the tenancy will be a statutory periodic tenancy or arise under Section 5 of the Housing Act 1988 then it will be a statutory periodic tenancy.
What are the differences between the two tenancy types?
There are a number of significant differences in how the two tenancy types work. This section will outline the main differences so you can plan accordingly.
If the tenancy is for the whole of a house or flat rather than a room, and it is for a fixed term of at least 6 months, then the tenant will be liable for the council tax until the end of that term even if they move out without giving notice.
If at the end of this fixed term the tenancy continues as a contractual periodic tenancy then the same rules apply. The tenant(s) will be liable for the council tax until the end of their notice period even if they leave early in their notice.
As statutory periodic tenancies are brand new tenancies, there is no 6 month fixed term. As such the tenants are only liable for council tax while they are living in the property. If a tenant abandons the property without notice inside the statutory periodic tenancy then landlords may find themselves having to pay to regain possession while also paying the council tax.
For further details on council tax see our guide on council tax liability.
Provided the deposit is protected correctly in a scheme and the prescribed information is served on all relevant parties then there is no difference between the two types of periodic tenancy.
However, where the deposit has not been protected correctly then the law interacts differently with each.
For contractual periodic tenancies, the landlord will only ever be liable for 1-3 times the deposit. This is because there is only one tenancy which they are in breach of (the combined fixed term and periodic tenancy). For statutory periodic tenancies, there are two tenancies so the landlord can face a penalty of 2-6 times the deposit as a penalty for non-compliance instead.
For contractual periodic tenancies, where a landlord has protected the deposit late inside the original fixed term then the landlord will have to return it before serving a section 21 notice. This is different from statutory periodic tenancies, where they should be able to serve a section 21 notice from the start of the new periodic tenancy.
Service of How to rent: a checklist for renting in England
Landlords will often find that documents are legally required to be served at the start of a given tenancy. For example, 'How to rent: a checklist for renting in England' should be served at the start of a tenancy. Crucially it also needs to be served at the start of any subsequent tenancy if there has been an update to the document.
As a statutory periodic tenancy is a subsequent tenancy, landlords have to check at the start of the new tenancy to make sure they have served any updates on their tenants. If not they won't be able to successfully serve a section 21 notice.
Contractual periodic tenancies are not new or subsequent tenancies. As such landlords do not need to check if there has been an update or serve any extra copies on the tenant.
Requirements to have an EPC
An EPC lasts for 10 years and is required every time a landlord markets a property or they face the potential for a fine. This includes the granting of a statutory periodic tenancy.
Under the Minimum Energy Efficiency Regulations, landlords are also not allowed to rent out properties with an F or G rating unless they have managed to secure an exemption or the property does not require an EPC.
As a result of these two pieces of legislation, landlords of tenancies that will become a statutory periodic tenancy will have to get an EPC and may not be able to rent out the property if it's an F or G rating without first spending £3500.
For landlords with tenancies turning into contractual periodic agreements, they can let the EPC lapse until the next time they agree a new tenancy or rent to a different tenant.
For further details on this see our guide to minimum energy efficiency standards.
Service of notice
Where a tenancy is running on as a contractual periodic tenancy then the landlord will have to follow the rules of Section 21(4) of the Housing Act 1988. Landlords of a statutory periodic tenancy can follow the easier rules of Section 21(1) instead.
In England the only difference between the two rules is around the length of the notice in certain circumstances. The notice will be the same.
For statutory periodic tenancies the section 21 notice period will always be simply 2 months or more if the landlord wishes.
For contractual periodic tenancies it is normally the same. However, if a landlord is taking rent quarterly or 6 monthly then their notice period must be either 3 months or 6 months long. The RLA recommends landlords take payments monthly, weekly, or fortnightly to avoid this issue.
In Wales, the notice period for the section 21(1) notice statutory periodic tenancies is 2 months as in England. For contractual periodic tenancies that must use section 21(4), the notice must not only follow the rules about length of notices, they must also expire on the day before the rent is due.
Fitness for human habitation
As of March 20th 2019 landlords of new tenancies may be sued in the court by their tenants if the property is considered unfit for human habitation.
For statutory periodic tenancies that are created on or after this date, the legislation comes into force immediately.
For both periodic tenancies that existed prior to March 20th 2019, the legislation will come into force from March 20th 2020.
For contractual periodic tenancies that start after the act but follow on from fixed term tenancies that started beforehand, then they may never be caught at all by the legislation.
The rules on rent increases work very differently for the two types of periodic tenancy.
For contractual periodic tenancies you may insert a rent review clause into your agreement. Provided this is a fair term this increase will be binding on the tenant and the landlord. The landlord can then follow the terms of the clause to increase the rent. The RLA's current ASTs all feature a rent review clause like this.
Where no rent review clause exists in the tenancy then a landlord may use the prescribed Section 13 form to increase the rent but not until the fixed term is over and 12 months have elapsed since the tenant moved in.
For tenants on statutory periodic tenancies, landlords may not create a rent review clause as the fixed term and statutory periodic tenancy are separate. They must use the Section 13 form instead. However, unlike the contractual periodic tenancy this can be served as soon as the fixed term is over, even if only 6 months have passed since the tenants moved in.
Landlords should bear in mind that new legislation often talks about the creation of 'new' tenancies and this often will include statutory periodic tenancies. As such, landlords who use statutory periodic tenancies may find they have to comply with new legislation sooner than with a contractual periodic tenancy.