Increase of AST Rent Threshold
APRIL 2010
Currently a residential property will not qualify as an assured shorthold tenancy (AST) if the annual rent payable by the tenant exceeds £25,000. It is proposed that with effect from 1 October 2010 this threshold will rise to £100,000. This is likely to affect thousands of tenancies, especially lettings in central London.
Somewhat unusually, it is intended that this change will have retrospective effect and will automatically apply to tenancies entered into prior to 1 October 2010 (unless, of course, one of the other exemptions applies). The concern is that this could have detrimental impact on a significant number of landlords who will find themselves caught overnight by the obligations imposed by the Housing Act legislation.
These obligations include protection of any deposit paid by the tenant by registration with an appropriate tenancy deposit scheme. It is not clear whether this statutory requirement will apply to tenancies entered into prior to October 2010, as the present deadline for registering with the relevant scheme is within 14 days of receipt of the deposit.
The landlord’s right to evict a tenant of a higher rent tenancy will also be curtailed by the proposed changes. Where ASTs are concerned, county courts cannot make a possession order so as to take effect sooner than six months after the start of the original tenancy.
In order to terminate an AST, the landlord must serve a prescribed section 21 notice on the tenant no less than two months prior to the termination date. The majority of ASTs contain this notice within the body of the tenancy agreement but this is unlikely to be the case with agreements where the rent exceeds the current threshold of £25,000. Even where such agreements do incorporate the relevant notice, it is unclear whether a section 21 notice served prior to the proposed changeover date will be valid, as in those cases the tenancy will not be an AST at the time of service. As such, there may be problems with tenancies within the higher rent bracket which are due to expire less than two months after 1 October 2010.
In addition to the above, the procedure for obtaining possession orders in the case of tenant default (e.g. on the ground of rent arrears) will necessitate the serving of a section 8 notice by the landlord prior to issuing proceedings for possession. This brings into question whether claims for possession commenced prior to October 2010 will be caught by the provisions of the Housing Act and will require service of a notice under section 8 before the action can proceed or whether courts will exercise discretion to dispense with the service of such notice.
Although the underlying objective for the proposed changes is greater clarity and transparency for both landlords and tenants, the lack of transitional provisions dealing with tenancies within the higher rent bracket entered into prior to 1 October 2010 leaves landlords potentially exposed.
If you would like any further information about the issues raised in this article please contact Dagmara Selwyn Kuczera or any other member of Goodman Derrick LLPs property department on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
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