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What are statutory and contractual periodic tenancies and what do landlords need to know about them?
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Written by
Ben Luxon
PUBLISHED ON
May 17, 2023
Typically, tenancy agreements are established for a specific time frame, usually 6 to 12 months, but it can vary depending on individual requirements. Nonetheless, once the fixed term ends, tenants are not obligated to vacate the property. Instead, tenants under an assured or assured shorthold tenancy (AST) are eligible to continue occupying the property on a periodic tenancy until they decide to leave or until the landlord obtains possession through a court order.
To facilitate this, there are two types of periodic tenancies that can follow the fixed term: statutory and contractual periodic tenancies. Each type comes with specific variations that landlords should consider, as there are pros and cons to both.
This guide aims to assist landlords and agents in determining which type of periodic tenancy to adopt and how to identify the specific type of periodic tenancy in place.
In essence, a contractual periodic tenancy refers to a tenancy that runs on a monthly, weekly, or similar basis, as outlined in the tenancy agreement. The agreement will specify that a periodic tenancy will follow the fixed term.
Typically, these tenancies are drafted as a continuation of the fixed term, using language such as 'continuing as a periodic tenancy' or 'extending from month to month after the fixed term expires.' In this scenario, the fixed term and periodic portion form a part of the same tenancy, which is crucial for council tax purposes. In this guide, references to contractual periodic tenancies pertain to this type of periodic tenancy clause.
In many tenancy agreements, there is no provision indicating how the tenancy will proceed after the fixed term has ended. In such cases, Section 5 of the Housing Act 1988 intervenes to establish a new tenancy agreement, known as a statutory periodic tenancy.
This tenancy operates on a monthly, weekly, or similar basis, depending on the frequency of the last rent payment. For example, if the tenant paid rent on a monthly basis during the fixed term, then the periodic tenancy will be on a monthly basis. Alternatively, if the tenant paid five months' rent upfront and one month's rent during the fixed term, then the periodic tenancy will be monthly.
It is important to note that a statutory periodic tenancy is an entirely new tenancy separate from the original fixed term, which has significant implications for council tax, deposits, and document service.
The initial step is to examine your tenancy agreement for any clause mentioning the periodic tenancy. If such a clause is present, it would typically pertain to a contractual periodic tenancy. However, if there is no clause pertaining to the periodic tenancy or the clause specifies that the tenancy will be a statutory periodic tenancy established under Section 5 of the Housing Act 1988, then it would constitute a statutory periodic tenancy.
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In some rare circumstances, tenants may move into a property without being granted a fixed-term tenancy. Typically, these tenancies lack a written agreement and are often the result of informal arrangements. Since a statutory periodic tenancy can only arise from the expiration of a fixed-term agreement, such tenancies are still considered contractual periodic tenancies.
However, many of the advantages associated with contractual continuations are not applicable to these informal contracts, particularly when they are agreed upon verbally. It is highly recommended that members always establish a tenancy in writing to clarify the terms and conditions and ensure that everyone understands their responsibilities.
There are a number of significant differences in how various laws apply to the two different types of periodic tenancy types. This section will outline the main differences so you can plan accordingly.
If the tenancy is for a whole house or flat and has a fixed term of at least 6 months, the tenant will be responsible for paying the council tax until the end of that term, even if they move out without providing notice. The same rule applies if the tenancy continues as a contractual periodic tenancy after the fixed term expires.
However, for statutory periodic tenancies, since they are brand new tenancies and do not have a 6-month fixed term, the tenant is only liable for council tax while they are living in the property. If the tenant abandons the property without notice during a statutory periodic tenancy, landlords may have to pay for possession while also paying the council tax.
This also applies to tenancies that begin as periodic tenancies or those with a fixed term of less than 6 months.
If a deposit is protected in a scheme and the prescribed information is served on all relevant parties, there is no difference between the two types of periodic tenancy. However, if the deposit is not protected correctly, the law treats each type of tenancy differently.
In the case of contractual periodic tenancies, the landlord's liability for penalty is limited to one to three times the deposit, as there is only one tenancy in which they are in breach of - the combined fixed term and periodic tenancy. In contrast, for statutory periodic tenancies, where there are two tenancies, the landlord can face a penalty of 2-6 times the deposit for non-compliance.
If a landlord protects the deposit late in the original fixed term for contractual periodic tenancies, they must return it before serving a section 21 notice. This is different from statutory periodic tenancies, where landlords can serve a section 21 notice from the start of the new periodic tenancy provided the deposit is protected and the prescribed information is served before it begins.
In England, landlords are required to ensure that the electrical installations in their rental properties are safe to use. This requirement applies to both new and existing tenancies created on or after the following dates:
To comply with this requirement, landlords must have a competent person inspect the property and provide them with an Electrical Installation Condition Report (EICR) stating that the electrical installations are safe to use.
The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 also specify the following requirements regarding the EICR:
For periodic tenancies, the choice between contractual and statutory periodic tenancies affects when these regulations come into force for landlords.
To legally market a rental property, landlords must have a valid Energy Performance Certificate (EPC), which is valid for 10 years. This applies to both contractual and statutory periodic tenancies. Failure to comply can result in a fine.
The Minimum Energy Efficiency Regulations prohibit landlords from renting out properties with an F or G rating, unless an exemption is obtained or the property does not require an EPC. Landlords of statutory periodic tenancies must obtain an EPC and may need to make improvements if the property is rated F or G.
For contractual periodic tenancies, landlords can let the EPC lapse until they enter into a new agreement with the tenant.
In England, landlords of a statutory periodic tenancy can follow the easier rules of section 21(1), while landlords of a contractual periodic tenancy must follow the rules of section 21(4) of the Housing Act 1988.
The main difference between the two rules is around the length of the notice in certain circumstances. For statutory periodic tenancies, the section 21 notice period will usually be two months or more if the landlord wishes. However, longer notice periods are currently in place due to coronavirus legislation.
For contractual periodic tenancies, the notice period is normally the same as for statutory periodic tenancies. However, if the landlord is taking rent quarterly or 6 monthly, then the notice period must be either three months or six months long. To avoid this issue, landlords generally take payments monthly, weekly, or fortnightly.
In Wales, a section 21(1) notice served during a statutory periodic tenancy will need to be at least two months long. For contractual periodic tenancies, the landlord must follow the section 21(4) rules. This can mean an extended notice period where the rent is paid in quarterly or higher instalments. Additionally, the notice must also expire on the day before the rent is due.
At the start of a tenancy in England, landlords have a legal obligation to provide certain documents to their tenants. One such document is "How to rent: a checklist for renting in England," which must be given to the tenant at the beginning of the tenancy. It's important to note that if this document is updated, the landlord must also provide the updated version to the tenant at the start of any subsequent tenancy.
For a statutory periodic tenancy, which is a subsequent tenancy, landlords must ensure that they have served any updated versions of the document to their tenants at the beginning of the new tenancy. Failure to do so could result in the landlord being unable to successfully serve a section 21 notice.
However, for contractual periodic tenancies, which are not considered new or subsequent tenancies, landlords do not need to check for updates or provide any additional copies to the tenant.
The rules for rent increases differ significantly between contractual and statutory periodic tenancies.
For contractual periodic tenancies, landlords can include a rent review clause in the agreement. As long as the clause is fair, any rent increase will be legally binding for both the landlord and tenant. The landlord can follow the terms of the clause to increase the rent.
However, if there is no rent review clause in the tenancy agreement, the landlord can only increase the rent using the prescribed Section 13 (form 4) after the fixed term has ended and at least 12 months have passed since the tenant moved in.
On the other hand, landlords of statutory periodic tenancies cannot include a rent review clause as the fixed term and statutory periodic tenancy are separate. In this case, landlords must use the Section 13 form to increase the rent, and they can do so as soon as the fixed term is over, even if only six months have passed since the tenants moved in.
From serving required documents and managing rent increases to adhering to energy efficiency regulations, it is clear that understanding these differences is crucial for landlords to ensure legal compliance and avoid potential fines.
Moreover, it is important for landlords to stay up-to-date with new legislation that may affect their tenancies, as statutory periodic tenancies may be included in such legislation. Landlords can stay organised and on top of their property management tasks by using Landlord Studio, a property management software that offers features such as rent reminders, customisable email templates, reminders for important events, income and expense management, and document storage.
By using Landlord Studio, landlords can streamline their property management tasks and ensure that they are complying with legal requirements, thereby reducing the risk of fines and other legal complications.
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