Many landlords consider their tenancy agreement to be a bit of an afterthought. An irritating necessity which the lawyers insist on.
Many, indeed, think the best tenancy agreement is the shortest tenancy agreement – and have no idea what is in their tenancy agreement as they have never read it!
Hopefully, this is not you. There is a lot to say about the importance of a tenancy agreement.
Why is a tenancy agreement important?
Tenancy agreements can help you avoid some of the problems and penalties that can afflict landlords who don’t take proper care. A well-drafted tenancy agreement can end up saving you a lot of money and heartache!
Do you need a tenancy agreement?
It is not actually necessary to have a tenancy agreement to create a tenancy.
So long as your fixed term is less than three years, you can create a perfectly valid tenancy just by handing over the keys and collecting the rent once your tenants have moved in.
However, this doesn’t negate the importance of a tenancy agreement. Not having a tenancy agreement is a very bad idea for a number of reasons, starting with:
– Tenants will be entitled to pay rent in arrears rather than in advance – as that is their right if there is no tenancy agreement providing for rent in advance;
– You will not be entitled as of right to make deductions from your tenant’s deposit – as this is the tenants’ money and not yours. The only reason most landlords can make deductions is that the tenants have signed a tenancy agreement authorising this;
– If you don’t have a special forfeiture clause in your tenancy agreement you will not be able to evict tenants, at all, during the fixed term of their tenancy.
If you’re still unsure about the importance of a tenancy agreement, here are some other things tenants will be able to do as of right if there is no clause in your tenancy agreement to stop them:
– Keep a pet;
– Re-decorate the property how they like;
– Sublet to lodgers or Airbnb ‘guests’ (which could put many landlords in breach of their mortgage or lease);
– Change the utility supplier without telling you.
Do you need a properly drafted tenancy agreement?
You need to know however that those last four items (keeping a pet, etc.) will also be something tenants can do if your tenancy agreement clauses are not properly drafted.
Under the unfair terms rules (now part of the Consumer Rights Act 2015) where you are taking away a right a tenant would normally have – your clause needs to provide for the tenant to ask for permission to do whatever-it-is and say that permission will not be unreasonably refused or delayed.
Many landlords totally fail to understand this and (in particular) invalidate the pet prohibition clauses in their tenancy agreements by removing this wording. Thereby giving the tenants carte blanche to have whatever pets they want!
You should not tamper with a professionally drafted tenancy agreement unless you know what you are doing!
Making your tenancy agreement work for you
How will a tenancy agreement help you be compliant with your landlord responsibilities?
However, there is more to the importance of a tenancy agreement than just stopping tenants doing things you don’t want. You can also put in clauses which help you comply with the law and protect you if your tenants do something which would normally make you vulnerable to prosecution.
A prime example of this is to nail down exactly who is allowed to live in your property, to protect you under:
– The HMO regulations;
– The Right to Rent check rules.
If you have rented out your property to four tenants sharing – specifically so your tenancy will not become liable for mandatory licensing, you really do not want your tenants bringing someone new into the property.
This would bring the property into scope for HMO licensing, therefore making you liable to penalties and prosecution from the council.
Neither do you want the Home Office bringing a prosecution or fining you because they learn that someone is living in your property who does not have any right to rent in the UK.
The way you protect yourself against both of these situations is to name in your agreement everyone who is entitled to live there – whether as a tenant or as an authorised occupier (often called ‘Household Members’) and then say that no-one else is allowed to live in the property.
So, if the tenants move someone else in, they will be in breach of the tenancy agreement giving you the right to bring injunction or eviction proceedings for default.
Plus, the Home Office can hardly fine you when you have right to rent-checked all authorised occupiers if the illegal occupier they have discovered is unauthorised by you.
How will a tenancy agreement help you manage your insurance cover?
Another different thing you can do is to specify in your tenancy agreement that tenants must notify you if they are going to be leaving the property empty for more than X days – where X is the period of time your insurance will provide cover for your property when it is vacant.
You will then, if they tell you they want to take a holiday of a lifetime trip for six weeks where your insurance policy provides for 28 days, be able to arrange for additional cover.
If they don’t tell you and because of this your insurers refuse cover for something, you will have the right to pass this cost onto your tenants as compensation for their breach of contract (quite an important point in favour of the importance of a tenancy agreement).
A proper tenancy agreement depends on many variables
We’ve been through some risks about not having a tenancy agreement (having a badly drafted one) and some of the advantages of having a properly drafted agreement.
However, there are many more nuances to consider and ultimately your tenancy agreement template will have to reflect the specific circumstances of your property and tenancy. The importance of a tenancy agreement further shows in the below:
- Depending on your tenancy type you may need different tenancy agreements;
- The way you deal with shared properties should also be reflected in your tenancy agreement – for example, a different form is used if you rent out rooms in a shared house (e.g. for an HMO);
- You need to make sure that your tenancy agreement is up to date – was your agreement amended last year to take account of the Tenant Fees legislation?
Clearly this is a complex subject! How can you know and understand all of this so you can make sure your tenancy agreement is compliant and works for you?
How can you draw up the perfect tenant agreement?
In order to help landlords, LandlordLaw offer a comprehensive course which looks at all the things that landlords need to know and explains them in a plan English style (i.e. without a lot of lawyers waffle and jargon).
In order to make it easier for you to learn it includes:
– A special pdf version you can download and print off;
– Audio versions of the text you can listen to in your car or while walking the dog;
– Video clips to explain specific points;
– Explanatory diagrams;
– ‘Test yourself’ questions at the end of most sections.
There is also the option to buy a +Plus version with extra documents.
The course is in seven parts and you can read all about it here.
There is no overestimating the importance of a tenancy agreement. It sets out the rules under which your tenants rent your property.
Make sure that your tenancy agreement works for you and protects you properly. One day you will be thankful!
Take control of your property finances
Start your Hammock free trial today