WWhen renting a property with an Assured Shorthold Tenancy (AST) agreement, which is a common type of tenancy in the UK, there is always a fixed period, typically 6 months or a year. This fixed period is known as a fixed-term tenancy. Once this period ends, three things can happen:
- A new fixed-term tenancy agreement is signed
- The contract moves over to a contractual periodic tenancy
- The contract moves over to a statutory periodic tenancy
If a new fixed-term tenancy agreement is signed, then unless the new contract has new terms and conditions (T&Cs), everything stays pretty much the same. If the tenancy moves over to a periodic tenancy on a periodic basis, then things are different depending on the type of tenancy—whether the periodic tenancy is contractual or statutory—and in this article, we will take a look at both in more detail.
What is a Periodic Tenancy?
A periodic tenancy is a type of tenancy which rolls from month to month or period to period (depending on the frequency that rent is paid) with no fixed end date. The rental periods can be weekly, monthly, quarterly, half-yearly, or even yearly. A periodic tenancy can be contractual or statutory.
What is a Contractual Periodic Tenancy?
A contractual periodic tenancy is created when the AST agreement specifically states in the contract terms that, at the end of the fixed term, the contract will continue on a rolling basis. This simply means that the contract continues with all the same T&Cs and responsibilities on both parties, complying with the legal requirements. The AST contract will typically say something like “at the end of the fixed term the contract will continue on as a periodic tenancy” or “carry on period to period”. Essentially, the contract allows for a continuation with no fixed end date.
What is a Statutory Periodic Tenancy?
If the contract mentions nothing about what happens after the end of the fixed term and no new fixed-term tenancy agreement is signed, then in keeping with legal requirements under section 5 of the Housing Act 1988, the tenant is allowed to stay in the property under the same terms and conditions as per the expired AST contract and with rent payments and rental periods kept the same.
So, it is clear that no matter what it says in the contract, a tenant has the legal right, unless proper notice to quit is served, to stay in a property under the same T&Cs after the fixed term of an AST has ended. So what is the difference and why is it important?
The first thing to understand is that if the fixed term ends and a statutory periodic tenancy starts, a new contract has started with the start date being effectively the date on which the fixed term ended. With a contractual periodic tenancy, the original contract is simply being continued, so no new contract is formed. Why is this important?
Understanding Rental Periods and the Periodic Basis
Rental periods are the intervals at which rent is due, such as weekly, monthly, quarterly, or annually. In a periodic tenancy, the tenancy continues on a periodic basis corresponding to these rental periods. Understanding the rental periods is crucial because they determine the notice periods required for ending the tenancy and can affect other aspects of the tenancy agreement.
Periodic tenancies and council tax
Under an AST contract, a tenant is typically liable for the council tax and is for the entire time of the contract even if they move out early for whatever reason. This is the same if the contract rolls over to a contractual periodic tenancy. So, if a tenant leaves a property before their notice period ends, they are still liable for the council tax. With a statutory periodic tenancy, though, a brand new tenancy is created which only requires a tenant to be liable for council tax while they are actually living in the property. If a tenant abandons the property or leaves before their official notice period ends, the landlord could end up liable for the council tax.
The reason for this is that council tax law states that an “owner” who is liable for council tax is also defined as someone who has a material interest in the property for at least 6 months. In the case of the contractual periodic tenancy, because the contract simply carries on, the material interest continues on a rolling basis. With the statutory periodic tenancy, there is a brand new contract formed as the fixed term ends. This contract has no fixed term and, by law, does not impose a material interest in the property for at least 6 months, so the tenant, under council tax law, is not considered to be an “owner” and as such is not bound by the terms of the original contract as far as council tax liability is concerned.
Legal Requirements and Contract Terms
Both contractual and statutory periodic tenancies have specific legal requirements that landlords and tenants must adhere to. It is essential to review the contract terms carefully to understand the rights and responsibilities of each party. For instance, landlords are legally required to provide tenants with certain documents at the start of a tenancy, such as an EPC certificate, the “How to Rent” guide, the current gas safety certificate, an Electrical Installation Condition Report, and details of the deposit protection scheme. If the contract rolls over to a contractual periodic tenancy, then none of this needs to be supplied again unless the document has expired. For a statutory periodic tenancy, as a new tenancy has been formed, the landlord should re-supply the prescribed information to the tenant.
Deposit protection and information
Not serving the required information has particular importance as far as deposits are concerned. If the deposit has not been properly protected or the required information has not been provided in the required time, then there is a difference in liability between the two contract types. For a contractual periodic tenancy, the landlord could be liable to re-pay 1-3 times the deposit amount as a penalty. For a statutory periodic tenancy, if the deposit was not properly protected at the start of the fixed term and then not properly protected at the start of the statutory tenancy, then the landlord is in default of two contracts, and the liability doubles.
Rent increases in periodic tenancies
In most AST contracts, there is a rent review clause to allow for fair rent increases. If there is no rent review clause, then the landlord can use a Section 13 Form 4 to increase the rent, but not until after the fixed term and not before the tenant has been in the property for at least 12 months. Where there is a statutory periodic tenancy, any rent review clause in the AST is no longer valid. As such, the landlord has to use a Section 13 Form 4 notice, but this can be done as soon as the fixed term ends rather than having to wait at least 12 months.
Ending a periodic tenancy
The differences here are subtle and mostly cause confusion when rent is paid quarterly, every 6 months, or yearly. If rent is paid monthly, then notice periods for both are at least 2 months for a Section 21 notice. That said, for contractual periodic tenancies, the two months cannot end before the date on which the rent is due. So if notice is served on, say, the 15th of the month and rent is payable on the 21st, then the notice period ends from 2 months starting the 21st of the month in which the notice is served. For a statutory periodic tenancy, the clock starts on the day that notice is served.
If rent is paid less frequently than monthly, then the notice periods for contractual periodic tenancies change. If rent is paid, say, every 3 months, then the notice period for a contractual periodic tenancy needs to be 3 months, and 6 months if the rent is paid every 6 months. This is different for statutory periodic tenancies where the notice period stays at two months no matter how often rent is paid.
New legislation
Quite often, new legislation comes into force first when a new tenancy is made. As we have said, a statutory periodic tenancy is a new tenancy agreement, and so landlords could be required to comply with new legal requirements sooner than expected. If they had a contractual rolling tenancy, they would typically have longer to comply with new legislation.
Conclusion
There are pros and cons to both types of periodic tenancy. Statutory periodic tenancies do allow for, in some cases, quicker Section 21 evictions and rent increases, but they add other complexities around council tax liability, protecting deposits, and giving out prescribed information. Understanding the differences between these types of tenancies—fixed-term tenancy, contractual periodic tenancy, and statutory periodic tenancy—is vital for both landlords and tenants. Each type has its own implications on contract terms, legal requirements, rental periods, and how the tenancy can be terminated. Whatever rolling contract is formed at the end of the fixed term, the most important thing is that the relevant law is complied with.
