Breakdown of The Four Types of Tenancy

by | Oct 18, 2022

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Introduction

Owing to the global recession and economic boom worldwide, the trend of owning homes in the United Kingdom has significantly reduced, from a whopping 70.9% in 2003 to 63.9% in 2018, and is further reducing to date. 

As a result, many have become unable to afford land, construction, and property. This decline, however, has benefitted the private rental market by a significant margin, thereby causing its comeback, which means that instead of opting for homeownership, people have been choosing rental housing.

The property is rented when the landlord provides the potential tenants with proof of ownership in the form of property documents. Additional requirements or expectations are frequently specified in the social housing white paper

It is absolutely imperative for the tenants to know each type of tenancy that exists and study the one they would like to go for, as it is not uncommon to see them totally unaware of the former. 

The type of tenancy can be selected according to what suits the tenant best and should be clearly stated in the tenancy agreement. Since each type of tenancy has its own set of rules, it is recommended for both the landlord and tenant to discuss them beforehand.

What Are The 4 Main Types of Tenancy?

1. Fixed-term tenancies (Tenancy for years)

This is the most common type of tenancy. The average duration of a fixed-term tenancy agreement is between six and twelve months. There is no maximum length; however, the period must be specified on the tenancy agreement, and if it is greater than three years, it must be signed as a deed. 

There are a few crucial details to be aware of regarding this type of tenancy, such as that, without a breach in the contract, you cannot provide notice to quit it earlier than stated in the agreement. 

The tenancy will transition to periodic once the initial term is over until the landlord or tenant gives the proper notice, they reach an agreement, or the tenant exercises their right to renew, as it is more convenient for both.

Hence, the tenant and the landlord must ensure that this type of tenancy is the most appropriate choice for them before signing the agreement.

This type of tenancy lease typically lasts for a year. Thus, one that began on September 1st would finish on August 31st of the following year for example. Fixed-term leases, however, may range in length from one month to five or ten years (although usually, only commercial leases are that long).

This type of tenancy lease locks in the parameters of the leasing agreement until the predetermined expiration date.

tenants couple signing a type of tenancy

2. Periodic tenancies

Unless the landlord or tenant gives the notice to terminate it, this type of tenancy has no set expiration date. The tenant has to notify the landlord in writing that they do not intend to continue living on the property. Otherwise, all fixed-term tenancies turn into periodic ones once they expire. 

It continues until the tenant, or the landlord gives written notice to end it. Thus, a lease that has no specified termination date is known as a periodic tenancy. 

After each ‘period,’ which may be weekly, biweekly, monthly, quarterly, or even yearly, it automatically renews (although a month-to-month agreement is the most common type of periodic tenancy). 

Periodic tenancies may be established through a formal, signed lease agreement, but they are frequently established orally and without the use of a written lease. This type of tenancy ends when one party, usually the tenant, notifies the other that they want to stop the agreement. 

However, notice is often required at least one month in advance for month-to-month leases, though specific requirements differ based on state legislation.

Thus, to summarise the idea, numerous legal procedures might occur to end a periodic tenancy. Some of them are specified below:

  • The landlord and the tenant both mutually agree to end the tenancy
  • The landlord decides to evict the tenant
  • The tenant or the owner gives notice

3. Tenancy at sufferance (holdover tenancy)

    Tenancy at sufferance refers to the lack of opposition in the absence of proper approval.

    When a tenant continues to occupy a property after the lease’s expiration date—either the date specified on a notice of termination for a periodic tenancy or the end date on a fixed-term lease—this is known as a tenancy at sufferance. 

    The tenant is then referred to as a tenant at sufferance or a holdover tenant. At this point, the landlord has two choices:

    1. To treat them as trespassers and evict them
    2. To accept their ongoing rent payments and establish a new month-to-month tenancy

    This type of tenancy is a contract that allows a tenant to continue living in a rental home after the lease period has ended but before the landlord requests that they leave. The terms of the original lease must be followed, including the payment of any rent, in the event of a tenancy at sufferance. If not, the landlord may evict the renter at any time without providing a reason.

    Eviction proceedings are one scenario that may result in this type of tenancy. If a tenant’s contract expires but they do not quit the property, and the landlord plans to lease the space to new occupants, this may be the case. 

    Although the landlord or property owner may begin using their legal rights to evict the tenant, the renter often cannot be forcibly removed from the property because they still reside there. However, the renter must abide by the rental or lease conditions while the eviction procedure is under process.

    If not, they risk being evicted from the property. They must pay the rent on time as required under their previous lease terms. Before a decision is made on an eviction, it could take anywhere between six months and a year.

    rental agreement being signed and property keys

    As long as the tenant complied with their obligations under the lease term during that time, the property owner would be required to accept the tenancy at sufferance. The landlord will likely make a buyout offer to the tenant to get them to vacate the premises. Although it would cost more, doing this would hasten the resolution of the problem.

    4. Tenancy at Will

    An unofficial arrangement between a tenant and landlord is known as a tenancy at will. This type of tenancy is established when a tenant moves into a property with the landlord’s consent but without stating how long they plan to stay or specifying the rent. 

    However, a tenancy at will usually changes to a periodic tenancy as soon as rent payments are agreed upon. Letting a friend stay over on the sofa for a few months rent-free is a typical illustration of this type of tenancy

    At-will tenants have some privileges despite not paying rent. They cannot be ejected without prior notice. In California, for example, a landlord must provide an at-will tenant with 30 days written notice before evicting them, which is identical to how a month-to-month tenancy is ended. 

    Nonetheless, each state has a slightly different legal definition for these phrases. Even if the renter pays a fixed amount of rent each month, some states see any periodic tenancy without a signed lease agreement as a tenancy at will.

    This type of tenancy is a rental agreement that can be ended at any moment by the owner/landlord or the tenant. It does not have a contract or lease and typically does not state any specifications. State law governs the agreement, and the provisions may differ from state to state; nevertheless, in instances of discrimination, federal law applies. 

    Tenancy-at-will is also referred to as ‘estate-at-will.’ Both tenants and owners may benefit from this type of tenancy agreement because they may want to have the option to change renting situations quickly and without breaking a contract.

    What Are The Different Types of Tenants?

    In addition to the various type of tenancy, different kinds of tenants also exist, which is crucial to make note of.

    1. Private tenants

    Private landlords or businesses may rent out residential or commercial real estate to private tenants and establish their choice of the type of tenancy agreement with them.

    Rights of private tenants

    Regardless of the type of tenancy, private tenants have the following rights:

    • Live in a secure home
    • Regular repair of the accommodation should be guaranteed
    • Receive the deposit back at the end of the lease, and in some cases, have it secured
    • Object to overly expensive rent
    • Know who your landlord is
    • Live in the accommodation without any disturbances

    For further details on the private sector, click here.

    Responsibilities of private tenants

    As a part of the private sector, the tenant is required to:

    • Take good care of the property. For example, turn off the water from the mains if you’re going to be away, especially during cold weather
    • Pay the rent agreed upon, regardless of whether repairs are necessary or there is a disagreement with your landlord. Also, pay any other fees as agreed with the landlord, such as council tax or utility bills
    • Only pay for the use of a property if the tenancy agreement or your landlord permits it, and only if you, your family, or friends are responsible for any damage to the property
    Private tenant receiving keys

    2. Leaseholders

    Under the lease agreement with a landlord or a freeholder, the leaseholder owns their home for a predetermined period depending on the type of tenancy

    Once the lease is up, the landlord regains possession of the property. Leaseholders will pay their landlord ground rent and service fees to cover the running services’ expenses, including upkeep, repairs, shared electricity, and water.

    Leasehold refers to the situation where you just have a long-term rental agreement with the freeholder, also known as the landlord.

    Rights of a leaseholder

    • Obtaining information on insurance or service fees.
    • Contact the landlord (freeholder) concerning specific upkeep and operating expenditures.
    • Challenge specific allegations in particular situations

    Responsibilities of a leaseholder

    Your lease will detail the terms you’ve agreed to, such as:

    • You or your landlord, whoever is responsible for the maintenance of the property. In any case, what will be the total cost?
    • Who will deal with loud neighbours?
    • Will you need permission to make any changes?

    3. Council tenants

    In the case of council tenants, the rent is paid directly to Medway Council. If you rent from a municipality or a housing association, you can also be referred to as a social tenant.

    Council leases provide long-term security. Those who rent from a local council or housing association are called council tenants or social tenants. Similarly, the council or housing association acts as the landlord. This can be covered under any type of tenancy.

    Social housing’s primary goal is to be more reasonably priced than private housing. Given that it is a contract between the tenant and the council, this renting is also a little different in terms of the tenancy agreement. 

    The agreement specifies the tenant’s and the council’s legal responsibilities. As a result, it also differs in your property rights, such as the ability to occupy your home for as long as you wish and abide by the terms of your tenancy.

    What is a Tenancy Agreement?

    In contrast to a lease, which typically lasts for a fixed duration, a tenancy agreement is a contract between the owner of a property and a renter who wants temporary possession of the property. 

    Both tenant and the landlord are granted specific rights under the tenancy agreement. For instance, the renter’s right to occupy the space and the landlord’s right to be paid rent timely for renting out the area. The type of tenancy that the renter is going to enter is clearly stated in the tenancy agreement.

    Type of tenancy agreements

    Choosing a type of tenancy or selecting a tenancy agreement can be challenging if you are new to buy-to-let. In order to select the type of tenancy agreement that best meets your needs,  below is a guide that will help you understand each type of tenancy agreement stated before.

    • Assured short-hold tenancy (AST)
    • Excluded tenancy (lodging)
    • Assured tenancy
    • Non-assured tenancy
    • Regulated tenancy
    • Company let

    1. Assured shorthold tenancy

    An Assured Shorthold Tenancy – AST is the most common type of tenancy agreement. The majority of tenancies are ASTs by default. This type of tenancy agreement is likely if the property is private (i.e. not commercial).

    Lease agreement contract and house keys

    This type of tenancy began after 1989, it serves as the tenant’s primary residence, and the landlord does not reside there.

    You can employ this type of tenancy even if you rent out individual rooms to tenants who share facilities. However, you cannot operate this type of tenancy if you are asking for exceptionally high rent (above £100k per year), low or no rent, or if it is a vacation rental.

    Most assured shorthold tenancy agreements include a predetermined initial term of six or twelve months.

    Almost all privately rented homes in England and Wales have “Assured Shorthold Tenancies,” which provide renters with a set amount of time to move out without cause. Six months is the bare minimum. 

    During this time, you still risk being evicted if you don’t pay your rent or exhibit antisocial behaviour. After that, landlords have the right to evict renters for any cause with at least two months’ notice. 

    For more details on this type of tenancy, click here.

    2. Non-assured Shorthold Tenancy

    Only in specific circumstances, where an assured shorthold tenancy cannot be employed this type of tenancy is used. For example, 

    • If the monthly rent is less than £250 
    • The tenant has a primary residence elsewhere
    • The landlord shares the occupancy with the tenant (as long as no amenities are shared) 

    You are not required to submit the deposit into a government-backed deposit protection scheme or provide a Section 21 or Section 8 Notice to quit this type of tenancy because it is not an AST. However, as long as the renter abides by the conditions of the tenancy agreement, they have the right to remain in the accommodation until the end of the defined time.

    3. Excluded tenancy (for lodgers)

    An excluded tenancy may exist if you cohabitate on the property with your renter and share any amenities. For instance, if you host a lodger. In contrast to an assured shorthold lease, this type of tenancy does not offer the tenant as many protections.

     As long as you follow the rental agreement’s terms, you are not required to preserve your tenant’s deposit in a government-approved deposit scheme. The renter can typically be removed without a court order or four weeks’ notice in this type of tenancy agreement.

    4. Assured tenancy

    You’re not much likely to choose this type of tenancy if you’re just starting to rent out your property. 

    If you rent the accommodation to a business rather than an individual, this type of tenancy will not be considered an assured shorthold tenancy.

    Assured tenancies, which grant renters long-term tenancy rights, were more frequently employed in the past. This includes tenancies that were initiated between 1989 and 1997. To date, many housing associations rent out properties under assured tenancies.

    5. Regulated tenancy

    As long as the tenancy agreement, which needs not to be in writing, is still in effect, this type of tenancy is protected. According to English property law, this type of tenancy was issued by private landlords before January 15, 1989.

    tenants arguing with property manager

    6. The company let or corporate let

    This type of tenancy is not considered an AST if you rent your property to a business instead of an individual. 

    A corporate let is a situation where a landlord decides to rent out a property directly to a company rather than an individual renter. The arrangement functions similarly to an assured shorthold tenancy agreement, with the exception that the corporation renting the property accepts responsibility for the property’s rent, costs, and maintenance rather than a single tenant.

    What are Tenancy Fees?

    Landlords reimburse letting agents with tenancy fees for the services they render. However, each letting agent has different rates and offers various packages. 

    In general terms, landlords pay the letting agent for tasks including the type of tenancy, tenant locating, reference checking, property planning, and proper administration. However, landlords who oversee and manage their own tenancies must own a landlord licence.

    The Tenant Fees Act limits tenancy deposits paid by renters in England’s private rented sector and outlaws most letting fees. Any type of tenancy agreement executed on or after June 1, 2019, whether new or renewed, is exempted from the ban on tenant fees. 

    For further details, click here.

    Long-Term vs Short-Term Tenancy

    Depending on the letting type, rentals are divided into:

    1. Long-term tenancies

    This type of tenancy is often described as being rented out for one month or more. Generally, in this type of tenancy, renters pay the homeowner monthly. Also, whether it is an exclusive property or just a single room, they take care of additional expenses like utility bills.

    2. Short-term tenancies

    In this type of tenancy, the furnished property is rented out on a short-term basis as a short-term rental. The property is often known as a holiday or vacation rental. These properties can be hired weekly or by night, depending on the owner, the rental area, and numerous other factors.

    tenancy agreement contract, keys, pen and small house

    Conclusion

    The tenants must select the property that respects the class use order, that too, after comparing the previous renters’ reviews, electricity safety, gas safety, and rental obligations.

    Typically, when someone pays rent to live in a home, apartment, building, or mobile accommodations, they become a tenant and are subject to the laws of the state in which they are located. Whether the payment is made weekly, monthly, or at another regular frequency, and whichever type of tenancy they employ does not matter.

    In the course of a tenancy agreement, be it of any type of tenancy, both tenants and property owners have rights and obligations. To prevent issues, both parties must thoroughly understand the rental guidelines.