Longer term tenancies: financial incentives &lower letting fees?

Typical Victorian style terraced townhouses in Chelsea London

The Government has said it is open to tax or cash incentives to encourage landlords to move towards longer term three-year tenancies.

A consultation released on the 2nd July by the Ministry of Housing, Communities and Local Government unveiled plans to move from a two-year model tenancy agreement to one that lasts for three years.

The key proposals outlined in the consultation are:

·         Landlords would have to offer a minimum three-year tenancy but with a break clause of six months if either party is dissatisfied. If both landlord and tenant are happy, the tenancy would continue following the break clause.

·         After the break clause, the tenant would be able to leave the tenancy by providing a minimum of two months’ notice in writing.

·         After six months, the landlord can only repossess their property during the fixed term if they intend to sell the property or by serving a Section 8 eviction notice. They would still be able to serve a Section 21 notice at the end of the tenancy term.

Financial Incentives

Possible tax incentives for landlords are also being considered, the consultation said:

“Financial incentives could be explored. This could be quicker to implement but would still require legislation and could be administratively burdensome.

“The landlord would likely need to demonstrate compliance with other legislative requirements such as completing annual gas safety checks and protecting any deposit taken in a Government approved tenancy deposit protection scheme, and this would need to be easily verifiable. We would also have to consider ways to ensure that incentives were not subject to abuse.”

“Cash payments could be considered for landlords who demonstrated that they had offered and delivered a longer tenancy. Such payments could be administered locally by local authorities.”

Lower Fees?

The consultation also suggests longer term tenancies could cut down lettings fees charged to tenants:

“Letting agents charge fees for tenancy renewals. The repeated churn in tenancies prompts business for an agent, and the opportunity to charge fees. This arguably creates an incentive for agents to advise landlords and tenants to agree a short-term contract, representing another barrier to longer term tenancies.”

NLA Reaction

Reacting to the announcement of plans to introduce mandatory three year tenancies, NLA Chief Executive Officer Richard Lambert said:

“In his speech to the Conservative Party conference last October, Sajid Javid announced plans for a consultation on how to encourage longer tenancies. That’s been the tone of the discussion ever since – consultation and encouragement. Frankly, right now, I feel we’ve been misled.

“This is supposed to be about meeting the needs of the consumer. NLA research with tenants finds consistently that around 40% of tenants want longer tenancies, but 40% do not. More than 50% consistently say that they are happy with the tenancy length they were offered, and 20% tell us that when they asked for a longer tenancy, they got it.

“We would accept that the flexibility of the current Assured Shorthold Tenancy isn’t used as effectively as it could be, and that we should be looking to find ways to ensure that tenants are offered the kind of tenancies they need at the time they need them. That means thinking about how to modernise a model devised 30 years ago, to take account of the changes in the people who are renting and the way they live their lives. How will that be achieved by moving to a more rigid system, more reminiscent of the regulated model the current system replaced?

“This is a policy which the Conservatives derided when it was put forward by their opponents in the past two General Election campaigns. It’s hard not to see this as more of a political move aimed at the renter vote than a genuine effort to improve how the rented market works for all those involved.”

The consultation on three-year tenancies will last for eight weeks and close on August 26.

Read the full consultation here


This entry was posted in Blog, deposits, Families, Fees, NLA, Politics, Regulation, research. Bookmark the permalink.

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