What is a periodic tenancy?
A Shorthold Tenancy automatically becomes a “periodic tenancy” if new contracts aren’t signed after the fixed-terms expire in the original Tenancy Agreement and the same tenant(s) remain in the property. All the same terms and conditions apply, but the only difference is that a new periodic contract begins, otherwise known as a ‘rolling’ contract, which typically runs month-by-month.
The “period” is dependent on how frequently the rent is paid. For example, if the rent is paid on a PCM (Per Calendar Month) basis, which is most often the casem then the contract will run on a month-by-month basis (unlike fixed term contracts, which most commonly run for 12 months). Same principle applies if the rent is paid on a weekly or bi-weekly basis. Some run from quarter to quarter or even year to year.
Many people assume that as soon as a tenancy expires (e.g. the fixed date has come to an end/passes) that the tenancy automatically terminates. That is not true. The tenancy can only be terminated through proper legal processes e.g. serving a section 21, through mutual agreement, eviction (assuming there are grounds to do so) or if the tenant surrenders the tenancy.
When/how does a periodic tenancy begin?
To clarify, you don’t have to do anything.
As said, tenancies automatically become periodic immediately after the fixed date in the contract has expired. The landlord or tenant doesn’t need to do anything, and you don’t need a special kind of contract/clause.
What are the advantages of a periodic tenancy?
- They allow flexibility e.g. if the landlord suddenly wants the property vacated, he/she can immediately serve a Section 21 Form – notice of possession, without having to wait for a fixed term to expire before the tenant has to vacate.
- There’s no need to arrange another tenancy agreement, the clauses in the expired agreement will still apply. Additionally, saving paper is awesome!
- A lot of snake-oil letting agents charge a tenancy renewal fee for renewing contracts. So, if a landlord allows the contract to transform into a periodic tenancy, a new contract is not required, consequently escaping the admin costs associated with the process.
- If the landlord wants to be greedy and increase rent, or add any additional clauses to the contract, he can do so pretty sharpish, providing that the periodic tenancy is terminated and a new agreement is put in place. Since the period of a periodic tenancy depends upon the rent payment schedule, it doesn’t take long for any of the new clauses to be added since most rent is paid on a monthly basis.
- Finally, the biggest advantage in my opinion, which makes periodic tenancies incredibly useful. It’s a lot quicker and easier to remove rogue tenants during a periodic tenancy i.e. Landlords can serve a Section 21 to regain possession, and providing that it’s been served correctly, the eviction process is usually a lot more efficient than serving a Section 8 Eviction notice.
What are the disadvantages of a periodic tenancy?
- As I already experienced in a harsh life lesson, putting good tenants on periodic tenancies is risky because they can unexpectedly vacate pretty quickly.
- Tenants typically only need to give one month’s notice when they’re on a periodic tenancy, which may not allow a comfortable amount of time for the landlord to find new tenants if the current tenant gives minimal notice. The issue can become extra stressful if the property requires cosmetic work in order to attract new tenants.
- Over the years, new regulations have been passed through into the BTL industry (e.g. Tenancy Deposit Scheme). These new regulations should be mentioned in the tenancy agreement as statutory clauses. Point being, if you allow a contract to continually be periodic for a long period of time, it can slowly become out of date. It’s important to keep tenancy agreements inline with the law, so the T&C’s are always clear in black and white.
- Finding new tenants can be expensive, so if you’re a landlord that prefers using 6 months fixed term agreements, and always allows the tenancy to go periodic, you’re leaving a big window of opportunity for a high tenant turnover rate. It can often be more cost-effective to fix tenants for long term. Of course, that’s largely dependent on your own judgement to decide on whether you have good tenants or not that are worth the commitment.
Contractual Periodic Tenancies
“Contractual periodic tenancies” are slightly different to “Periodic tenancies”
A contractual periodic tenancy exists when both landlord and tenant agree in contract that the tenancy will become a periodic tenancy, as opposed to allowing it to naturally roll into one without any mention of it (after a fixed term contract expires and where a tenancy isn’t renewed, the tenancy will automatically become periodic).
It be a contractual periodic tenancy in three ways:
- 1) By making it clear in the original tenancy agreement that the tenancy will become a “contractual periodic tenancy” after the fixed period (the word “contractual” should be stated).
- 2) By getting the tenant to sign a periodic tenancy agreement when the fixed term contract is shortly due to expire, so it will get overtaken by the new periodic tenancy agreement.
- 3) It is possible start a tenancy with a periodic tenancy rather than a fixed term of 6 months or 12 months. You can do this by giving the tenant an initial term of just one month (or a week) and then just allowing it to run on. However, bear in mind you cannot serve notice to the tenant for at least 6 months, because they are still protected by their statutory rights which stipulates a shorthold tenancy cannot be shorter than 6 months. This can only be overturned if there is a mutual agreement by the landlord and tenant for the tenancy to end.
Of course, the contract is still rolling like a regular periodic tenancy, based on how frequently rent is paid.
It’s actually a good idea to have a contractual periodic tenancy. Landlords are responsible for the costs of council tax if the tenants are on a periodic tenancy and move out during a notice to quit (eviction notice, Section 8) period. During the period of notice if the tenants choose to move out it does not exclude the landlord from paying council tax. However, if is a contractual periodic tenancy and tenants move out during notice we are covered and the responsibility for payments falls to the tenant.
Additionally, it is worth noting that if your tenant is on a periodic tenancy and rents another house (not that likely you may think but it does happen) then the responsibility for payment will once again fall to the landlord, unless it is contractual.
I know many landlords, including myself, favour periodic tenancies because of the flexibility. I generally like things to dangle and have wiggle room :) But it’s important for landlords to remember that the flexibility also applies to tenants. Once the tenancy becomes periodic, tenants have the ability to vacate quickly, and leave the landlord with a lot of work to do in a short space of time, especially if the property needs to be repaired in order to become presentable. Finding good tenants isn’t always the easiest, cheapest or quickest of processes.
So, my question to my fellow landlords, do you allow tenancies to go periodic? Do you have any kind of game plan when it comes to contracts?