In this piece, we will discuss what potential buyers of a property with a regulated tenancy should be aware of, as well as the advantages and disadvantages of purchasing such a property.
What Is Regulated Tenancy?
Before January 15, 1989, Regulated Tenancies were the default form of tenancy in England and Wales for non-resident private landlord lettings. Following This Period, Assured Tenancies and Assured Shorthold Tenancies mostly replaced them.
They are a long-term agreement between landlord and tenant that gives the tenant the right to live on the property for the rest of their lives.
The circumstances that allow for a regulated tenancy are presently limited, and they will become progressively rarer as the current pool of regulated renters ages. There are currently less than 75,000 Regulated Tenancies in the UK, with a total renter population of roughly 4.5 million in England alone.
Rents are frequently substantially lower than current rental prices for the same type of property with an Assured Shorthold Tenancy (AST) in place, providing a landlord with a new investment strategy. In fact, I’ve met regulated renters in the past who only needed to pay £1 in rent every year!
Rights of Regulated Tenants
The Rent Act of 1977 provided regulated tenancies with a high level of tenure security.
Renters who qualify for Rent Act 1977 protection have the right to remain in the property as tenants even if their initial agreement with their landlord has ended or been cancelled. To evict a tenant, landlords must first demonstrate to a court that they have a “basis” for possession. Tenants have the right to a reasonable rent set by the Rent Officer.
Stages of Regulated Tenancy
A regulated tenancy is divided into two stages.
#1. The contractual or protected tenancy:
The contractual term of the tenancy is the first agreement between a landlord and tenant, also known as the protected tenancy. This might be a defined time, such as six months, or it can be periodic, such as for an indeterminate period with rent paid weekly, monthly, or yearly.
#2. The statutory tenancy
When the contractual tenancy ends or is terminated, the tenancy becomes a statutory periodic tenancy; statutory because it is protected by statute law (the Rent Act 1977), and periodic because it is based on the rental period.
Essential Elements
The occupier must have a tenancy under which a dwelling home is let as a separate dwelling to be protected under the Rent Act 1977. During the statutory tenancy, the occupant must also reside in the dwelling house.
The following components must be present:
#1. Dwelling house:
A dwelling house might be an extension of a home, a flat, a bedsit, or simply a single room. It could also be two properties rented jointly. It depends on the conditions whether a mobile home or chalet qualifies as a dwelling residence. So, it is likely that such a construction is stationary in reality and, if suitably anchored to the land, can serve as a dwelling place.
#2. Let it be a separate dwelling:
It must be let as residential accommodation before it can be let as a separate dwelling. In circumstances where there is mixed-use, such as commercial and residential, the Rent Act 1977 is unlikely to apply unless the business use is minor. The tenant must have a separate unit in which to carry out their daily tasks. This does not exclude you from sharing some of your living space with other tenants. They can share common facilities such as kitchens and toilets as long as they have sole possession of a bedroom.
#3. Residence:
The regulations governing residence vary depending on whether the tenancy is contractual or statutory in nature. The tenant is not required to live on the premises for the duration of the contractual tenancy, but in order to be protected by a statutory tenancy, they must occupy the premises as their home at the conclusion of the contractual time and remain resident. If the tenant no longer dwells there, the landlord merely needs to prove that the contractual tenancy has been terminated and the tenant no longer lives there before taking possession proceedings. If the tenant continues to occupy the property, the landlord must establish one of the grounds for possession.
Read Also: Sitting Tenant Rights: Definition and Rights On How It Works
Other aspects to consider include:
- Joint Tenants: In the situation of joint tenants, possession by one is sufficient to create a statutory tenancy.
- Two homes: It is conceivable to occupy two premises as homes and enjoy Rent Act 1977 protection for either or both if each is properly used as a home.
- The company lets: Because a company cannot be a resident, a rental to a company cannot be protected when the contractual tenancy expires. It is likely that the company let is a ‘sham’ and that the letting is to an individual who was persuaded by the landlord to buy an ‘off-the-shelf’ company in order to circumvent the protection of the Rent Act 1977. If this is demonstrated, a statutory tenancy may be created.
- Spouses and civil partners: Matrimonial legislation provides some protection to spouses and civil partners where one partner is the tenant and they are not residents at the commencement and throughout the statutory tenancy. Occupancy by a non-tenant spouse or civil partner is considered occupation by the tenant in these circumstances. When divorce processes are in progress, this protection only lasts until the decree absolute is issued.
- Temporary absences: The Rent Act of 1977 permits some temporary absences without terminating the tenant’s statutory tenancy. The length and cause of the absence, whether the tenant wants to return, and what happens to the premises during the absence are all important considerations. [9]
Regulated Tenancy Granted After January 15, 1989
After January 15, 1989, a regulated tenancy can be granted in two circumstances. Both scenarios occur when a tenancy is granted to an existing regulated tenant.
Assignment Rights
The transfer of an interest in a property, including a tenancy, to another person is referred to as an assignment.
A Rent Act 1977 tenancy during the contractual (protected) period can be assigned, but a statutory tenancy cannot be assigned because it only provides the tenant with a personal right of occupation. Protected shorthold tenancies are not assignable.
Succession Rights
When a renter dies, his or her property is transferred to the tenant’s spouse, civil partner, or a member of the tenant’s family.
If a contractual or statutory tenant dies, the successor may get a statutory tenancy under the Rent Act 1977 or an assured tenancy under the Housing Act 1988 if certain circumstances are met. The tenancy to which they succeed is determined by when the tenant died and whether the successor is the tenant’s husband, civil partner, or another member of the family.
How Long Does a Regulated Tenancy Last?
Because the rent is usually lower than market value and the tenant(s) can stay for life, the property’s value should be significantly lower than if it were purchased vacant or with a more traditional tenancy in place; you’re effectively getting a discount for the restrictions that come with the property at the time of purchase.
So, where is the money going to come from?
If you acquire a regulated tenanted property today, you will most likely inherit a tenant who has lived there for many years. In my experience, the tenant tends to treat the property as ‘their own,’ and hence is less inclined to call the landlord every time a minor repair is required. It goes without saying that a landlord should always ensure that the property and tenant are properly cared for, but in general, it’s a ‘quieter’ investment than a property with an AST in place.
While the terms of a regulated tenancy vary according to the individual agreement, the landlord is often liable for any structural and external repairs, as well as the upkeep of gas and water supplies. It is also customary for the tenant to be responsible for the interior cosmetic needs, just as you would with your own property.
Regulated tenancy properties appeal to landlords who aren’t interested in yield but rather in a building’s long-term capital growth. When the tenancy ends, the property’s value will naturally adjust to reflect the market price for such an empty property. So, for example, you might pay 40% less for a property with a regulated tenant today, and if it becomes unoccupied after 10 years, you will profit from the 40% uplift from not having the previous constraints, plus the general capital growth of the property over those ten years (providing the market does, of course, increase).
Eviction of Regulated Tenants
A regulated tenancy can only be terminated if your landlord obtains a court order.
Your landlord must provide evidence of lawful grounds for eviction, such as rent arrears. The court must decide whether it is appropriate to evict you.
They must prove in court that you no longer live on the property.
Unlawful eviction
It is illegal to evict a regulated renter without a court order.
If you are being illegally evicted or harassed by your landlord, seek assistance from the council.
You may also be able to obtain legal assistance from an attorney in order to reclaim your home or claim compensation.
Passing on the Tenancy if You Die
The following factors determine what happens to your tenancy:
- If there is a shared tenancy
- who lives with you there?
- how long they’ve been living there
- Whether you inherited the tenancy from another person
Succession is the process of inheriting a tenancy from someone you live with.
In many circumstances, when the original regulated tenant dies, the tenancy can only be passed on once, however, there are exceptions to this norm.
If it passes to a family member who is not your spouse, the kind of tenancy will change. It will become a guaranteed tenancy.
Tenancies in common
The other joint tenant’s tenancy will continue as a regulated tenancy if they are still living there when you die.
This does not constitute succession. The legal word for this is ‘survivorship.’
The tenancy will cease if the other joint tenant does not live there.
Sole tenancy if you live with a partner.
Your tenancy is normally transferable to a partner who is living in your house at the time of your death.
If this occurs, the tenancy will remain a regulated tenancy.
The only exception is if you acquired the tenancy from someone else. If you die in this case, the tenancy will terminate unless a second succession is granted.
Sole tenancies if you do not live with a Spouse.
If you do not have a spouse, your tenancy may pass to another family member.
Your family member must have resided on the property with you for at least two years prior to your death.
If more than one family member meets this requirement, they can pick who will inherit the tenancy. If they are unable to reach an agreement, a court can make a decision.
When it is permissible to have a second succession
If you do any of the following, your tenancy may pass to another family member:
- were the original tenant’s companion
- When they died, they left behind a regulated tenancy.
This is only possible if your family member:
- lived with you for at least two years prior to your death
- was also a relative of the original tenant
A second succession will always be to a tenancy with an established tenure.
As an example, your husband was the first regulated tenant. He died in 1996, and you took over the tenancy. Your adult son has been living with you for the past five years. If your son continues to live there, he will be granted an assured tenancy.
Terminating your Tenancy
Because they have more rights than ordinary private renters, most regulated tenants do not desire to leave their tenancies.
Some landlords will attempt to negotiate the termination of the regulated tenancy. They may offer you a monetary incentive to depart so that they may re-rent the property at a higher rate.
If your landlord offers you money or asks you to leave your tenancy, get legal advice. Finding adequate, economical, and long-term housing can be quite challenging.
Giving your landlord notice to end your tenancy
You can end your tenancy by serving a proper notice to leave on your landlord. This must be in writing and must conclude on the first or last day of the tenancy.
You must contribute at least:
- If you pay rent on a weekly basis, you must give four weeks’ notice.
- If you pay rent on a monthly basis, you must give one month’s notice.
You cannot retract a legitimate notice once it has been given to your landlord. Don’t give up your home unless you’re certain you’ll be able to find another suitable place to live.
Regulated Tenancy FAQ’s
Can you increase the rent on a regulated tenancy?
For regulated tenancies (those that began before January 15, 1989), your landlord can only raise the rent up to the legal maximum determined by a rent officer from the Valuation Office Agency (VOA)…. If you do not consent to a rent increase, the landlord can only raise the rent when the fixed-term period ends.
What is considered a fair rent increase?
If it becomes necessary to raise a long-term tenant’s rent, it is critical that the increase be acceptable, ideally no more than 5%.
Can I refuse a rent increase?
You may be able to resist a rent increase without having to file a formal complaint. If your landlord requests that you pay a new, higher rent, you must consent unless they: Make use of a rent review clause. I’m going to serve you with a section 13 notice.
