Tenancy traps for the country house owner

    Tenancy traps for the country house owner

     

    Where to look out
    There are many different types of tenancy, covered by many different types of legislation, some of which give security of tenure meaning it might be very difficult to remove the tenant.  The legislation which the tenancy falls under will depend on whether the occupation relates to either residential, employment, agriculture or business use.  The consequences of getting it wrong are serious, in that you might end up with a tenant you can’t remove.  Here are some of the most obvious pitfalls.

    Service Occupancies
    A Service Occupancy is where accommodation is offered as part of the employee’s employment, and typical examples would be for a housekeeper, nanny or gardener.  The member of staff does not have a tenancy as such, they occupy the property on licence, when their employment terminates so will their right to live in the property.  Service Occupancies do not apply to agricultural workers, where specific legislation covers farm staff.  Worst case scenario, if a Service Occupancy agreement is used for a farm worker then this could result in a lifetime tenancy.

    Business tenancies
    Most business tenancies fall under the Landlord and Tenant Act, and unless specific provision is made, the tenant may then have the right to renew the tenancy on completion of the fixed term.  This affectively grants them a long term protected tenancy.  Typically examples might be the letting of grazing and stables to a riding school, or the letting of an outbuilding to a builder or mechanic, where the properties are then used for business purposes.  It is possible to agree fixed term tenancies, but by using the correct protocol, known as ‘Contracting Out’, security of tenure can be avoided.

    Agricultural tenancies
    Most farm tenancies granted prior to 1995 came under the Agricultural Holdings Act, which affectively gave a lifetime tenancy, in some cases for up to three generations of the same family.  Since 1995, farm tenancies fall under the Agricultural Tenancies Act 1995, which gives much more freedom of contract for both parties to agree specific terms, and more limited security of tenure.  However there are obligations to compensate tenants for any improvements that may have been made during the course of the tenancy, and once again there are potential pitfalls for the unwary.

    Typical residential tenancies
    Assured Shorthold Tenancy (AST) agreements are the most commonly used residential tenancy which were introduced by the Housing Act 1988, with various amendments since then. An initial short fixed term (normally 6 or 12 months) will be agreed, after which the tenancy can roll onto a periodic tenancy with the tenant being able to serve one months written notice and the landlord being able to serve two months written notice. Most notably, with effect from 2007, there has been the introduction of the Tenancy Deposit Scheme legislation. This has meant that if a landlord takes a deposit from the tenant, by law the deposit has to be held in an independent account and registered with a Tenancy Deposit Scheme. One other important pitfall to note on this type of agreement is where a cottage is let to a farm worker on an AST.  It is essential that an Agricultural Workers Notice is served in the prescribed form before the start of the tenancy informing the tenant that the tenancy is to be an AST to avoid creating a protected tenancy and you must ensure that the rent is above the AST threshold of £251 per annum.

    Take professional advice!
    It is sensible to take professional advice when considering any form of tenancy, to not only ensure that the owner receives an appropriate rent, uses the correct tenancy agreement and has the appropriate terms in force, but most importantly of all to ensure that there can be vacant possession of the property when it is needed.  It is very easy to make a mistake, and the consequences can be serious and affect the overall capital value of the property, as well as making for an unwelcome neighbour.  Anyone who relies on a gentlemen’s agreement or a handshake is running a serious risk.

     
     

    Key contacts

    Philip Eddell

    Philip Eddell

    Director
    Country House Consultancy

    Savills Newbury

    +44 (0) 1635 277 709

    +44 (0) 1635 277 709