Buy to Let – Assured Shorthold Tenancies and Lender’s Requirements

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I have the pleasure of being able to work in Chester city centre which has many architecturally interesting old and new properties, many of which are residential properties let to private individuals, such as the properties in these photographs, taken on a stroll around the city.

I’d like to discuss a few points you should consider when letting your residential property, particularly if you have a lender.

  • Type of tenancy – Assured shorthold tenancies (ASTs) are a type of tenancy agreement that allows the landlord to let the property whilst retaining the right to repossess the property at the end of the term. A residential tenancy created on or after 28 February 1997 will automatically be an AST, unless the landlord has served a notice on the tenant stating that the tenancy will not be an AST. A tenant must be an individual and the property must be occupied as the tenant’s only or principal home. There are some types of tenancy under the Housing Act 1988 which cannot be an AST. It is best practice to have the terms of the agreement in writing, so that there can be no argument as to what has been agreed!
  • Mortgage terms – You should ensure that the terms of your mortgage allow you to let the property and the lender may want to see a copy of the signed tenancy agreement. They may have particular requirements about the length of the tenancy, criteria for the choice of tenant and particular terms which they expect to appear in the tenancy agreement. If you do not adhere to their requirements you could find yourself in breach of your mortgage terms which could lead to the lender commencing proceedings to regain possession of the property and evict the tenant in the process.
  • Due Diligence – You or your letting agent will need to assess the suitability of a tenant. By investigating the potential tenant you could save yourself the cost and hassle later on if the tenant proves to be a problem.
  • Consumer Rights Act 2015 – The new regime in connection with unfair contract terms that is imposed by the Consumer Rights Act 2015 is similar to the previous regime under the Unfair Terms in Consumer Contracts Regulations 1999, although under the CRA 2015, even terms that have been individually negotiated are at risk. There is some guidance regarding terms which may be regarded as being potentially unfair – such as prohibiting the tenant from keeping any pets.–2

  • Landlord and Tenant Act 1954 – New law provides that landlords can allow tenants to run a ‘home business’ without giving them secure of tenure (statutory rights to remain at the end of the term) (England only). This may make properties more marketable by allowing this but landlords should exercise caution and also check the lender’s requirements.
  • AST terms – Lender’s will have particular requirements as to the terms they expect to see in the agreement, such as a covenant to pay rent, the amount and dates for payment, the term of the tenancy, repair and insurance. Terms need to be clear and fair.
  • Tenancy Deposit Schemes – Since 2007 it became a legal requirement that all deposits taken by landlords or Agents need to be registered in either a custodial scheme or an insurance based scheme. These schemes protect all ASTs.
  • Landlord responsibilities – Energy performance certificates and health and safety requirements are just a couple of the items landlords must ensure they comply with. For ASTs created on or after 1 October 2015, a landlord will be prevented from serving a notice seeking possession under section 21 of the HA 1988 unless it has complied with its statutory obligations. The Government has produced guidance to assist in raising awareness to landlords regarding their responsibilities.  More infromation can be found here