Different types of tenancy: which agreement is best for me

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Different types of tenancy: which agreement should you use?

Different Types of Tenancy: which agreement should you use?

This article is to help you as a landlord to make the right choice of which type of tenancy agreement, license or lease is most appropriate for your requirement.

Tenancy or lease? In land law, no difference. In usage, statutes about residential occupancy use the word “tenancy” and those regulating commercial occupancy use the word “lease”. We all follow that usage.

We have an article about the basic law at Residential Tenancy Agreements. We recommend that you read that first.

If you don’t want to take the risk of choosing the wrong type of agreement then look at our residential tenancy agreement drafting service. The software will automatically select the right type of tenancy agreement for you. If you need a license or a lease instead, this will be identified at the first step of the process.

Lease or licence?

The law protects residential tenants. You cannot opt out. There are no clever ways around it. What matters is the “real deal” and not even what you put in your written agreement. In fact if your agreement does not “qualify”, you may well find that you are not entitled even to the protection that the law does give you.

A licence is used only for sharing. But if exactly the same space is shared by several people, then together they have exclusive occupation, and that makes them tenants.

The way out of this bind is if in doubt, use a tenancy agreement. You can use a licence only for:


	A lodger in your home;
	Hostel type services;
	Holiday accommodation where the occupier has another home and firmly intends to return, preferably within say, 12 weeks.

That means you need a tenancy agreement for everything else, including accommodation where some rooms are shared but each resident has his or her own room with a lock.

Of course, a letting for something other than sleeping will not be protected. You should license your garage to a friend or your field to a horse owner. But beware. If it turns out, whether you knew or not, that the garage or field was used for a business, then the letting will be regulated by the commercial letting rules. Once again, you may be “stewed”. So if there is any risk of that, use a Net Lawman business lease.

Problems might arise if:


	The landlord does not live in the property and share the cooking, bathroom and social rooms.
	some rooms, such as a bedroom, perhaps with its own bathroom, are for the exclusive occupation of the 'tenant'.
	the tenant can choose his room mate if bedrooms are shared.
	the rooms are locked and not open to cleaning or room service staff.
	the tenant will share only other spaces in the property (such as a kitchen or living room) with other people living in the property under similar separate agreements.
	cooking, cleaning and other hotel style services are not available.

What problems?

The principal problem is that you may not be able to obtain vacant possession. So when you have given licences to ten people to occupy your shared house with no real room service, you are stuck with "squatters" to whom you have given keys. They may trash your house, hold wild parties, pay no rent and so on. The value of your house or flat drops like a stone. We exaggerate, but you understand the message.

So what do we advise?

Simple! For a lodger in your own home, use the Net Lawman lodger in your home agreement. For anything else, use an assured shorthold tenancy agreement. We sell a model version which is slightly edited for each of house or flat and furnished or unfurnished. We recommend you to use our residential tenancy agreement drafting service but if you prefer to buy a document template, we have assured shorthold tenancy agreements and others as well.

If you do need to evict?

Sadly, people do occasionally overstay their welcome.

A licensee or hotelier may terminate the licence without notice, unless there is a contractual provision for notice. In practice, it is always sensible to give reasonable notice. What is reasonable depends on the circumstances, but certainly a month would be adequate unless there were special reasons to the contrary.

If he still does not go, there is no reason in law why you should not restrict his access, but it would be more sensible to apply to court.

For a tenant, if the contractual term of the tenancy has expired and the tenant is not entitled to a new tenancy, you may apply to court for possession with a Section 21 notice and expect an order in your favour. But if the tenancy agreement does not create an assured shorthold, you may have problems.

You cannot serve a Section 21 notice to terminate an assured shorthold tenancy until the expiry of six months from the start date, even if the term is less than six months.

About Assured shorthold tenancies


	The tenant has exclusive occupation of all or part of the property, giving the tenant privacy and preventing the landlord from entering without advance permission;
	The landlord may charge a market rent, usually fixed for the term of the tenancy;
	Special rules apply as to the notice to be served to obtain possession, even on expiry of the agreed term.
	The landlord can recover possession at the end of the term;

The difference between an assured tenancy and an assured shorthold tenancy

The difference between assured and non-assured tenancies is largely one of duration. Tenants under assured tenancy agreements have similar legal rights to those under assured shorthold tenancy agreements, but the tenant can stay in the property for an unspecified amount of time.

The grounds for possession (set out in the 1988 Housing Act) of an assured tenancy are stricter and less favourable to the landlord than the requirements for obtaining possession of an assured shorthold tenancy.

As a result, private landlords would be well advised to use an assured shorthold tenancy, and if the tenant is to remain at the property for a long time, set the period of the tenancy to a specified short time (say a maximum of three years). If both sides wish the arrangement to continue beyond that, they can enter into a new agreement when the time comes.

Assured tenancy agreements are most commonly used by housing associations, government departments and the Crown.

Assured and non assured tenancy agreements

A non-assured tenancy isn’t a type of tenancy in law, but is often used to mean a common law contractual tenancy agreement, not regulated by the 1988 Housing Act.

At 01 October 2010, a tenancy where the rent is greater than £25,000 a year outside London or £100,000 a year in London, cannot be an assured shorthold tenancy.

What about company lets?

Breathe a sigh of relief. A company has no security of tenure. End of story. The Net Lawman company let agreement is your perfect basis to set up your deal. Note though, that you still may not evict a residential occupier without an order of the court.

The tenancy is for a fixed term, usually six or twelve months but commonly up to 3 years. We recommend a maximum of 7 years.

Agricultural tenancies

Regulated by the Agricultural Tenancies Act 1995. If the property is being let together with more than two acres of agricultural land then you will need an agricultural tenancy agreement. Agricultural land excludes garden, parkland, or sports or recreation land, but it does include arable land, meadow, pasture, woodland, land used for poultry farming and orchards or land used as a market garden.

The test is: “Is the land being used for agricultural purposes?”. If in doubt, find out whether the land has been rated for council tax purposes as agricultural land (Local Government Finance Act 1988). Of course that may not prevent a tenant from starting to use it for agricultural purposes.

If your tenant does not intend, and does not actually use the land (and buildings on it) for an agricultural use, you do not need an agricultural tenancy agreement. Instead, you could use an unregulated agricultural lease.

Business property leases

If any part of the property (including an outbuilding) is to be used for the purposes of business, then you should use a business property lease that provides for accommodation. We also have an article about service accommodation.

Exclusions from qualification as an assured shorthold tenancy

To complete the picture, here is a list of tenancy types which are expressly excluded from qualification as an assured shorthold tenancy:


	a tenancy granted to a company or an organisation (e.g. tenant is a housing association or a limited company). Assured and assured shorthold tenancies may only be granted to an individual or in the case of a joint tenancy, joint tenants where the tenants are individuals. (Housing Act 1988, s.1);
	a tenancy granted by a resident landlord. A resident landlord is defined as one who continuously lives in the same property as his tenant. (Use the Net Lawman lodger in your home agreement. A landlord living in a separate flat or house converted into flats in which his tenant(s) live(s) may be a resident landlord. A landlord living in a separate flat in the same purpose-built block of flats as his tenant is not a resident landlord;
	a business tenancy subject to Part II of the Landlord and Tenant Act 1954;
	a tenancy allowing the tenant to occupy the property for a holiday (use a holiday house letting agreement);
	a tenancy of a residential property let together with more than two acres of agricultural land; (use an agricultural tenancy agreement);
	a tenancy granted by an educational body specified within a list issued by the Secretary of State to a student studying at that same institution;
	a tenancy in which the landlord is the Crown or a Government Department;
	protected tenancies under the Rent Act 1977 or the Rent (Agriculture) Act 1976;
	other tenancies entered into before 15 January 1989, or arising as a result of a contract entered into before then;
	a tenancy of a licensed premises (a pub or bar);
	a tenancy where the landlord is a local authority, a housing action trust, certain specified statutory bodies or a fully mutual housing association (unless they are old style assured tenancies with rent below £100,000 per year that have been converted to assured shorthold tenancies);
	a tenancy which is rent-free or where the annual rent is less than two thirds the rateable value of the property;
	a tenancy where the rent is greater than £25,000 a year outside London or £100,000 a year in London.

If by chance you find any error in this information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes:
Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.