UPDATE – Legal principles – what are Common Law Tenancies?

Property law in England has its roots in antiquity. Despite the long slow and incremental process of common law decisions made by judges over hundreds of years, tradition and precedent are overruled by statutory (Parliament made) rules. Statutory rules always over-ride the common law, and contractual agreements made between parties.

Seemingly endless laws, brand new rules and regulations, continually pour out of Parliament as and when Government deems them necessary. Currently we eagerly await the revelations when the major reforms of the Renters (Reform) Bill 2022-23, currently progressing through Parliament, become law.

Under the English legal system tenancy laws are a curious mixture of the law of contract, established common law or property law, and statutory rules. As a landlord it helps if you have a basic understanding of how the system operates.

Common law tenancies are one type of established tenancy which are based on long established property and contract law. These are tenancies that fall outside the scope of the existing statutory rules, for example the Housing Acts (1988, 1996, 2004) and many other Acts older of Parliament. They include Regulated Tenancies (Rent Act Tenancies), Assured (AT) and Assured Shorthold Tenancies (ASTs). Common law tenancies apply only in specific circumstances.

When does a Common Law Tenancy apply?

There are a number of tenancy situations where the law says an Assured or an Assured Shorthold tenancy cannot exist. This is even when a tenancy agreement is described at its head as a AT or Assured Shorthold Tenancy – the law says it cannot be created.

The most common form of Common Law residential tenancy is a tenancy granted by a resident landlord – i.e., where the landlord lives in the same building as the tenant but lives separately, usually an annex or separate flat. Here, the landlord does not share facilities with the tenant as they would in a lodger arrangement.

Additionally, these other common situations cannot be Assured or Assured Shorthold for:

– a tenancy for a limited company
– when no rent is payable, a low rent of less than £250 or a high rent of more than £100,000 is payable.
– where the tenant does not reside in the property as their main residence – Assured and Assured Shorthold Tenancies are dependent on the tenancy being the tenant’s main residence.

Agreed between the parties

In the case of a common law residential tenancy the tenant’s rights and obligations are mainly dependent on the terms agreed between the parties (written into the agreement), and therefore similar to a commercial lease, they are contractual or “non-statutory contractual tenancies” as opposed to those being regulated by statute. They offer fewer protections and rights to their tenants.

Commercial (business tenancies) are similar as they are contractual but businesses have the added protection of the Landlord and Tenant Act 1954, which affords some security of tenure (succession rights) for a businesses on renewal – when the fixed term comes to an end these statutory rules kick in.

Any residential tenancy where the rent equates to an annual rate in excess of £100,000 pa (previously £25,000 set in 1990 and increased in October 2010) is excluded from the Housing Act Tenancy (AT or AST) rules and therefore must be a common law tenancy.

Alternatively, where a limited company rents a residential property (usually for their employees) the tenancy will fall outside the scope of the Housing Acts – again it’s a common law tenancy.

Often, companies rent residential accommodation and let the property to their employees, usually under a licence agreement (as opposed to a tenancy). The employee pays rent and other costs to the landlord, but ultimately the company is liable. Rent-to-rent arrangements fall into this category and often result in legal difficulties if the agreements between the three parties are not set-up correctly.

Joint Tenancies and The Common Law Tenancy

A rental rate of £100,000 pa may seem quite a lot, but this also applies to join tenancies where the combined rent of all the sharers (such as students) is included in this total – £8333.33 per month is the limit.

Note: A tenancy for 6 months can still be a high-rent tenancy if the rent exceeds the rate of £8333.33 per month.

Implications for Landlords – Common Law Tenancies

The implications of common law tenancies are:

(1) a different tenancy agreement from the usual AST will be required, and

(2) any deposit taken is not subject to the requirements of the Deposit Protection Scheme under the Housing Act 2004.

(3) the rules governing re-possession under the Housing Acts do not apply.

Stamp Duty Land Tax (SDLT) is not payable unless the the lease Net Present Value exceeds the SDLT at a certain threshold (see the SDLT rules). Below this threshold, the vast majority of private tenancies escape SDLT.

Security of Tenure – Common Law Tenancies

Common Law Tenancies do not afford tenants the same protection regarding security of tenure and statutory continuation as do Assured Tenancies (including Shorthold Assured Tenancies).

Therefore the AST section 21 and section 8 notices and possession procedures do not apply, and the letting operates on the literal wording of the Tenancy Agreement. Similarly, the Deposit Protection (DPS Scheme) rules do not apply.

The tenancy agreement should specify circumstances in which either party bring the tenancy to an end during the fixed term – usually if the tenant is in breach of the agreement. At the end of the fixed-term, the landlord is entitled to possession of the property.

Where the tenancy periodic, the agreement should state that the landlord can end the tenancy by serving a simple notice to quit.

However, despite this the Protection from Eviction Act 1977 still applies, meaning that in the case of a common law residential tenant refusing to leave, a court order will be required.

Ending an Assured Shorthold Tenancy

With an Assured Shorthold Tenancy (AST) the landlord is entitled to a possession order at the end of a tenancy fixed-term if he has correctly served 2 months’ notice by way of a s.21 notice.

In the case of a breach of contract during the fixed-term the landlord would need to prove at least one or more of the prescribed reasons (grounds for possession) laid down in Housing Acts 1988 and 1996, and seek action by way of a s.8 notice. To evict successfully under s.8 (which can be difficult) the landlord must obtain a possession order from the local county court.

It is proposed that Section 8 will become the only the basis for evictions in ASTs when the Renters Reform Bill 2022-23 becomes law. In other words, it will be incumbent on the landlord to prove one of the ground for possession under section 8, as opposed to the automatic right to possession under Section 21. Eviction will normally involved a court hearing before a judge.

Bringing a Common Law Tenancy to an End

With a Common Law tenancy the landlord is entitled to possession at the end of the fixed-term. In theory the landlord is not required to serve a notice to quit to bring the tenancy to an end as the tenancy ends at the agreed date, but in practice the landlord should serve a notice if he wishes the tenant to vacate.

Also, if there are problems during the tenancy, the landlord can bring the common law tenancy to an end where there has been a breach of any of the specified terms in the tenancy agreement. The landlord is not restricted to the prescribed terms (grounds) laid down in Housing Acts.

Statutory Protection for Common Law Tenants

A residential common law tenant still has some statutory protection in that tenants cannot be evicted against their will unless the landlord obtains a court order (Protection from Eviction Act 1977).

Common Law Tenants will also get protection under the Unfair Terms in Consumer Contracts Regulations 1999, where they have entered into a standard form (pre-printed) tenancy agreement.

They will also benefit from some other statutory provisions including the landlord’s repairing obligations under the Landlord and Tenant Act 1985.

Common Law Tenancy Agreements

Landlords or Agents letting to high-rent tenants (above £100,000), company residential tenants or rent to rent arrangements should seek legal advice to ensure they are using correctly drawn agreements.

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