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Affordable Rent and Fixed Term Tenancy Agreements – Where Are We Now?

In Autumn 2010 the Government and the Home and Communities Agency (HCA) announced a new Social Housing product called Affordable Rents (AR) to be made available for the 2011/2015 Affordable Homes Programme.

Key to the product was to give registered providers, including housing associations greater flexibility as to the type of tenancy agreement to offer respective tenants in the future and also the level of rent payable by some respective tenants. Housing Associations offering Affordable Rents Tenancy Agreements would be able to charge rent at up to 80% of Local Market Rents. The 80% would be inclusive of service and other charges where these apply.

In April 2011 the Tenants Services Authority (TSA) published a revision of the Tenancy Standard setting out its requirements of what should be contained within an Affordable Rent Tenancy Agreement. This document was published in April 2011. The TSA makes it clear that they do not intend to prescribe a model Affordable Rent tenancy type which providers (including Housing Associations) should offer. However, the revised standard does state that Housing Associations may use periodic assured tenancies to let homes at Affordable Rent Rates if they choose.

The TSA does state that should a housing association decide to offer an assured periodic tenancy (as opposed to a fixed tenancy let at Affordable Rent Rates) housing associations must give tenants a minimum of two years before taking steps to end that tenancy save where their tenants acted in breach of a term or condition of that tenancy. To provide protection and certainty for tenants, the TSA’s revised standard further states that providers may increase rent annually which will be RPI plus 0.5%. The RPI will be taken as of September of the previous year. Therefore, on each occasion that a type of affordable rent Tenancy is issued for a property – whether a new tenancy or the reissue of a tenancy – housing associations are required to rebate the rent, to ensure that the rent remains no more than 80% of the market rent at that time.

A key plank of the Affordable Rent product is the Localism Bill which was first published in January 2011. This bill, now the Localism Act, has just received Royal Assent but is unlikely to become enforceable until April 2012.

Contained within the Localism Act (the Act) are provisions to be inserted into both the 1985 and 1988 Housing Act. The Act proposes to create flexible tenancies to be offered to respective local authority tenants and seeks to amend the Housing Act 1988 in respect of amendments affecting the future offering of Assured Shorthold Tenancy Agreements to prospective tenants by housing associations. The Act also introduces the concept of fixed term tenancy agreements of not less than two years but may be offered to prospective tenants.

The relevance of the provisions contained within the Act to the Affordable Rent product is that should housing associations wish to offer fixed term tenancy agreements at Affordable Rent Rates, they will need to ensure a proper compliance with the provisions contained within the Act which relate to what is to be included in fixed term tenancy agreements and how to bring to an end those agreements both during and at the end of the fixed term.

For example, the Act which inserts a new section 2b into the Housing Act 1988 makes specific reference to the mechanism involved in terminating a fixed term tenancy at the end of the fixed term. The court may not make an order for possession unless the landlord has given to the tenants not less than six months notice in writing stating that it is not proposed to grant another tenancy on the expiry of the fixed term and informing the tenant how to obtain help or advice on seeking alternative accommodation.

Furthermore, the Act seeks to amend section 52 of the Law of Property Act excluding flexible/fixed term tenancies from the requirement that they be executed by deed and from Land Registration requirements. This means that housing associations will be able to offer a fixed term tenancy for longer than a three year period without having to execute that tenancy as a deed and also without having to register that deed at the Land Registry.

The Act states that local authorities are required to publish tenancy strategies, to which housing associations should have regard to when formulating their own tenancy policy, including in relation to offering Affordable Rent Tenancy Agreements. The tenancy strategy will need to be published by the local authority within one year of the localism bill becoming law. Specific tenancy related issues that the local authority will need to have regard to, and which housing associations cannot ignore include:-

  • Opinions on the kind of tenancy agreement to be offered by housing associations in their jurisdiction;
  • The circumstances where particular tenancy agreements will be granted;
  • Details as to the length of term of those tenancies;
  • Circumstances in which a further tenancy could be granted at the grant of an existing tenancy.

Housing associations will therefore be required to demonstrate that they have had regard to the tenancy strategy published by the local authority in their jurisdiction when drafting their own tenancy management policy and settling on the types of tenancy agreements to be offered at Affordable Rent Rates.

In July 2011, the Department of Communities and Local Government published a consultation titled “Implementing Social Housing Reform: Directions to the Social Housing Regulator”. The consultation finished on 29 September 2011 and thereafter the Government will publish directions to the Social Housing Regulator on issues including tenure reform and rent reform.

Essentially, this is a consultation on draft directions to be given by the Secretary of State for Communities and Local Government to the Regulator in order to implement important elements of the governments planned reforms to social housing including on affordable rent. The consultation states that regulatory changes are needed in respective of two areas that are relevant to the Affordable Rent regime. These areas are tenure reform and rent.

Insofar as tenure reform is concerned, the consultation states that the government wants to give all housing providers much greater “flexibility” enabling them to offer lifetime security where they wish but also offer shorter fixed term tenancies where it makes more sense.

Significantly, the consultation proposes to replace the TSA’s existing standard on tenure published in April 2010 which requires housing providers to offer and issue the most secure form of tenure to be replaced with the following direction, “the housing providers offer and issue tenancies which are compatible with the purpose of housing, the needs of individual leaseholders, the sustainability of the community and the efficient use of their housing stock”.

The consultation further states that the government believes that the minimum guarantee to a tenant in terms of a tenancy issued to them should be a five year tenancy. However, it is stated that the government accepts the vast majority of tenancy should be provided on longer terms although again, emphasis is placed on housing providers having greater flexibility on the type of tenancies offered especially in relation to a tenancy offered where that tenant is suspected to pay Affordable Rent Rates.

Housing Associations who are minded to offer fixed term tenancy agreements at Affordable Rent rates should now be considering the length of the fixed term and preparing these agreements. They should also be turning their mind to preparing required associated policies and procedures and the training of staff that will be expected to apply policies and procedures associated with this new regime.

For further information, please contact Kary Withers.