An assured shorthold tenancy (AST) agreement is one of the most important documents when it comes to private rented accommodation – for both landlords and tenants.
Most private tenants currently have this type, so it’s vital that landlords understand them. However, the Renters Reform Bill looks to abolish new assured shorthold tenancies, so this may change in the future.
Here is a guide to assured shorthold tenancies, explaining what they are, how to use them, and the important information they contain.
What is an assured shorthold tenancy agreement?
Put simply, an assured shorthold tenancy agreement is a contract that is agreed upon between you and a tenant before they move into your property for a short period of time, typically between 6 and 12 months.
Your assured shorthold tenancy agreement sets out the rules of the short-term tenancy, including both the landlord’s responsibilities and what is expected from the tenant. If you ever encounter a problem with one of your tenants, this is one of the first documents that a court will look at.
An assured shorthold tenancy agreement differs from an assured tenancy agreement, as it’s only for landlords who are planning on letting out a property for a short period of time. An assured shorthold tenancy agreement can often be more flexible.
When do you need an assured shorthold tenancy agreement?
A tenancy must meet certain criteria in order to qualify as an assured shorthold tenancy. Firstly, the tenancy must have started on or after 15 January 1989 and you must be either a private landlord or a housing association. This means that local councils cannot use assured shorthold tenancy agreements when letting.
The rented property must be your tenant’s main accommodation and you must not live in the property, so assured shorthold tenancy agreements cannot be used if you are subletting a spare room in your own home, for example, or if the property is a holiday let. This also means an assured shorthold tenancy agreement can’t be used if it’s a business tenancy or tenancy of licensed premises.
Lastly, the price of rent may determine whether or not you can use an assured shorthold tenancy agreement. A tenancy cannot be an assured shorthold tenancy if the rent is less than £250 a year (or less than £1,000 a year in London) or if it is more than £100,000 a year.
What should an assured shorthold tenancy agreement contain?
The most basic form of an assured shorthold tenancy agreement discusses the amount of time the landlord is letting their property out to the tenant and how much the tenant is required to pay to live there. Furthermore, assured shorthold tenancy agreements state when and how rent payments should be made to a landlord, and what will happen if the tenant falls into rent arrears. You may also want to find suitable rent guarantee insurance to help cover you in such an instance.
Other details it may contain include:
- The name and address of all parties involved as well as the address of the rented property
- Who is responsible for repairs and other work, such as garden maintenance
- Who is responsible for paying utilities and other bills
- The amount of deposit paid as well as information on the deposit protection scheme used
It may also include certain items such as a rent review clause, which can outline when and how the rent price will be reviewed during the course of the tenancy.
The benefits of an assured shorthold tenancy agreement
Having an assured shorthold tenancy agreement in place helps to protect the rights of both the landlord and the tenants, as well as helping to prevent or more easily resolve disputes. Suitable landlord insurance can also help to provide you with suitable cover if any damage or other issues occur during the course of the tenancy.
While an assured shorthold tenancy agreement gives landlords some security, it also offers more flexibility than an assured tenancy agreement. You have not committed to housing your tenants for a long period, so you are able to repossess the property at the end of the tenancy if you want to sell it, find new tenants, or move into the property yourself.
An assured shorthold tenancy agreement is also beneficial for the tenants as it prevents you from increasing the rent unreasonably or within a fixed term. In order for you to increase the rent, the tenant must agree to it and you must give reasonable notice. For a fixed-term 12-month contract, at least 6 months’ notice must be given.
As mentioned earlier, your assured shorthold tenancy agreement may also include a rent review clause, which can outline when a rent increase may happen, by how much – often a percentage of the current rent – and how much notice you will give the tenant. For example, an assured shorthold tenancy agreement may stipulate that landlords are allowed to increase the price of rent along with the cost of inflation so that they are in line with market prices.
What happens at the end of the agreement?
Your tenant has a number of options when the assured shorthold tenancy agreement ends. They can:
- Ask for a new fixed-term contract – they should be aware of any renewal fees they’d have to pay and any rent increase you decide to implement
- Leave at the end of the fixed term – you may decide to request notice before they leave
- Stay beyond the fixed term, even if they don’t sign a new contract – the agreement becomes periodic and rolls from month to month at the same rent
- Leave before the end of the fixed term – the contract may include a break clause that gives them this option
Under an assured shorthold tenancy agreement, you are also legally allowed to repossess the property from the tenant at the end of the agreement without having to give an explanation. However, you do have to provide at least two months’ notice so that they can arrange somewhere new to live before the end of the tenancy.
Suitable tenancy agreements are becoming even more important for private sector landlords due to the fact that the rental market is riskier than ever. Making sure you use them to the best of their ability can, therefore, not only save you money but also help settle any disagreements with your tenants.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Just Landlords accepts no liability for any inaccuracy, omission, or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.