Buy to let: Rules for rents

Agents are hoping to upgrade old landlord protection laws. Chris Partridge reports

Record rent levels are forcing the Government to review the rules on assured short-hold tenancies, the standard contract between buy-to-let landlords and their tenants.

When they were introduced nearly 20 years ago, assured short-hold tenancies or ASTs revolutionised the private rented sector by enabling landlords to get bad tenants out without lengthy and expensive court action. But they were only intended to cover the middle market – they did not cover homes that were provided at very low rents for family members or employees, or at the top of the market at rents above £25,000 a year.

Back then, £25,000 a year (£480 a week) was a staggering rent that only ambassadors or captains of industry could afford. Nowadays, you can pay a lot more than that for a small flat in central London. According to figures from Jackson-Stops & Staff, only 20 per cent of properties currently available to rent in Mayfair, Westminster, and Kensington and Chelsea are under £480 a week.

The Government is set to look at this anomaly. The preferred option seems to be to raise the level to bring them back more in line with money values when ASTs were introduced, which would imply a figure of about £50,000 a year if the retail price index is used as a guide. If property values are used as the guide, the rise would be much higher because prices have risen faster than inflation.

A spokesperson for Communities and Local Government said that a change is being considered, but stressed that any increase would not affect existing tenancies: "This matter is kept under constant review and any proposed changes would be subject to full public consultation."

The mismatch between the legal limit and market reality means that many London landlords are being deprived of the benefits of the AST tenancy agreement, and some may be wrongly continuing to use the standard form without realising that it no longer applies after pushing the rent above the magic £480-a-week figure.

Embarrassingly for the Government, its new, much-vaunted Tenancy Deposit Scheme was framed to apply only to properties let under ASTs. If rents rise much more, the scheme will hardly operate in central London at all.

Kari Trajer, lettings manager at inner London estate agents Hurford Salvi Carr, believes this could have consequences for landlords and tenants alike. "Since they were introduced in 1988, the vast majority of new tenancies let to individuals have been let on ASTs, leading many landlords to assume that ASTs are appropriate for all rental agreements," she says. "They don't realise that if the rent exceeds £480 a week, the 'fast track' legal ability to recover possession for rent arrears no longer applies and can lead to serious delays if any disputes arise with the tenants."

Trajer is pressing for a higher limit, to protect the average landlord.

"I believe the legal ceiling of the AST will have to be raised sooner rather than later," she says. "Until then it is crucial that landlords understand the implications of tenancy agreements and make sure that the correct form is used by their agent."

However, there are other letting agents who are less concerned. David Parris of Jackson-Stops & Staff points out that the central London rentals market is very different from the rest of the country, where £480 a week is still a substantial rent.

"What one has to bear in mind in these areas is that they are largely driven by the corporate market, and a corporate tenant, who is likely to be transient in any case, is not too worried about the protection that an AST would offer," he says.

At that level of the market, landlords are able to evict troublesome tenants by a simple notice to quit, Parris says.

One category of landlord may be particularly at risk, however: people who rent their homes out while they are working abroad. Many property owners in this position economise by doing it themselves and may not appreciate that using the wrong tenancy agreement could cause difficulties when they return expecting to move straight back into their home.