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Mandatory Three-Year Tenancies in Doubt - Pros and Cons

Following a period of the consultation into imposing mandatory three-year tenancies on the lettings industry, the word is that the plan is in doubt. The government suggested the scheme last year and asked renters and the industry for their opinions. However, The Sun has reported that ministers are now set to scrap the plans over fears it will affect property investment.

Find out what the mandatory three-year tenancies plan involves and what the pros and cons of such a scheme would be.

How Mandatory Three-Year Tenancies Would Work

Mandatory three-year tenancies were suggested to help tenants feel more secure in their homes. Currently, 81% of tenancy agreements run for a fixed period of six or 12 months. This is despite most renters staying in the same property for an average of four years.

Under the scheme proposed by Housing Minister James Brokenshire, tenancies would run for three years, with an initial six-month ‘probation’ period where either tenant or landlord could terminate the deal. After six months, the contract is locked in for three years, although tenants can give two months’ notice before ending the agreement.

Pros of Fixed Three-Year Tenancy Agreements

Brokenshire justified the scheme by claiming it was “deeply unfair when renters are forced to uproot their lives or find new schools for their children at short notice due to the terms of their rental contract” under current regulations.

Supporters of the idea said that it would allow families peace of mind, without having to worry about rent rises or the prospect of losing their house if the landlord decided they could make more money renting it to someone else.

The six-month buffer for the tenant and landlord to get used to working together is seen as the adequate time to work out whether a full three-year term will be fruitful for both parties. Another positive for fans of the three-year fixed term tenancy scheme is the two-month notice period, just in case the tenant’s circumstances change.

Many in the press saw the idea as an attempt by the Conservative government to try and win back support of renters who defected to Labour at the last election. Whereas tenants in Scotland have no fixed-term tenancies and can remain in rental properties long term, with landlords having to give up to three months' notice of termination, those in England and Wales have no such guarantees.

The government suggests that short-term let's discourage tenants from complaining about poor property standards, as they may fear being thrown out by landlords at the end of the 12-month period. It also says that longer term lets allow tenants to put down roots and be more active in the community.

Cons of Fixed Three-Year Tenancy Agreements

The National Landlords Association (NLA) has been vocal in opposing the government’s scheme. It claims the mandatory three-year tenancies are too rigid. It also argues that tenants are just not interested in them. NLA Chief Executive Richard Lambert insists that renters actually want more flexibility, and three-year terms may not suit them.

“More than 50% consistently say that they are happy with the tenancy length they were offered,” says Lambert, “and 20% tell us that when they asked for a longer tenancy, they got it.” He admitted the current system is flawed but says that the new proposal isn’t the correct solution. He added: “It's like urging someone to update their 1980s brick-style mobile phone, but instead of giving them a smartphone, offering them a Bakelite dial phone plugged into the wall.”

A major argument against the plans is that they could prevent prospective landlords from investing in property. Knowing that rents will stay flat for three years in an uncertain economy is likely to put off buy-to-let investors. With interest rates on the rise, there could be a slump in the supply of adequate properties. The alternative could be that those who do continue to rent properties will hike rents to account for these concerns.

What Happens Next?

Although the signs are that the government is backing away from this ruling, nothing has yet to be decided officially. After the consultation results have been assessed, they could still decide to go ahead with implementing mandatory three-year tenancies. However, they would still need to consult with legal experts and work out whether there should be exemptions to the rule. It would also have to pass through parliament before it became law.

Executive Property Management Solutions deals with all aspects of tenancy agreements on your behalf. We keep up to date with the latest developments in the industry, so you can continue to concentrate on bringing in business. Contact us today to see how we can make your life so much easier. Fill in the form below or call 0208 5757630 today.

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