When an investor purchases residential property which is already occupied by tenants, one of the things they will be thinking about is whether the property is suitable as a long-term investment. It is often assumed that where a residential property is occupied by tenants, the tenancy will be an assured shorthold tenancy for which the landlord is free to determine the amount of rent and which can be ended by the landlord giving notice when the fixed term granted by the tenancy expires. However, where the tenancy was granted before January 1989, you need to take extra care as most tenancies granted before this date were regulated tenancies protected by the Rent Act 1977. Regulated tenancies give tenants important rights concerning the amount of rent they can be charged and the circumstances in which they can be asked to leave.

In this article, Emma Wells, commercial property solicitor at Ansons Solicitors in Staffordshire, looks at the Rent Act 1977 and the protection it affords to tenants.

The Rent Act 1977

The Rent Act 1977 protects tenants of residential property by preventing landlords charging them unfair rents and by giving them the right to remain in occupation of a property even after the contract term of the tenancy has ended. In particular, the Rent Act 1977:

• Allows the tenant (or indeed the landlord) to apply for a fair rent for the property to be registered. Once this has happened, the registered rent is the maximum amount the landlord can charge until the rent is reviewed.
• Prevents the landlord from evicting the tenant unless they have obtained a possession order from the court – something the court will only order in limited circumstances.
• Gives rights to the tenant’s spouse, civil partner or other family members to take over the tenancy in the event the tenant dies.

Most tenancies granted before January 1989 are capable of being a regulated tenancy under the Rent Act 1977, except for:

• lettings to students;
• holiday lettings;
• lettings of licensed premises; and
• lettings with a landlord who is also in occupation (known as a ‘resident landlord’).

What follows is a summary of the rules under the Rent Act 1977 governing rent, possession and succession to tenancies following the death of the original tenant.

Rent

If a tenancy is a Rent Act 1977 tenancy, the rent must be registered on the Rent Register as a ‘fair rent’. The fair rent must be assessed by a rent officer, who is an official with the Valuation Office Agency. Once a fair rent has been registered, this is the maximum rent that a landlord may charge for that property, even if the tenancy agreement provides for a higher rent.

Either the landlord or the tenant can apply to the rent officer for a rent to be registered, or they can apply jointly. Usually, the landlord will apply if they want to review the rent, and perhaps increase it; the tenant will apply if they think the rent they are paying is too high for the property and want to reduce it.

The rent is calculated by a rent officer in accordance with the rules in the Rent Act 1977. They must consider all the circumstances, including:

• the state of repair of the property;
• the character of the property, its locality and its age;
• how much furniture is provided and what it is like; and
• any premium lawfully paid.

The rent officer must ignore:

• the personal circumstances of the landlord and the tenant;
• any disrepair for which the tenant is responsible; and
• any improvements that the tenant has made which he or she did not need to make under the terms of the tenancy.

The amount by which a rent officer can increase the rent is limited by law.

Once a fair rent has been registered, it will apply until either party applies for a reassessment. The landlord can apply one year and nine months after the effective date of the last registration, but the new registered rent will not become effective until a two-year period has elapsed. An application can be made at any time if it is made jointly by the landlord and tenant, or if there has been a change of circumstances that means the old rent is no longer fair.

If either party is not happy with the registered rent decided by the rent officer, they can object. The matter is then referred to a rent assessment committee.

Possession

During the contractual term of a Rent Act 1977 tenancy, the tenant is known as a ‘protected tenant’. Following the end of the contractual term – and provided the tenant complies with the requirements of the Rent Act, the most important of which is that they use the property as their residence – the tenant becomes a ‘statutory tenant’.

To be able to recover possession from a statutory tenant, a landlord must obtain a court order. The grounds for possession are set out in Schedule 15 of the Rent Act. Some of the grounds are mandatory and some of the grounds are discretionary. If a mandatory ground can be established, the court must grant an order for possession provided the ground can be made out by the landlord. Where the ground is discretionary, it is up to the court to decide whether it is reasonable in the circumstances of the case that an order for possession should be made. Mandatory grounds include where the landlord intends to return to the property to live in it him or herself, or where the property was intended for occupation by a member of the clergy and was only let to an ‘ordinary’ tenant as a short-term measure. Discretionary grounds include where the tenant has not paid their rent or they have broken some other term of the tenancy agreement. For a full list of mandatory and discretionary grounds, please see the Rent Act 1977 or contact our commercial property team.

Succession

On the death of the original tenant, a Rent Act 1977 tenancy can be transferred to a surviving spouse or civil partner or to a member of the deceased’s family. This then gives rise to a statutory tenancy by succession.

The surviving spouse or civil partner of the original tenant must have resided in the property immediately before the death of the original tenant and must continue to occupy the property as his or her residence to become a statutory tenant by succession. If the original tenant did not have a spouse or civil partner, but a person who was a member of the original tenant’s family was residing with them at the time of, and for the period of two years immediately before, their death, then after their death that person can be entitled to an assured tenancy of the property by succession. In view of this it is imperative that potential investors ascertain exactly who is living in the property prior to determining whether they should buy it. Viewing the property can often assist with this.

As you can see from the summary provided above, investors looking to buy a property with tenants already in place need to make sure they check the terms of the existing tenancy agreement and carry out further investigations to ascertain exactly what they are letting themselves in for. Most investors who buy residential property do so to grow their capital, but also to maximise their income via the payment of rent. It the tenancy is a protected tenancy under the Rent Act 1977, the investors ability to do this may be severely restricted. Rent Act tenancies are particularly common in London, where occupying tenants are paying what is considered to be a very low rent to live in sought after areas.

For more information on tenancy agreements please contact Emma Wells at Ansons Solicitors in Cannock and Lichfield on 01543 267 999 or email ewells@ansons.law.