Whether a charity is letting residential accommodation as part of its charitable activities, as a means of raising income, or a combination of the two, in most cases two considerations will be amongst its top priorities: the need for flexibility and a low-cost means of recovering possession of the property if needed.
In a challenging economic climate, flexibility is key so that charities can react quickly to change. A building that has become unaffordable to maintain may need to be sold (and a vacant building will often be more attractive to purchasers). Beneficiaries who have occupied charity property for some time may need to be encouraged to move on so that those in greater need can take their place. From both a financial and a reputational perspective, it is important to ensure wherever possible that tenancies can be terminated without the need to resort to expensive and lengthy court proceedings.
ASTs: key characteristics
Except in circumstances where a very short period of occupation (under six months) is envisaged, an assured shorthold tenancy ('AST') will usually be the appropriate type of residential tenancy for a charity landlord to grant.
What differentiates an AST from other types of residential letting is the ability for the landlord to repossess the property at the end of the term without having to provide a reason. There is no need to go to court or to prove that the tenant is at fault in any way. This can be done by serving a prescribed form of notice under section 21 of the Housing Act 1988 (a 'section 21 notice'). Provided that the requirements of section 21 have been complied with, the landlord will be entitled to possession of the property upon expiry of the notice.
Of course, the AST system certainly doesn't work perfectly for landlords every time. The requirements of section 21 can be a little tricky to navigate. For instance, the length of notice period to be given is linked to whether the AST is fixed term or periodic, and if the latter, the length of the rental period (which is not always obvious; rent may be payable monthly but charged on an annual basis, for instance). Even where a valid notice is served and a landlord becomes entitled to possession, if the tenant refuses to leave, then a court order will be required to physically remove them. These risks are to some extent inherent with residential lettings, but can often be mitigated through taking legal advice at appropriate times and of course maintaining productive communication with the tenant outside of the formal legal process.
The tide turns against no-fault eviction
With the escalation of the housing crisis, and economic circumstances meaning more people are renting for longer, legislative changes have been made over recent years aimed at enhancing tenant security. Essentially, a landlord is now prohibited from serving a valid section 21 notice (and, therefore, terminating an AST without a court order) in circumstances where they are themselves in breach of certain legal requirements:
- in respect of ASTs where the tenant has paid a deposit, where this has not been placed in a protected deposit scheme and/or where prescribed information about that scheme has not been provided to the tenant
- where a landlord has not provided the tenant with an EPC, a gas safety certificate, and a booklet of prescribed information about the rights and responsibilities of landlord and tenants under an AST
- where a tenant has raised a complaint about the condition of the property which has been referred to the local housing authority, who have served a notice on the landlord requiring them to remedy the situation
- where a landlord has charged the tenant a 'prohibited payment' (such as a set-up fee or credit-check fee) unless they repay it or agree to offset it against the rent (this currently only applies to ASTs granted since June 2019 but will apply to all ASTs from June 2020)
Whilst the above applies predominantly to ASTs in England only, similar legislation has been brought into force in Wales too.
Re-setting the balance?
The Government is now proposing to further restrict 'no-fault' evictions by repealing section 21 altogether. This would essentially mean the abolition of the AST itself, since the ability to end the tenancy without a court order is the AST's defining feature.
Without section 21, a landlord will only be able to terminate a residential tenancy by applying to court and proving that it has one of a prescribed list of reasons for doing so. These reasons are currently listed in section 8 of the Housing Act 1988, and the Government is considering revising this list to ensure that a wide enough range of reasons are included.
Even with a well-drafted list of reasons, there will still be a burden on landlords, both to gather sufficient evidence to prove their reason, and to go through the court procedure. There is also likely to be a significant time delay; similar legislation that came into force in Scotland in 2016 has seen the tribunal system there struggle to cope with the caseload.
Charity landlords in particular may struggle to cope with the additional administrative and financial burden. Charities providing accommodation to beneficiaries may consider using short-term licences to occupy instead of tenancies, but this will only be appropriate in limited circumstances (and merely labelling an arrangement a 'licence' will not prevent it from taking effect as a tenancy). Others may consider using their property for alternative purposes altogether.