As a landlord, you may come across many types of tenants. Below we will look at the most common tenant categories you're likely to come across: students, employed and DSS, and the different types of tenancies you may have.
What is a tenant?
This is an individual who rents out a property from another person. A tenant has the right to occupy the property and exclude all others from it.
Different types of tenants
The type of tenant you have in your property can impact your insurance cost. Below are a few types of tenants explained.
Students are deemed higher-risk tenants due to a low income and the lack of responsibility usually associated with adolescence. Although this is a generalisation, students are considered less responsible due to immaturity the may be less likely to report things broken, leading to higher costs further down the line.
DSS refers to the Department for Social Security, now known as the Department of Work and Pensions (DWP), but the former term has stuck. A DSS tenant is someone who is in receipt of housing benefits and will be using housing benefits to pay a portion of their rent.
Previously, landlords/ letting agents would often use the terms 'no DSS' in advertisements to prevent applicants applying who are in receipt of benefits. This is due to the risk of unpaid rent due to the low incomes of tenants. This has been banned by the courts as it was deemed discriminatory. There is a slight chance some mortgage providers still have this restriction in their terms but it is believed to be very few.
As DSS tenants can't usually afford to pay all their rent and require government assistance, some landlords and mortgage/insurance providers view this as a higher risk that the tenant may fall into financial difficulty leading to rent arrears.
Employed or self-employed
A tenant that is in full-time employment or self-employed can be seen as the most preferential tenant due to the perception that they are financially stable. The cost of your insurance will also reflect this. You can expect cheaper insurance for employed tenants. Employed individuals are seen as the most economically stable out of all the tenant types due to having a regular income and therefore increased ability to pay rent on time.
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Different types of tenancy agreements
Yours and your tenant's rights and obligations are governed by the type of tenancy you have. The most common one is the assured shorthold tenancy agreement however, we will explain the other agreements for clarity.
Assured shorthold tenancy agreement
The most common type of tenancy is used in residential letting. You will often find this as a written agreement, but a verbal agreement also suffices. It is unique in its limited security of tenure, i.e. the landlord can evict the tenant without reason so long as they follow the correct procedure.
An AST can be:
- fixed term – i.e. 12 months
- periodic – month to month
If you are in a fixed-term tenancy agreement, you can end the tenancy early via a break clause. The clause gives either the landlord or tenant the right to end the agreement before the agreed end date.
Under the Housing Act 1988, a tenancy cannot be an AST under the following conditions:
- the rent is extremely high (over £100,000 per annum)
- if the rent is free or extremely low (less than a £1,000 per annum)
- the property is a holiday rental
- if the agreement is dated before 15th January 1989
Terminating the tenancy agreement under a fixed-term tenancy
If you are in a fixed-term tenancy agreement, you can end the tenancy early via a break clause. The clause gives either the landlord or tenant the right to end the agreement before the agreed end date. However, repossession of a property is not guaranteed within the first 6 months of the tenancy.
If there is no break clause, a landlord can only end the tenancy during its fixed term by serving a Section 8 Notice. There are 17 grounds on which this notice can be served, many of which are situations where the tenant is in significant breach of their obligations under the agreement. The notice period for a Section 8 Notice ranges between 2 weeks and 2 months, depending on the ground the landlord is relying on.
Under coronavirus legislation: the minimum notice period in Wales must last at least 6 months, unless it relates to antisocial behaviour on the part of the tenant, in which case it can last at least 3 months. Notice periods in England vary from 2 weeks (e.g. in instances of domestic abuse) to 6 months, and we explain the grounds for serving a section 8 eviction notice. These grounds relate to a breach of the assured shorthold tenancy agreement, such as serious cases of rent arrears which can lead to court orders being enforced by bailiffs.
Terminating the tenancy agreement under a periodic tenancy
If a landlord wants a tenant to move out at the end of the fixed-term tenancy, then they can serve a Section 21 Notice to repossess the property if at least 4 months have passed from the start of the tenancy. The Section 21 Notice has to be received by the tenant at least 2 months before the date the landlord wants the property empty, but this date needs to be after the end date of the tenancy has passed i.e. the notice cannot expire during the fixed term.
A tenant does not need to give notice to leave at the end of the fixed term (even if a tenancy agreement says they must) but it is customary and courteous to tell a landlord of one’s intention to move out of the property before the final day on the lease.
Lodger license (Excluded tenancy)
A Lodger Agreement is a contract which grants a licence to occupy part of a residential property. The licence gives permission to someone (the “lodger” or “licensee”) to rent out a room in the property someone else (the “licensor”) is living in for an agreed fee.
The licensor retains control and possession of both the room rented out to the lodger and the rest of the property. This means that the licensor can lawfully enter the lodger’s room at any time they want without permission. This is ultimately the core difference between a licence to occupy and a tenancy, the former does not grant a party the right to exclusive possession of even one room in the property.
Ending the agreement
If you want to end this agreement, all that is required is reasonable notice. Typically, this refers to the duration of the rental payment term; for example, if rent is paid monthly, you must give one month's notice. It is not necessary for the notice to be in writing.
This is another rare tenancy. You had a regulated tenancy if your tenancy started before the 15th of January 1989. After that date, most new tenancies will be assured or assured shorthold. Under a regulated tenancy, tenants had a long-term tenancy and were entitled to a fair rent that was determined by the Valuation Office Agency.
How does the Valuation Office Agency choose the appropriate fair rent?
The landlord or the tenant can apply for a fair rent to be registered. Fair rent is decided by a rent officer in accordance with the rules in the Rent Act 1977.
Considerations will be made to the location, age and any furnishings provided while ignoring any improvements the tenant made outside of their contract.
Security of tenure
Regulated tenants have a number of significant rights, such as the right to a fair rent and security of tenure. This means that the landlord cannot evict the tenant without a court-issued possessions order, and the courts will only issue a possession order in specific situations.
An assured tenancy is a rare type of tenancy agreement, it is likely to apply to individuals who started a tenancy between 15 January 1989 and 27 February 1997. Under assured tenancy agreements, tenants have greater protection from eviction compared to assured shorthold tenancy agreements.
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