Is there a difference in law between a Contractual and a Statutory Periodic Tenancy?
When any Assured Shorthold Tenancy reaches the end of its fixed term then by operation of law the tenancy reverts to a periodic tenancy. But will it be a statutory periodic tenancy or a contractual periodic tenancy and what is the difference, if any, between the two? The first thing to say is that according to the Housing Act 1988 (“The Act”) Section 5(3)(d) states that if the tenant stays in the property after midnight on the last day of the fixed term the tenancy will become a statutory periodic tenancy. The actual period will be in accordance with the stated payment of rent as evidenced by the contract. If the contract states that rent is due monthly the period will be monthly. So if a tenant moves in on February 10th on a 6 month initial fixed term then on 9th August at midnight the fixed term will end and the tenancy will become a statutory periodic tenancy running on a monthly basis running from the 10th to the 9th of each month. Over a 12 month period it will be like having 12 “mini tenancies.” In this instance it is clearly a monthly statutory periodic tenancy.It should be noted that the actual period relates to the start date of the tenancy and not the date on which rent is due. So in the above example if the landlord and tenant later agree that rent is now due on the first day of the month the “tenancy period” will still run from the 10th to the 9th. This cannot be changed by altering the date on which rent is lawfully due. In the case of a weekly tenancy, sticking with the above example, the new weekly periodic tenancy will begin on 10th August and run on as a weekly statutory periodic tenancy every seven days. So if 10th August is a Thursday (and this year it is) then the weekly tenancy will run from Thursday to Wednesday and can continue indefinitely with Wednesday being the last day of the tenancy period. In addition, it is important to note that in the case of a weekly tenancy a Section 21 served by a landlord or letting agency must still give a minimum of 2 month's notice, not 8 weeks. This is a common reason why Section 21 Notices are thrown out with weekly tenancies. Often there is confusion with Section 8, Ground 8 which allows for the Section 8 Notice to be served when the tenancy is in 8 weeks of rent arrears. As with a monthly periodic tenancy the notice must still be 2 months with a weekly periodic tenancy.
It has been suggested by many legal theorists that there are two types of contractual periodic tenancy: a non-Housing Act Tenancy and a Housing Act tenancy which has clear, unambiguous and express terms agreed between the landlord and tenant as to what should happen at the end of the fixed term. A non-Housing Act tenancy, such as a High Rent Tenancy, a Company Let, a Licence or even a Holiday Let are covered by what is laid down in the written agreement. As they are not creatures of statute then, when the fixed term comes to an end, they will be contractual periodic tenancies and the methodology of giving notice will be governed by the terms of the written tenancy. Statute will not govern the legal position with the exception of unfair terms, more of which below.
In addition, to further make the point about a term in an AST deciding the type of periodic tenancy should the tenants remain following the end of the fixed term, the following clause was accepted and upheld by a court in the case of Trustees of the Berwick Settlement v Shropshire County Council (2014) VTE 3245M131738/1763. “Unless the tenant gives notice in accordance with Clause 1.81 below then at the end of the fixed term the tenancy shall continue as a contractual periodic tenancy from month to month until terminated in accordance with the provisions of this agreement. For the avoidance of doubt, the continuing tenancy shall not be a statutory periodic tenancy.” *
This case was about liability to pay Council Tax when a tenant had vacated before the Notice to Quit had expired. The fact that the tenancy was a contractual periodic tenancy and not a statutory periodic tenancy was a factor in the landlord succeeding in having no liability to pay despite the billing authority believing it was responsible.
Technically there is really only a minimal difference between a contractual periodic tenancy and a statutory periodic tenancy. The problem will occur when a term in the contractual periodic tenancy clashes with statute law. What happens, for example, if an AST fixed term tenancy expressly and explicitly states that when the fixed term ends, should no further tenancy be signed, then the tenancy will become a “contractual periodic tenancy” and either party, landlord or tenant, must give 2 months notice? It could be argued that the periodic tenancy emerging from the coffin of the now deceased and dearly departed fixed term will certainly be a contractual periodic tenancy. However, will the 2 month's fixed term be enforceable at law, or, will the emerging entity of the changed contract, like Count Dracula feeling a bit peckish, come back and bite anyone?
There are a number of good points to be made on both sides of the argument. Firstly, there is the usual (and very relevant point) that where there is a clash between statute law and contract law, statute law will win. That is a valid argument. If a landlord puts in a term that stated that the either party can give 7 days notice at any time and at a later stage the landlord sought to rely upon such an onerous term it would be clearly unenforceable and unfair. However, is it really unfair for the landlord and the tenant to have a “mirror image” notice period? In addition, there is the argument that if two parties to a contract both agree on a term in a contract, why should statute law say that what they have agreed is not what they have agreed?
Could it be further argued that the term falls foul of the unfair terms legislation in the Consumer Rights Act 2014(“CRA”)? This new statute has replaced the former Unfair Terms in Consumer Contract Regulations 1999. Section 62(4) of the CRA states that: “a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer.” This is potentially unfair because the tenant has lost the right to give only one month's notice. The point has been raised a few times about the interests of the landlord. The answer is in the last four words of the CRAS62(4). The tenant is deemed to be the consumer and the whole intention of Parliament in creating this new legislation is to protect the rights of the consumer. That said, it is true that a landlord may in certain instances, such as dealing with a letting agent, also be deemed to be a consumer, but not in the stated situation.
To sum up, it would appear that a periodic tenancy is a statutory periodic if there is no mention of any changed terms within the body of the contract and the fixed term comes to an end with the tenant remaining in situ. It will be a “contractual periodic tenancy” if the fixed term says it will become one and there is an agreed alteration of terms. The question arises, particularly with the issue of a tenant giving notice, whether a 2 month notice period would be upheld in a court. It would seem sensible, reasonable and logical that statute law should overrule contract law and that it is “unfair” for a tenant to sign away his rights. Against that point is the famous contract law quote: “The law will not unmake a bad bargain” so that if the tenant agrees to the term then it is binding.
Clearly, this debate will continue with arguments on both sides until there is a decision in the Court of Appeal or Supreme Court.
John Coyne LLB Barrister