Renting Flats and Houses in London: Beware of High Rents.

Many landlords, tenants and property professionals are unaware that letting flats and houses at the high rents common to central London can sometimes leave tenants with little legal protection. This article explains how a loophole in the law affects thousands of people renting accommodation in London.

Arguably the buy-to-let boom, of which London property has been at the forefront, started with the coming into force of the Housing Act 1988. Hotly debated by parliament at the time, the Act introduced a revolutionary new form of tenancy agreement, giving private landlords the certainty that they could regain possession of their house or flat at the end of the tenancy without the legal restrictions that had strangled the private rented sector for so many years. The Assured Shorthold Tenancy (AST) opened up the rental market to the mass private investor.

The AST attempted to balance the need to give some protection to the tenant with the governments aim of making it easier for landlords to let out property, thereby increasing the supply of affordable rented accommodation. Under an AST, a court is not permitted to make an order for repossession within the first 6 months of the tenancy. After 6 months, repossession can only be ordered on certain specified statutory grounds.

What are the legal requirements of an AST? As with all tenancies, the property should be self-contained (renting a room out cannot create an AST). The other main conditions are that (1) the property should be let to individuals (ie no companies), (2) that the property should be the tenant(s) main home (no holiday lettings) and (3) the annual rent should not exceed ﾣ25,000.

It is this latter restriction that is often overlooked by landlords, letting agents and lenders alike, particularly in London where rents over ﾣ480 per week (ﾣ25,000 per annum) are relatively common. For instance, 5 people sharing a house and paying a rent of ﾣ100 per week each could not rent under an Assured Shorthold Tenancy, because the total rent would exceed the statutory maximum. Letting agents do not appear to be aware of the restriction, simply using their standard form of Assured Shorthold Tenancy, inserting whatever rent has been agreed.

Likewise, many buy-to-let lenders will cheerfully assess loans on declared rents of well over ﾣ480 per week, whilst including the restriction in their Terms and Conditions that the property must be let on under an AST.

Residential tenancies that are not Assured Shorthold are likely to be classified as ordinary or common law tenancies. Tenants actually have less protection under a common law tenancy than under an AST although a court order is still required for eviction. Perhaps most importantly, the deposit protection legislation introduced in 2007 does not apply to common law tenancies. It is possible, therefore, for a landlord to avoid the requirement to pay the deposit into a statutory scheme by setting a rent higher than ﾣ480 per week and classifying the tenancy as a common law tenancy.

Of course, none of the above is likely to matter unless and until a dispute arises between landlord and tenants. The solution is simple: the government should raise the ﾣ25,000 limit, which has not changed since the Housing Act 1988 came into force. Average London rents have more than doubled over this period.

About The Author Christian Duggan is a solicitor (non-practising) and founder of www.rentfair.com, the popular online lettings service for London's private landlords. He has over 10 years' experience as a buy-to-let investor in central London.