How to formalise a temporary rent reduction or rent holiday
Landlords have been asking how to go about formalising an agreement with their tenant to temporarily lower or suspend the rent. Understandably these landlords want to help out their tenants without accidentally breaching the Tenant Fees Act 2019 or permanently reducing the rent. If landlords decided they are going to offer some sort of rent reduction or suspension, these tips may help them to avoid any legal traps.
Suspension, reduction or time to pay?
The first step is to make sure that you and your tenant actually agree on what the deal is.
Landlords could suspend the rent entirely for a period of time. You could agree that the rent is suspended until the landlord gives one month’s notice that the rent will resume, but it would probably be easier to agree offer a rent free period for a fixed amount of time, and the decide later if a longer rent free period is appropriate.
A rent reduction would work in much the same way. You need to identify a new rent, and then agree how long that will be in effect.
An alternative would be for the landlord to agree that they will allow extra time for the tenant to pay their rent. This does not remove the Tenant’s liability to pay, meaning the tenant will have to catch up later, and could still be evicted later if they fail to do so.
What is fair is likely to depend on the circumstances of the tenant and the landlord. Some tenants will not need any reduction at all – others will be unable to pay anything temporarily. Some landlords will benefit from a ‘mortgage payment holiday’, or better still might not have any mortgage at all – they will be able to be more generous.
How to record the agreement
It is a good idea to record the agreement in writing, but there is no need for a contract signed by both parties, and right now that should definitely be avoided because it would involve making unnecessary trips out of the house.
An exchange of emails or text messages between landlord and tenant will provide sufficient evidence as long as copies are made.
Tenant Fees Act 2019
Some landlords are concerned about breaching the Tenant Fees Act by entering into agreements where the rent can go up later.
Rent is a ‘permitted payment’ under the Act, but there is a restriction on charging higher rent at the start of a tenancy (since this could be a way to charge a disguised fee). The Act does not prevent charging a higher rent later in the tenancy. There is also a specific exemption at Schedule 1 paragraph 1(b) which states the rules against varying the rent do not apply where the variation to the rent is by agreement between the landlord and the tenant after the tenancy agreement has been entered into. This means is perfectly legal to agree a rent decrease.
Not many people should be moving house right now, but if you are granting a new tenancy and you want to offer a reduced rent during the Covid-19 crisis, you could grant a shorter fixed term (say three months) and then review the situation at the end of that term. A landlord cannot serve a section 21 notice in the first four months of the tenancy in England – but there is no minimum length of AST. Alternatively, you could just agree that the tenant only has to pay half the rent in the first three months, or something similar to that.
Some extra complications apply to tenancies that are already periodic, or which become periodic while the rent suspension or reduction is in effect.
If the landlord and tenant have agreed to vary the rent during the fixed term, that varied rent might still apply when a period tenancy arises. To avoid this, landlords could agree that no rent (or a reduced rent) applies for certain identified months. That will make it clear that the reduction is not permanent.
In a periodic tenancy if the parties agree a lower rent and no mechanism is agreed and recorded to allow the rent to be increase again later, the landlord may be stuck with the lower rent. In most cases the landlord could use the ‘section 13 notice’ to increase the rent again later, but again it would be simpler to just agreed specific months when the reduced rent applies.
*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*