Fixed-term tenancy versus periodic tenancy: landlord’s guide

Learn about periodic and fixed-term tenancy in the UK. Find out the advantages and disadvantages of each to make the best decision as a landlord.

Jale

5 minute read

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19 Jun 2023

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Pre-renting

Tenancy agreements vary depending on their duration in the UK. There’re 2 most common types of tenancy periods: fixed-term tenancy and periodic tenancy.

Each has specific differences that affect landlords, with benefits and drawbacks to each. As a landlord, one of the key decisions you must make is which one to offer to your tenant.

A fixed-term tenancy is a rental agreement with a set end date between a landlord and a tenant. Most fixed-term tenancies are assured shorthold tenancies. Typically, fixed-term tenancies run for 6 or 12 months (up to 7 years), although longer or shorter agreements are also possible. During the fixed-term period, the tenant is responsible for the rent and obligations of the tenancy agreement.

Changing its terms and conditions is very difficult once you give the fixed-term tenancy agreement. So before offering a fixed-term tenancy agreement, ensure the contract is comprehensive and clearly outlines the rights and responsibilities of both you and your tenant.

Rent increases in the fixed-term tenancy

In a fixed-term tenancy, the landlord can increase the rent through a rent review clause in the rental agreement or by negotiating with the tenant. Without the rent review clause or tenant’s approval, you can only increase the rent at the end of the fixed term.

Landlords must abide by the minimum notice period stated in the rent review clause when they use it. Although there’s no legally required minimum notice period, it’s typically set at 1 to 3 months.

Evicting in the fixed-term tenancy

During the fixed-term tenancy, you can only evict your tenant when they breach the contract (i.e., late rent payment). You need to use Section 8 notice (fault-based eviction). The notice period depends on the breach. For example, giving 2 weeks' notice would be sufficient if you’re issuing Section 8 notice because of severe rent arrears for more than 2 months.

If you want to evict the tenant during the fixed term with no-fault grounds (using Section 21), you must add a break clause to the agreement. You must wait 4 months from the start of the tenancy before you can give a Section 21 notice. You don't have to provide a reason for issuing this notice, but you do have to give the tenant at least 2 months' notice.

But adding a break clause is tricky because it allows both landlords and tenants to end the fixed term tenancy early. For this same reason, most landlords don’t add a break clause to the agreement.

End of the fixed-term tenancy

Once the fixed-term tenancy comes to an end, you’ll have 3 options: 1. End the tenancy 2. Give your tenant a new fixed-term contract 3. Let the tenancy become a periodic tenancy (if the fixed-term was assured shorthold tenancy)

Suppose there is no explicit agreement that the fixed-term tenancy won’t change into a periodic tenancy once the fixed term is over. In that case, it’ll automatically become a periodic tenancy. This means the tenancy will continue even if the tenant stays in the apartment for one extra day after the fixed term ends. In such cases, the tenancy doesn’t end but becomes a new one. To avoid confusion, the tenant and the landlord should give written notice if they intend to terminate the tenancy.

Advantages and disadvantages of a fixed-term tenancy

There’re potential benefits and disadvantages of a fixed-term tenancy.

Advantages of a fixed-term tenancy are:

1. Guaranteed rental income: With a fixed-term tenancy, landlords have a guaranteed rental income for the duration of the contract.
2. Easier to plan: Since landlords know the end date, they have more time to find new tenants and prepare the property for their arrival.
3. More stability: A fixed-term contract provides more stability for landlords since tenants cannot give the notice to vacate at any time.

Disadvantages of a fixed-term tenancy are:

1. Limited flexibility: Changing the terms and rules of the fixed-term tenancy is difficult.
2. More difficult to terminate: A fixed-term tenancy is more difficult to terminate than a periodic tenancy, especially if the tenant doesn’t agree to leave early.
3. Limited ability to adjust rent: Landlords can’t increase the rent until the end of the contract unless there’s a rent review clause.

A periodic tenancy agreement is when the tenant rents a property indefinitely rather than for a fixed-term period. The tenancy automatically renews itself periodically, such as weekly or monthly, until either the tenant or landlord ends it.

Statutory periodic tenancy

A statutory periodic tenancy starts when a fixed-term assured shorthold agreement expires. That means if the initial contract doesn't specify how the tenancy will continue after the end date, it will automatically become a statutory periodic tenancy.

Contractual periodic tenancy

A contractual periodic tenancy follows the initial fixed-term tenancy only when the initial contract has a specific clause stating that periodic tenancy will follow after the fixed term ends.

However, a tenant doesn’t need to be on a fixed-term contract before switching to a contractual periodic contract. The contractual periodic tenancy can also start as an initial agreement from the start.

Rent increases in the periodic tenancy

Rent increases are handled differently for the 2 types of periodic tenancies:

In contractual periodic tenancy, you can raise the rent by giving proper notice to the tenant according to the rent review clause. Without a rent review clause, the landlord can negotiate with the tenant or use Section 13 to increase the rent. However, landlords can only use Section 13 12 months after the start of the tenancy, including the initial fixed term.

In statutory periodic tenancy, landlords can’t add a rent review clause into the contract. Instead, they can use Section 13, even during the fixed term, so that the rent increase will take effect once the tenancy becomes periodic.

Section 13 allows landlords to increase the rent only once in one year. The minimum notice period that must be followed is:

• 1 month for a tenancy which is monthly or for a lesser period (i.e., weekly)
• 6 months for a yearly tenancy;
• in all other cases, a period equal to the length of the tenancy - for example, 3 months in the case of a quarterly tenancy.

Eviction in the periodic tenancy

You can use Section 21 (no-fault-based) and Section 8 (fault-based) processes to evict your tenant anytime during the periodic tenancy. But you must give the necessary notice period.

Notice periods are:

• Section 21 — at least 2 months
• Section 8 — usually 14 days, but changes depending on the nature of the breach

Council tax in the periodic tenancy

In a statutory periodic tenancy, the landlord will be liable for paying council tax if the tenant leaves without waiting for the notice period to end. In contractual periodic tenancy, the tenant is liable for the council tax until the end of their notice period, even if they don’t wait for the notice period.

Advantages and disadvantages of a periodic tenancy

There’re potential benefits and disadvantages of periodic tenancy.

Advantages of a periodic tenancy are:

1. Flexibility: Periodic tenancy provides landlords with greater flexibility for managing their rental properties. Landlords can increase rent or change the contract with relatively short notice.
2. Easier to terminate: In a periodic tenancy, landlords are not bound by a fixed-term contract, and can terminate the tenancy with proper notice at any time. This can be helpful if you want to sell the property or find a new tenant.
3. Reduced legal costs: Since a periodic tenancy is easier to terminate, landlords save money on legal costs associated with eviction proceedings.

Disadvantages of a periodic tenancy are:

1. Reduced bargaining power: With tenants having more flexibility, landlords have reduced bargaining power when negotiating rent or contract terms.
2. Rental income fluctuations: Since tenants can give notice to vacate at any time, landlords may experience fluctuations in rental income.
3. Uncertainty: Periodic tenancy can create uncertainty for landlords since tenants can give notice to vacate at any time, leaving the property vacant and requiring the landlord to find a new tenant.

The government plans to end fixed-term tenancies by 2030. This new rule change will turn all tenancies into periodic tenancies.

This article is for informational purposes only. Please consult the appropriate authorities for the latest developments or a lawyer for legal advice.

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