Assured shorthold tenancy without risk Three cases in the Supreme Court this year (two in the Court of Appeal) have tackled the problems caused by oral three-year Assured shorthold tenancy. Judging by this level of judicial interest, there must be many of these agreements around, and it is easy to see why. First, a threeyear agreement is a useful gap-filler since it allows the landlord to make use of empty space until something better comes along and enables the tenant to trade while considering its longer-term options. Second, the absence of written agreements obviously makes for a swifter, cheaper transaction. However, the lack of a written tenancy agreement template can give rise to expensive litigation, as the cases below illustrate.
Recent authorities In each case the issue was whether the lack of writing to evidence the tenancy agreements was fatal to their validity. Simplifying the facts a little, each tenancy was for a three-year term and depended upon an oral agreement that was certain as to its terms. Four simple but interrelated propositions encapsulate the law in this area: (1) If an agreement for the creation of an interest in land, for example a tenancy, is not in writing and signed, etc, it will be void no matter how much the parties to the agreement intended it to be binding: section 2 of the Law of Property Act 1989. (2) If, however, the agreement creates a tenancy (as opposed to taking effect as an agreement that a tenancy will be created), section 2 will not apply and the agreement, will not have to be in writing. (3) However, if the tenancy is for a term of more than three years, it must not only be in writing but also be made by deed: section 52 of the Law of Property Act 1925. (4) Even agreements for tenancies of three years or less must be in writing if they do not comply with certain requirements: section 54(2) of the 1925 Act. The three cases concerned agreements for terms of three years or less, thus surmounting the hurdles involved in propositions (1) to (3). The difference in outcome can therefore be explained by proposition (4). The additional requirements listed in section 54(2) are that the tenancy should take effect in possession and that it should be at the best rent that can be reasonably obtained without taking a fine.
The court held that the rent payable was not the best rent for the property and the agreement was therefore unenforceable in those circumstances. In the other two cases, the rent payable was held to be the best rent reasonably available and, accordingly, the court held that the agreements were binding.
Handling three-year oral agreements In the circumstances, those involved in such transactions should be alert to the legal nuances attached to agreements for short terms. Although lack of formality obviously has its advantages, it is no good if the failure to observe the ground rules allows one party to the transaction being able to escape its obligations altogether.
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