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Landlords and Lenders to benefit from Court of Appeal guidance in Spencer v Taylor

Recent guidance from the Court of Appeal decision in Spencer v Taylor will be welcome news for landlords, lenders and LPA receivers faced with tenants in possession, especially in the buy-to-let market. The useful clarification will shorten the notice period required in many cases.

Lenders often find that their borrower landlords grant short, fixed-term tenancies for say a period of six months or a year. In fact, most mainstream buy-to-let mortgages contain conditions which only authorise short, fixed term Assured Shorthold tenancies ("AST's").

When the fixed term expires and the contractual tenancy ends, the AST does not automatically terminate. Instead, a “statutory periodic” AST arises. To bring the AST to an end after the expiry of the contractual term, landlords (or lenders/receivers) have to serve a notice giving the tenant at least two months’ written notice that possession is required. Proceedings for possession can only be commenced once that notice has expired and the Courts have traditionally been quite strict when considering the validity of such notices.

The legislation provides for two types of notice and there has been uncertainty for many years as to which type should be served to determine a statutory periodic AST. One required complex calculations about the period and the precise date on which it should expire. This led to confusion and delay for landlords/lenders in getting possession after the tenancy expired. Courts also routinely found such notices to be invalid if the stated possession date was incorrect meaning that possession would not be ordered and the possession process would need to start again with fresh notices.

The Court of Appeal has now made clear that, where a statutory periodic tenancy follows from an initial fixed term AST, so long as the landlord/lender gives two months’ notice, the notice does not need to expire on a particular date. This removes the need for careful timing of the notice and will shorten the notice period in many cases. However, care still needs to be taken in making sure that sufficient time is given to allow for service of the notice to give the required two months' notice from the date of service.

As things now stand, a periodic notice will only be required where there was no initial fixed term, a situation that is comparatively rare (and, where a lender is seeking possession, usually leaving the tenant to be treated as unauthorised).
If you'd like advice on the Court of Appeal's decision and its effect or on how you can make sure sufficient time is given to allow for service of the notice, please do get in touch.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2014. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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