16th May 2023
What is a regulated tenancy?
SDL Property Auctions explains all about what a regulated tenancy is.
A more unusual form of tenancy in rental properties, a regulated tenancy differs from more common rental agreements. While there are many properties sold with SDL Property Auctions, one property that caught bidders’ attention in one of our auctions was a terraced house in Chinley, Derbyshire, which was sold at auction for £110,000 plus fees. This particular property quickly sparked bidders’ interest, with many enquiring about what a ‘regulated tenancy’ is. An old form of tenancy but, nevertheless, something that those involved in property should be aware of in case it crops up, it’s no surprise many buyers and sellers today may be unfamiliar with the term.
Sometimes also referred to as ‘protected tenancies’ or ‘rent act’ tenancies, a regulated tenancy is an agreement which prioritises the tenant over the landlord, providing them with more comprehensive rights compared to what you might find in a more standard rental agreement. In this post, we’ll provide a run-down of the basics of this type of tenancy, as well as discussing other significant points that potential buyers or tenants of a property that has a regulated tenancy will need to know.
What is a regulated tenancy in England?
In England, a regulated tenancy is a type of rental agreement between a tenant and a private landlord. These agreements date all the way back to before the 15th January 1989 and offer the tenants a right to remain in the property for life. So, if a resident’s tenancy started before this date and the resident pays rent to a private landlord, this means it’s likely they’re under a regulated tenancy agreement, which is covered by the Rent Act 1977. The majority of properties rented out after this date have an assured shorthold tenancy (AST) which is the most common type of tenancy for rental properties. Although there are now very few properties in the UK that include a regulated tenancy, in some limited circumstances, it can still be possible to have this.
Often, the rent can be much less than current rental values for the same kind of property with an Assured Shorthold tenancy (AST) in place, therefore, a regulated tenancy offers the landlord an alternative investment model. This is because regulated tenants pay what is known as ‘fair rent,’ which is the maximum rent you can be charged under a regulated tenancy agreement. This type of rent is a set figure that is usually decided on by a rent officer, who ensures this complies with the rules in the 1977 act.
How long is a regulated tenancy?
In most cases, a regulated tenancy is long-term and the tenant can remain in the property for life. This is because, as discussed, in-line with ‘fair rent’ rules, the rent of a property that has a regulated tenancy is usually below market value, which means that the rental price is considerably lower than if a property is bought vacant or with a more common tenancy in place.
Investing in a regulated tenancy
If, as a landlord or investor, you were to buy a property with a regulated tenancy, it’s likely that you would also be inheriting a tenant that has lived in the property for many years. Something that we’ve noticed from our extensive experience in property auctions is this can often mean that the tenant tends to treat the property as their own and is therefore less likely to pick up the phone to contact the landlord each and every time a minor repair might be needed, meaning there’s less maintenance needed on the landlords end. Therefore, a regulated tenancy tends
to be a ‘quieter’ investment compared to a property that has an Assured Shorthold Tenancy.
However, even in a regulated tenancy agreement, a landlord is still legally responsible for ensuring that the property and its tenants are well looked after. This means that, depending on the individual agreement, the terms of the tenancy can be similar to those of a regular tenancy for a rental, such as the landlord being responsible for any structural and external repairs plus the maintenance of gas and water supplies. Despite this, it can also be common for the tenant to take responsibility for the internal cosmetic requirements, as you would in your own home.
Who would this appeal to?
Regulated tenancies appeal to landlords who aren’t yield-driven but instead focus on the long-term capital growth of a building. Although most regulated tenants tend to stay in the property for many years, as regulated tenancy agreements can provide them with more rights than common rental agreements, if the tenancy does end, the value of the property will naturally adjust to the market price for a vacant property. For instance, you might pay 40% less for a property with a regulated tenant, but if the property then becomes vacant at any point, for example, in 10 years’ time, you will benefit from the 40% uplift of it now not having the previous restrictions. Plus, you’ll also benefit from the general capital growth of the property over the ten years (providing that the market does increase).
Can a regulated tenancy be passed on?
Another important factor we recommend considering when buying a property with a regulated tenant already residing there is whether there are any rights of succession. Depending on the specific agreement, this is where the tenant’s next of kin can acquire the property, so, if anything should happen to the current tenant, they can take over on an ‘assured’ basis. While this does now require them to pay market rent, they will still hold the right to remain in residence for life.
Find your next investment property at SDL Property Auctions
Similar to all investment models, there are a number of pros and cons to buying a property with a regulated tenant in place, while further information can be found in the government information leaflet on regulated tenancies. However, it’s important that you carry out all the reasonable steps to understand the specific circumstances before committing to a property.
Whether you are intrigued by the possible benefits of purchasing a property with a regulated tenancy, or would prefer to invest your money into a vacant property, you can find a wide range of properties at SDL Property Auctions. If you’re looking to browse our auction properties, use our advanced search options to filter by ‘tenanted’ or ‘vacant’ properties to help you find the right property for your preferred investment type. Or, take a look at our upcoming auction lots.