What Is a Common Law Tenancy and When Should Landlords Use One?

 Most landlords in the UK are familiar with Assured Shorthold Tenancies. They are the standard agreement used for residential lettings with well-established rules around deposits, evictions, and rent increases.

But not every letting arrangement falls under the Housing Act 1988. In certain situations, landlords need a completely different type of agreement. One governed by centuries of legal precedent rather than modern legislation.

This is called a common law tenancy.

Understanding when and why to use one can save landlords from costly mistakes and open opportunities for more flexible letting arrangements.

What Exactly Is a Common Law Tenancy?

A common law tenancy is a rental agreement that falls outside the Housing Act 1988. Unlike Assured Shorthold Tenancies, which are heavily regulated by statute, common law tenancies are governed primarily by the contractual agreement between landlord and tenant.

The rules come from centuries of case law rather than specific legislation. This means rights and obligations depend largely on what is written in the tenancy agreement itself.

Common law tenancies are sometimes called contractual tenancies or non-statutory tenancies. They operate more similarly to commercial leases than typical residential lettings.

When Does a Tenancy Become a Common Law Tenancy?

Several situations automatically exclude a tenancy from the Housing Act 1988.

Company Lets

The most common situation is when a company rather than an individual rents a property. The Housing Act 1988 states that only individuals can hold an Assured Shorthold Tenancy. If the tenant is a limited company or corporate entity, it must be a common law tenancy.

This frequently occurs when businesses rent accommodation for employees. A company might lease a flat for a director working away from home. The company is the tenant, not the individual living there.

High-Rent Properties

Any residential tenancy where annual rent exceeds £100,000 falls outside the Housing Act 1988. This threshold was increased from £25,000 in October 2010.

For properties in prime London locations, rents above £100,000 per year are not unusual. Landlords letting high-value properties must use common law tenancy agreements.

For Houses in Multiple Occupation, the £100,000 threshold applies to combined rent from all tenants. A six-bedroom HMO with each tenant paying £1,500 monthly totals £108,000 annually, pushing it into common law territory.

Resident Landlords

When a landlord lives in the same building and shares accommodation with the tenant, the tenancy is excluded from the Housing Act 1988. This creates a common law tenancy rather than an AST.

How Do Common Law Tenancies Differ from ASTs?

The differences are substantial. Understanding them is essential for landlords.

Deposit Protection

Under an AST, landlords must protect deposits in a government-approved scheme within 30 days. Failure results in penalties up to three times the deposit amount.

Common law tenancy deposits do not require protection. There is no legal obligation to register them. However, many landlords choose to protect deposits anyway as good practice.

Eviction Procedures

AST landlords must follow specific statutory procedures, typically serving Section 21 or Section 8 notices.

Common law tenancy evictions work differently. Landlords cannot use Section 21 or Section 8 because these apply only to Housing Act tenancies. Instead, landlords serve a Notice to Quit.

If the tenant does not leave after proper notice, landlords must still obtain a court order. The Protection from Eviction Act 1977 prevents eviction without court involvement. However, landlords are not restricted to specific grounds for possession, making the process potentially simpler.

Rent Increases

For ASTs, landlords use Section 13 notices and tenants can challenge increases at tribunal.

Common law tenants cannot challenge rent through tribunals. Once signed, rent is fixed unless the agreement includes a rent review clause or both parties agree to new terms. This gives landlords more control but requires careful drafting upfront.

Consumer Protection

AST tenants benefit from consumer protection legislation including the Consumer Rights Act 2015.

Company tenants under common law tenancies are not consumers. They receive fewer protections, giving landlords more flexibility but offering tenants fewer remedies.

What Rights Do Common Law Tenants Have?

Despite falling outside the Housing Act, common law tenants retain certain protections.

The Protection from Eviction Act 1977 applies. Landlords cannot evict without a court order, and harassment remains a criminal offence.

The landlord's repairing obligations under the Landlord and Tenant Act 1985 also apply. Landlords must maintain the structure, exterior, and installations for water, gas, electricity, and heating.

Advantages for Landlords

Common law tenancies offer several benefits.

Higher rental income. Company lets and high-rent properties often command premium rents with significantly higher yields.

Longer tenancy terms. Corporate tenants often want stability. Company lets regularly run for three to five years, sometimes up to ten. This provides predictable income and reduced voids.

Simpler eviction process. Without Section 21 and Section 8 restrictions, regaining possession is more straightforward.

No deposit protection requirements. This removes administration and potential liability.

Greater contractual flexibility. Landlords can include terms that would not be enforceable in an AST.

Risks and Considerations

Common law tenancies also carry risks.

Corporate insolvency. If a company tenant becomes insolvent, recovering unpaid rent is extremely difficult. Consider requiring personal guarantees from directors.

Careful drafting required. Because these tenancies rely heavily on written agreements, poorly drafted contracts create problems. Use solicitors experienced in property law.

Accidental AST creation. If circumstances change and the property becomes an individual's principal home, or rent falls below £100,000, the tenancy might become an AST. This triggers deposit protection requirements and changes eviction procedures.

Getting Common Law Tenancies Right

Landlords considering common law tenancies should take several steps.

Use the correct agreement. Do not adapt an AST template for company lets or high-rent properties.

Take references carefully. Corporate tenants should provide company accounts. Consider director guarantees.

Draft comprehensive terms. Include clear provisions for rent reviews, notice periods, and end of tenancy procedures.

Consider professional management. Common law tenancies require understanding different legal frameworks. Experienced letting agents can reduce risk.

For a complete overview of how common law tenancies work and when to use them, read our detailed guide at common law tenancy.

Frequently Asked Questions

Do I need to protect a deposit for a common law tenancy?

No. Deposit protection requirements apply only to Assured Shorthold Tenancies. Common law tenancy deposits do not legally require protection, though many landlords choose to protect them as good practice.

Can I use a Section 21 notice to end a common law tenancy?

No. Section 21 applies only to ASTs under the Housing Act 1988. To end a common law tenancy, serve a Notice to Quit and apply for a court order if necessary.

What happens if a company tenant stops paying rent?

Landlords can pursue the company, but if it becomes insolvent, recovery may be impossible. Personal guarantees from directors provide additional security.

Can a common law tenancy become an AST?

Yes, if circumstances change. If a company dissolves and an individual continues occupying the property as their principal home, it could become an AST. Monitor tenancies to ensure correct categorisation.

What notice period applies to common law tenancies?

Notice periods depend on the tenancy agreement. If silent, common law rules apply. For periodic tenancies, typically one rental period. Fixed terms end automatically at the agreed date.