Understanding Assured Shorthold Tenancy and Short-Term Lets
An Assured Shorthold Tenancy (AST) is known to be the most common short-term tenancy, where you as the tenant would rent from a private landlord or lettings agent. Under an Assured Shorthold Tenancy, tenants have the right to live in a property for a fixed period of time, usually six months or longer, as specified in the tenancy agreement. During this period, landlords cannot evict tenants without following specific legal procedures. When dealing with landlord and tenant agreements, if the landlord decides to serves you an eviction notice, they will have to go through the specific eviction procedure where the legal reason for eviction is presented to the court. The landlord is required to produce a written ‘notice to quit’, 28 days notice before they expect you to be out of the rental property. Once the court has granted the landlord to eviction right, a court order will be produced and sent to you.
A Short-Term Let (STL)refers to when a property is rented out for up to 6 months. Short-Term Lets, sometimes referred to as holiday lets, allow more flexibility granting the landlord, or family or friends use of the property as well as paying guests. In recent years, the allure of higher returns and more control have led an abundance of landlords to explore the option of letting their property through Short-Term Lets. Short-Term Lets (STL) can be a useful and for some landlords will be more desirable than traditional Assured Shorthold Tenancy (AST) lets.
There is a broad range to consider with advantages to be had from each option, so fully understanding the factors that affect Short-Term Lets is vital when making a decision. High utility costs, new legislation and tricky leasehold clauses all mean that this option should be approached with caution. As a gross figure it is not uncommon for the income to be higher on a STL basis however income is more difficult to predict as opposed to a traditional let where you know the exact rental amount and payment date each month. ASTs offer a steady stream of income and provide both tenants and landlords more protection. However, STLs and ASTs both offer very different opportunities and deciding between the two will lay solely with the landlord themselves.
How to Spot Inflated Yields
When presented with Short-Term Let options from agents, it is important to dig deeper into the costs and expenditures that they have accounted for as these are often overlooked. During Short-Term Lets, unlike in normal ASTs, the landlord becomes responsible for all utility payments, council tax for the property as well as management and platform fees. These add up very quickly and mean the monthly expenditure for the property is considerably higher than it would be during an AST, because of this it is not uncommon for the management fees on a STL property to be higher than those let out on an AST agreement.
An example of this can be found below:
- Platform Fees (charged as a percentage by listing companies)
- Management Fees (typically between 15% and 20%)
- Council Tax (This varies hugely depending on the local authority)
- Utility Costs (Internet, Water Charges, Electricity and also gas if applicable)
- If providing a television to the property, landlords will also need to pay for a TV license
When presented with high yields, it is also worth considering where the agent has estimated these figures from. Have they used a specialist Short-Term Let company or are they estimating them themselves? It’s a question always worth asking.
Choosing an Assured Shorthold Tenancy (AST) or Short-term Lets (STL)
Assured Shorthold Tenancy (AST) lets offer a reliable and stable income whereas Short-Term Lets (STL) are slightly riskier because of potential legislation and higher costs but can provide a higher reward. The decision on which to progress with falls solely on the landlord and whichever they decide, the capital growth prospects and covering the monthly mortgage payments should be the two boxes to tick first in any instance.
For more information, please feel free to contact us at Complete Prime Residential, via the contact details below.