Restricted contracts under the Rent Act 1977

The Rent Act 1977 conferred limited security of tenure on certain residential occupiers who did not qualify for a regulated tenancy.

Restricted contracts are defined in the Rent Act 1977 as as 'a contract... whereby one person grants to another person, in consideration of a rent which includes payment for the use of furniture or for services, the right to occupy a dwelling as a residence'.[1]

A restricted contract can be a tenancy or a licence. The security of tenure is the same for both, and the information here applies equally to both.

Restricted contract occupiers fall into two categories:

• those who pay rent which includes payment for furniture or services

• those with resident landlords

The number of people with restricted contracts is decreasing, as no new restricted contracts can be created since the Housing Act 1988 came into force on 15 January 1989. Any change in the terms of a restricted contract letting since 15 January 1989 is likely to have ended the restricted contract.

Furniture

A tenancy which does not fall into any of the exceptions to a regulated tenancy is a regulated tenancy even if the premises are furnished.

Services

Services include:

• board

• attendance, such as cleaning of the occupier's room or supplying clean linen

• provision of heating, lighting, supply of hot water

• any other privilege or facility connected with the occupancy of a dwelling other than the supply of cold water or sanitary accommodation

For a contract to be restricted, the payment for attendances must form a substantial part of the rent.[2] The meaning of 'substantial' is not defined in mathematical terms but indications from case law suggest that 20% and over is substantial and that 10% or less is definitely not substantial.[3]

Board

A contract for letting cannot be a regulated tenancy if board (food) is provided. To prevent abuse by landlords the exception will only apply if the contract obliges the occupier to accept board and the rent includes a charge for it.

A contract is a restricted contract unless the board constitutes 'a substantial proportion of the rent'.'[4] If this is the case, it will only have the basic protection of the Protection from Eviction Act 1977.

Board can mean the provision of one meal, which does not have to be cooked. It has been held that a morning cup of tea is insufficient and there must be more than the provision of groceries. The provision of a daily continental breakfast is sufficient to constitute board.[5]

Restricted contracts have limited protection of the Protection from Eviction Act 1977. The landlord is required to serve a notice to quit and obtain a court order before evicting. Occupiers may also be able to take advantage of the additional rights outlined below to extend a notice to quit or suspend a possession order.

The Equality Act 2010 may provide a defence to a tenant with a 'protected characteristic', such as a disability, gender reassignment, pregnancy or maternity, race, sex, sexual orientation, and religion or belief, who is subject to possession proceedings.[6]

Tenants and licensees with restricted contracts are entitled to reasonable rents fixed by the First-tier Tribunal (Property Chamber).[7]

The reasonable rent can be re-registered every two years.[8] The Tribunal can increase or reduce the rent but cannot reduce it below what would be recoverable under a regulated tenancy.[9] The term 'reasonable rent' is different from 'fair rent' and unlike fair rent there is no further definition of it.

Reasonable rents are set by the First-tier Tribunal (Property Chamber).[10]

Applying for a reasonable rent

Either the landlord or the tenant can refer a restricted contract letting to the First-tier Tribunal (Property Chamber) to have a rent fixed.[11] This is done by contacting the offices of the Rent Assessment Panel for the area where the accommodation is situated.

All joint tenants must apply.[12]

The application does not have to be on a prescribed form but must be written and contain the names and addresses of the landlord and tenant.[13]

The person who is applying can notify the Tribunal in writing that they wish to make an oral presentation or to send written representations.

Other procedures of the First-tier Tribunal (Property Chamber) are the same as for fair rents.

Determination of a reasonable rent

The First-tier Tribunal (Property Chamber) can:[14]

• approve the rent asked for in the application

• increase the rent

• reduce the rent to a sum it thinks reasonable in all the circumstances

• dismiss the application

An approval, increase or reduction can be limited to a fixed period, for example the period of a particular tenancy.[15]

The Tribunal must:

• not reduce the rent below that which would be recoverable under a regulated tenancy[16]

• only increase or reduce the rent if the existing rent is not reasonable

Once the rent is registered, it is unlawful to ask for or receive rent higher than the registered rent.[17] The tenant can recover any amount they have overpaid.[18]

The Tribunal is not obliged to discount tenants' improvements and scarcity.

The Rent Assessment Panel must keep a register of reasonable rents.[19]

Where a reasonable rent has been registered the landlord or the tenant may refer the rent to the Tribunal to be reconsidered.[20]

The First-tier Tribunal (Property Chamber) will not consider the application until two years have elapsed from a previous registration, unless:[21]

• the application is made jointly by the landlord and tenant

• a change of circumstances has occurred, for example in the terms of the contract or the condition of the property

Any variation in rent on or after 15 January 1989 is regarded as a new contract and restricted contract status is lost.[22] The only exception is where the rent has been varied by the First-tier Tribunal (Property Chamber).[23]

Variations in other terms of the tenancy may be sufficient to create a new contract where they are so fundamental as to alter the nature of the letting. Such occupiers will become assured, unprotected or excluded occupiers.

No new restricted contract tenancies could be entered into on or after 15 January 1989. Occupiers with resident landlords whose occupation started after this date cannot be assured tenants.[24]

Some occupiers who have lost their Rent Act restricted status can have the basic security granted by the Protection from Eviction Act 1977. Others are excluded tenants with the right to a contractual or reasonable notice but not the court order.

If the tenant is provided with board or attendance, this will not prevent the tenancy from being assured.

Periodic

After receipt of a notice to quit or a notice of revocation of a licence, the occupier could apply to the First-tier Tribunal (Property Chamber)[25] before the expiry of the notice for a postponement of the notice for up to six months.[26] If a postponement was granted, the tenant could apply for an extension. Once any extension of security had expired or if none had been applied for, the landlord could apply to court for a possession order.

It is not possible to apply to the First-tier Tribunal if the tenancy or licence was granted by an owner occupier.[27]

Fixed term

The landlord could only get possession during the fixed term if the:

• tenant had broken one of the terms of the agreement

• agreement specified that possession could be sought for that reason

The First-tier Tribunal (Property Chamber) could not delay possession proceedings and so after the expiry of the fixed term the landlord could obtain a mandatory possession order from court.

The role of the First-tier Tribunal (Property Chamber) concerning extension of security was abolished by the Housing Act 1980. The court now has the power to suspend a possession order for up to a maximum of three months.[28] This power applies to both fixed-term and periodic contracts. The requirement for a valid notice to quit for periodic tenants and licensees remains.

A letting cannot be a restricted contract if it is one of the exceptions listed in the section 19 of the Rent Act 1977 (repealed by Schedule 18 of the Housing Act 1988).

Lettings cannot be restricted contracts if:

• a regulated tenancy is created

• the landlord is a local authority

• the landlord is the Crown or government department (unless managed by the Crown Estates Commissioners)

• the payment for any meals provided forms a substantial  proportion of the whole rent[29]

• a protected occupancy under the Rent (Agriculture) Act 1976 is created

• the landlord is a housing association or similar body

• it is a holiday let

• the occupier does not have exclusive occupation of at least part of a property[30]

• the rateable value of the property is in excess of the limits set out in section 19(4) Rent Act 1977

Exclusive occupation is different from the exclusive possession test, which determines whether a tenancy can exist. It has been established that a licence could have a sufficient degree of exclusive possession to qualify as a restricted contract.[31]