Occupation Contracts - The Basics

On 1 December 2022 the Renting Homes (Wales) Act 2016 came into force in Wales and brought in the most drastic and fundamental changes to the way property was rented in Wales since the 1988 Housing Act.

Importantly, the Act saw the end of the assured shorthold tenancy and its replacement with the Occupation Contract.

Whereas under the previous legislation any sort of written agreement was acceptable as a tenancy, the Act clearly defines the structure and a large part of the content that needs to go into Occupation Contracts.

There are two types of Occupation Contracts under the Act, Secure contracts for community landlords and Standard contracts for private landlords. As with tenancy agreements, there are two types of Standard Occupation Contracts – Fixed Term contracts and Periodic contracts.

The Act also makes it a legal obligation to provide a Written Statement of the Occupation Contract i.e. the contract must be put in writing, either on paper or electronically.

Structure of the Written Statement of the Occupation Contract

The Act defines a number of components to the Occupation Contract:

• Key Terms – the basic ingredients of the contract, the landlord details, tenant details, property details, rent amount and payment date, deposit details etc.
• Fundamental Provisions (F) – these are terms that have to be in the Occupation Contract. There are two types of fundamental terms
  • Amendable (F+) – these terms can be amended, but can only be amended to the benefit of the contract holder (tenant). Any amendment needs to be marked as outlined below
  • Fixed (F) – these terms cannot be amended
• Supplementary Provisions (S) – these supplementary terms can be amended or deleted by agreement between the landlord and contract holders, but any amendment or deletion needs to be marked, as outlined below
• Additional Provisions (A) – additional clauses can be added into the contract by agreement, however these cannot contradict fundamental provisions and if they do then they will have no effect

Any amendments to fundamental provisions or to supplementary provisions need to be clearly marked on the Occupation Contract so that the original language is clear for all. Additions to the language of the provisions are marked in CAPITALS and deletions are marked in striking through the original language.

Failure to properly mark these amendments and deletions will mean that Written Statement is incomplete or incorrect, which has consequences.

When Does a Written Statement Need to Be Provided ?

A Written Statement needs to be provided to all contract holders and any guarantors within 14 days of occupation with a new Occupation Contract starting from 1 December 2022 onwards.

For all of the tenancies that were in existence before the new legislation came into force, landlords were required to send a Written Statement of their converted Occupation Contract before 1 June 2023.

The Act also requires that whenever a change occurs in the terms of the Occupation Contract (except a change in rent) then a new statement needs to be served to all of the contract holders and any guarantors.

Such changes could include an agreement on having pets in the property, adding a new contract holder to the agreement (which is easier now), removing a contract holder from the agreement or changing the rent payment date.

This statement could be a complete statement of all of the terms of the Occupation Contract, most of which will still be the same, or a Statement of Variation which just shows terms that have changed and how they have been changed. Any new contract holders would need to see the complete terms of the Occupation Contract.

A change in terms again requires that the landlord issue the written statement (in full or just the amended terms) within 14 days of the change.

While landlords and agents will generally know when terms have been changed because they will have agreed to them, there are a few situations where they need to be careful and the need to issue a Written Statement may arise without them being fully aware. A few situations come to mind:

• Change in Contract Holder – a request can be received to add a contract holder or a joint contract holder can serve notice to withdraw from an Occupation Contract. The addition of a contract holder will be deemed as accepted if the landlord does not reply. Both of these changes would require the landlord to issue a Written Statement of the changes, but if the landlord is monitoring requests/notifications properly they could occur without him realising it.
• Move From Fixed Term to Periodic Contract – the new legislation sees the move from fixed term to periodic as a change in contractual terms. The Welsh Government model occupation contracts have completely different templates for a fixed term and a periodic contract. If you are using these templates then within 14 days of the change to a periodic contract you need to issue the new periodic occupation contract to all contract holders and guarantors. If you are using another occupation contract template then it is possible that it will be a dual contract, incorporating fixed term clauses and periodic term clauses. All good occupation contract templates will be dual contracts, but make sure you know if this is the case.
• Enactment by the Welsh Assembly – the Act can be amended at any point by the Welsh Government. If these amendments change fundamental provisions in the Occupation Contracts then contract holders are legally required to be informed of these changes by the landlord or agent. This would need to be done within 14 days of the amendment passing in the Assembly. Again, if landlords are not keeping an eye out for enactments then they could fail to meet their obligation to issue a new Written Statement or Statement of Variation.

No Written Statement, So What ?

As I have said in a number of talks about the new legislation, the Renting Homes (Wales) Act is different in that it has teeth and it will bite you even if you try to ignore it. If you fail to send a Written Statement then there are consequences, potentially quite serious consequences. These consequences apply to not serving the initial Written Statement or any subsequent Written Statement or Statement of Variation.

Failure to serve a Written Statement at the start of the Occupation Contract leads to the following penalties:

• For every day that the Written Statement is late, the contract holders can claim a day of rent as compensation up to a maximum of 2 months’ rent. They do not need to go to court for this, they can merely withhold it from the rent they pay to the landlord
• While a Written Statement is late in being served it is not possible to serve a no fault eviction notice, and any notice served will be thrown out by Court
• After late service of a Written Statement you cannot serve a no fault eviction for the next 6 months

These same consequences are in place for failure to serve the Written Statements for converted contracts before the end of May 2023, as well as for any changes in contract terms within 14 days of the change.

In addition to this, if you serve an incomplete or inaccurate Written Statement there are also consequences. For each day that an incomplete or incorrect Written Statement is served then the contract holders can claim a day of rent as compensation up to a maximum of 2 months’ rent.

These are not consequences you want to suffer !

If you still have questions about the new contractual terms then do contact us through the website and I will do my best to answer your questions.