BLOGS

The hidden cost of periodic tenancies

Much of the discourse around the Renters' Rights Act has focused on the abolition of Section 21 evictions. But for landlords managing buy-to-let portfolios, a potentially more consequential change lies in the move to periodic tenancies as the default arrangement.

Under the new framework, all assured tenancies automatically become periodic from day one. Tenants gain the right to end their tenancy with just two months' notice at any point, removing the income certainty that fixed-term contracts once provided. For landlords accustomed to 12-month ASTs—with predictable rental income and planned re-letting windows—this represents a fundamental shift in how they must manage cash flow and operational risk.

Void periods: the margin killer

REalyse data shows that the average time to re-let a property currently ranges from 38 days for flats to 45 days for detached houses. Under fixed-term tenancies, landlords could plan around lease expiries and minimise gaps between tenants. Periodic tenancies eliminate this predictability.

If a tenant exercises their right to leave mid-cycle, landlords face an unplanned void period. Each month a property sits empty represents roughly 8.3% of annual rental income lost—before accounting for re-marketing costs, referencing fees, and potential refurbishment between tenancies.

Consider a typical terraced property generating a gross yield of around 5.9%. A single unexpected void month reduces that yield to approximately 5.4%. Two void months in a year—not unrealistic with rolling tenancies—drops the effective return closer to 4.9%, before mortgage costs, maintenance, and management fees.

Tenant turnover amplifies costs

Beyond voids, periodic tenancies create conditions for higher tenant churn. Without the psychological commitment of a fixed term, tenants may be more inclined to move for lifestyle reasons, job changes, or simply better deals elsewhere.

REalyse analysis of over 1.75 million rental listings shows gross yields averaging 5.73% for flats, 5.86% for terraced houses, 5.72% for semi-detached properties, and 5.40% for detached homes. These headline figures assume continuous occupation. Each tenant changeover typically costs landlords between £1,000 and £2,500 when factoring in:

• Letting agent fees (typically 50–100% of one month's rent)

• Deep cleaning and minor repairs

• Compliance checks (gas safety, EPC, electrical certification)

• Lost rent during the re-let period

For landlords in regions where rent growth has stalled or reversed—the South West saw asking rents fall 3.7% year-on-year while the South East dropped 2.8%—these turnover costs become increasingly difficult to absorb.

Regional variations compound the pressure

The financial impact of periodic tenancies varies significantly by location. REalyse data reveals a polarised picture: the North East posted the strongest annual rent growth at nearly 4%, followed by Yorkshire at 2.9%. Meanwhile, London—despite commanding average asking rents of £2,761—saw growth slow to just 0.35%.

Landlords in higher-growth markets like the North East may find that rising rents partially offset increased turnover costs. But those in softer markets face a double squeeze: stagnant income combined with the operational uncertainties of periodic agreements.

Scotland, operating under its own private rented sector reforms since the Private Housing (Tenancies) (Scotland) Act 2016, already uses open-ended tenancies. Average asking rents there grew just 0.19% year-on-year, potentially signalling what English and Welsh landlords might expect as tenants gain more flexibility.

Portfolio strategy must adapt

The shift to periodic tenancies demands a rethink of portfolio management. Landlords and investors should consider:

Retention over acquisition. The cost of keeping good tenants has never been clearer. Responsive maintenance, fair rent reviews, and professional management become competitive advantages when tenants can leave with two months' notice.

Location selection. Markets with strong rental demand and low vacancy rates—typically urban centres with employment growth—offer better protection against void risk. REalyse data can help identify areas where average days-on-market remain low and tenant demand outstrips supply.

Yield recalculation. Gross yields must now be stress-tested against realistic turnover assumptions. A property yielding 5.5% with one tenant changeover per year looks very different from one achieving the same gross return with a stable long-term tenant.

Build-to-rent comparison. The institutional BTR sector, with its professional management and tenant-focused amenities, may prove more resilient in a periodic tenancy environment. Private landlords competing for the same tenants may need to invest in property quality and service levels.

Conclusion

The Renters' Rights Act represents the most significant reform to England's private rented sector in decades. While the abolition of Section 21 has captured attention, the structural shift to periodic tenancies may prove equally transformative for landlord economics.

With gross yields averaging below 6% across all property types, and several regions experiencing flat or negative rent growth, margins offer little cushion for increased turnover and void risk. Landlords who adapt their strategies—prioritising tenant retention, selecting resilient markets, and building in realistic vacancy assumptions—will be better positioned to sustain returns in this new regulatory environment.

For investors and lenders underwriting residential portfolios, the message is clear: headline yields no longer tell the whole story. The era of predictable fixed-term income has ended, and with it, the traditional assumptions underpinning buy-to-let investment returns.