Most residential properties are let to occupiers as an Assured Shorthold Tenancy or an Assured Tenancy.
The use of the term “assured” indicates security for the tenant. However, security of occupation of a residential property is far from certain. The balance of power between a landlord and tenant is often viewed negatively by a landlord when faced with a non-paying and disruptive tenant. The Landlord wants to maximise their financial return and income yield from their investment property or portfolio of properties. Although a landlord’s property is residential, it is often a commercial venture for the landlord.
Sharing the burden
Commercial and residential landlords have been asked by the Government to share the financial burden of the COVID-19 pandemic with tenants who may be less able to pay rent because of the downturn in the economy. Some landlords have suffered a substantial loss of rent and a landlord’s ability to obtain vacant possession of a rented property during the COVID-19 pandemic has been significantly reduced, precisely because of the additional protection brought in to protect tenants by the Coronavirus Act 2020. For current information on the process, time limits and how to obtain vacant possession of residential properties, please see here.
Extensive financial support remains in place for renters. The court system is under severe strain with a backlog of possession cases to be dealt with. Courts will continue to prioritise the most serious cases, such as those involving fraud or anti-social behaviour, with many of the evictions waiting to be enforced as the ban on evictions was lifted on 31 May.
Housing Minister, Rt Hon Christopher Pincher MP said in May 2021; ‘As COVID restrictions are eased in line with the Roadmap out of lockdown, we will ensure tenants continue to be supported with longer notice periods, while also balancing the need for landlords to access justice.’
45% of private landlords own just one property and are highly vulnerable to rent arrears. As a result of the additional protections bought in by the Coronavirus Act 2020, and the financial losses sustained by landlords we have seen an increasing number of residential landlords sidestepping the housing regulations by letting residential properties to companies rather than individuals.
What are the benefits of letting residential properties to a company?
There are two main benefits; the landlord is entitled to vacant possession at the end of the contractual period and the rent deposit payment does not need to be protected in a rent deposit scheme.
As a company let agreement is governed by the Law of Property Act 1925 and not the Housing Acts, this means that the Section 8 and Section 21 Notice requirements for assured and assured shorthold tenancies do not apply to a company let agreement. Potentially this could enable a landlord to obtain vacant possession much quicker. This could mean being able to let the property to a paying tenant more quickly. As the tenant is not recognised as a consumer and does not have the same protection provided to individuals and consumers under the Housing Act a landlord does have a greater ability to obtain vacant possession of the premises without having to comply with the Section 8 and Section 21 Notice requirements.
At the end of the contractual period of the company let agreement, the landlord is entitled to vacant possession. If the tenant company refuses to leave, a notice to quit can be served and if the tenant refuses to vacate, possession proceedings can be issued at the expiry of the notice to quit as though the tenant were a trespasser.
A notice to quit must:
If the tenant refuses to leave, the landlord still has to apply to court by the end of the notice to quit.
The company let agreement should specify the term or length of the tenancy agreement. It should also specify the circumstances in which either the landlord or the tenant can end the tenancy during the fixed term. This would normally be if the tenant is in breach of paying the rent but could also extend to certain types of behaviour. At the end of the term agreed for the tenancy, the landlord is entitled to possession of the property. If the tenant fails to vacate, possession proceedings can be issued.
The other advantage to a landlord is that any rent deposits taken from the tenant does not need to be protected in a deposit protection scheme. The company let agreement should specify for what purpose the rent deposit can be used.
Company let agreements have often been used by companies who rent properties on behalf of their employees. However, increasingly we have seen residential landlords using the company let agreement to avoid the more difficult and time-consuming process of obtaining vacant possession from tenants using the Section 8 and Section 21 Notice procedures.
Are there any disadvantages to a company let agreement?
There are some reasons to be cautious about using a company let agreement. If the company becomes insolvent, there is nobody to pursue to pay the rent. Consequently, landlords should ensure that there is a guarantor for the rent. As a landlord, you need to be careful not to accept payment of rent from an individual during the term of the tenancy agreement but only accept payment from the company itself.
The landlord also needs to be clear about whether the company is permitted to sublet the property to other individuals. Including a clause in the company let agreement preventing the use of the property as a house of multiple occupation should also be considered. As the agreement would be between the landlord and the company tenant, if the company goes into liquidation but has sublet the property to individuals, the landlord could potentially be left with a property occupied by individuals with whom the landlord has no contractual relationship. This could cause not only a loss of rent but potentially difficult process for removing those individuals. The Protection from Eviction Act 1977 would give the individuals some rights.
How Pinney Talfourd can help
At Pinney Talfourd we have a team of solicitors with a wealth of experience in both the residential and commercial property sectors who can:
If you wish to speak to a member of the team about this, please contact Lisa Eastwood.
This article was written by Lisa Eastwood, Senior Associate in our Residential Property Litigation Team. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of August 2021.