One scenario which most of us can relate to are residential tenancies. The usual financial scenario is that the tenant is unable to maintain rental payments, leading to the landlord having to take action to recover the rent arrears and/or evict the tenant. However, more recently, tenants have found that the tables have been turned on the landlord.
With the growth in the property markets in recent years many landlords rapidly expanded their property portfolios to increase their total rental income. In addition, since the onset of the credit crunch, those people who would not previously have even considered becoming a landlord have done so – often as a temporary measure because they have needed to relocate to follow their job but have been unable to obtain a quick sale of their house. With rents beginning to go down and other economic factors, many landlords are now finding that their finances have been pushed to breaking point by the economic downturn.
Unfortunately, we are seeing an increase in the number of landlords that are failing to keep up with their mortgage payments, which in turn has led to more lenders seeking to repossess tenanted properties – often with dire consequences for the tenants affected. Indeed, in my experience I find that many tenants are shocked to learn that they have few rights if the landlord fails to pay the mortgage.
Most mortgages require that the property cannot be let without the prior written consent of the lender. It is important that consent is sought before letting the property because tenancies granted without the consent of the lender and after the date the mortgage was taken out mean that the tenant has no rights of occupation as against the lender. This means that if the landlord falls into arrears and the lender repossesses the property then the tenant can be evicted with little or no notice. Although the tenant will have no right to stay in the property, he may still have a right to sue the landlord for compensation.
However, if the lender is aware of the tenancy, then it may be possible for the tenant to defend the repossession. Similarly, if the tenancy was granted before the date of the mortgage then the tenant should (in some circumstances) be allowed to remain in the property on the basis that they will have what is known as an ‘overriding interest’. This means that their rights will rank ahead of those of the mortgage company and that even if the property is repossessed, the tenant will be able to remain in situ as far as the original tenancy agreement allows.
Of course, a reasonable landlord should warn his tenants if repossession is a possibility, but in many cases the tenant is not aware of the problem until they receive a notice (often addressed “To the Occupier”) from the Court informing them that bailiffs will be attending to repossess the property. If you are a tenant and you find that your landlord’s lender is seeking to repossess your home, what should you do?
- In some circumstances you may only get a few days notice of the date that the bailiffs intend to visit the property to evict you. This is an unfortunate situation and if you are to stand any chance of keeping your home, you must seek advice immediately. However, at this stage, it may be too late.
- If it you are too late to prevent an Order for possession being granted by the Court, at the very least you should contact the lender and let them know you live in the property and that you will need time to find somewhere else to live. It may be possible for them to delay repossession.
- You should seek advice as soon as you know that repossession proceedings have started or are likely. The quicker you act, the more chance you have of keeping your home.
- You may wish to speak to your landlord as he may be able to offer an explanation. However, I would suggest that you consider carefully whether to treat anything you are told with a pinch of salt – after all, the landlord ought to have been upfront with you at the very outset.
- Look at your tenancy agreement to find out which type of tenancy you have. The majority of tenancies are Assured Shorthold Tenancies. It is important that you find out precisely which type of tenancy you have as the amount of protection offered to you varies depending upon the type of tenancy.
- Always open post addressed “To the Occupier”. It may include notice of any possession proceedings.
- If you receive notice of a court hearing, you should make every effort to attend the hearing as it is likely to be the only way that you can be sure what you are being told is true. You may also be able to ascertain details such as the amount of arrears on the mortgage, whether the landlord has a buy-to-let mortgage and the Order which the Judge makes. It is important to say that it is within a Judge’s power to exclude tenants from making any representations as the hearings do not directly involve the tenants. However, most Judges will be prepared to allow tenants to be present at the hearing.
- The existence of repossession proceedings raises the question of whether you should continue to pay rent to the landlord. No case is the same and invariably the decision will depend upon a number of factors – for example, whether you intend to stay in the property and whether an agreement has been reached between the landlord and his lender. Please seek advice as you could make the situation worse if you withhold rent without a proper reason to do so.
Politicians are slowly realising that tenants are the forgotten victims of repossessions and that a problem exists with the present legislation. In just the last few weeks the Conservatives have drawn up proposals to ease the burden on tenants facing eviction due to their landlords’ properties being repossessed, which it hopes the Government will introduce. Under the proposals it says that the Government should be working with lenders to consider allowing tenants to remain in the repossessed property under licence pending sale. Also, it says that the Government should be encouraging courts and lenders to allow tenants to be heard at repossession hearings.
Some good news in the meantime is that the Government has said it is aware of the problem. From 6 April this year the amount of notice that must be given before a court hearing will be extended from five to seven weeks. Further, the lender must send a notice to the property within five days of receiving notification of the date of the court hearing (the notification will still be addressed solely “To the Occupier”. In practice this should mean that the tenant should still get six weeks notice of a repossession hearing. However, this is still arguably too short a period in which to settle a new tenancy and move house.
For the time being therefore, the position remains that the tenants do still have only very limited protection. However, there are some precautions that tenants and potential tenants can take to minimise their potential exposure to risk:-
- Tenants cannot run credit checks on the landlord (although agents can run credit checks on tenants!), but tenants can take steps to make sure that the landlord is who he says he is. Tenants (or potential tenants) can run a Land Registry search on the property they live in, or are about to live in, which will provide details as to who owns the property, whether it is mortgaged and how much the landlord paid when he bought the property. However, the search will not show the amount that the landlord owes and nor will it show if he is in arrears. The search costs £3 and can be done online at http://www.landregistry.gov.uk .
- The landlord should get the lender’s consent to the tenancy. Tenants and potential tenants can seek confirmation from the landlord that this has been obtained. However, potential tenants need to be aware that doing so will slow things down.
- Talk to the previous tenants to find out what they thought of the landlord. For example, if the landlord had to arrange for a contractor to carry out repair work during the tenancy, did the landlord arrange the repair quickly? If it was the landlord’s responsibility to pay, did he readily agree to pay and discharge any invoices promptly? If the landlord did not act relatively swiftly then it may indicate that the landlord has a history of financial difficulties.
- Look at the property closely. As above, if the property is not maintained properly then this too may indicate that the landlord has financial problems.
- Consider talking to the neighbours to find out what their views are of the landlord. Their views are often invaluable and more often than not most neighbours will be more than happy to tell you everything they know about the landlord, which will help you form an impression of him.
A final word of warning…
The situation was brought home to me very recently. When I moved to the York area just over a year ago I decided that I would rent a property until I found a house to buy. I looked at a handful of rental properties before making my decision on which one to choose. Just last week I bumped into the letting agent that had shown me round one of the properties that I had viewed – and I learned that that property had been repossessed by the landlord’s lender only a few months after my tenancy would have started. Perhaps it is a warning to us all that any landlord could potentially be in financial difficulties and it is better to seize the initiative and to find out as much information as you can beforehand rather than to wait for the credit crunch to catch up with you and take you by surprise.
James Teagle,
Solicitor, Dispute Resolution
E: james.teagle@langleys.com
DDI: 01904 683 095