What is the legal basis for rent to rent tenancy agreements?
With rent to rent there are not one but two tenancies in place.
With rent to rent there are not one but two tenancies in place – one between the owner landlord and the rent to renter, and one between the rent to renter and the occupier tenant(s). This rather complicates things as the former is a type of business arrangement, which requires a specific commercial contract (lease), and the latter is a residential tenancy which comes under the Housing Acts, with all of the letting obligations that entails, and requires an assured shorthold tenancy (AST) or occupation contract agreement.
The commercial tenancy agreement is similar to ones used for letting shops and offices and comes under the Landlord and Tenant Act 1954 (LTA 1954) and, unless executed correctly, gives the rent to renter a high degree of tenure protection. So much so that the landlord could find it impossible to regain possession. For this reason, it is vital that landlords seek legal advice from an experienced property lawyer when agreeing to or drawing up a rent to rent lease.
A standard commercial lease gives the tenant security of tenure, but there is a means of avoiding this. You can avoid a forced renewal of the lease at the end of the term by letting “outside of the Act”. This involves serving on the tenant a prescribed notice, no less than 14 days prior to the tenancy starting, which informs the tenant that there will be no protection. This should be acknowledged in writing by the tenant by way of a signed declaration and the lease must include provisions which exclude sections 24 and 28 of the Landlord and Tenant Act, with reference to the notice and declaration. Letting outside of the Act is an accepted practice in commercial lettings used by most professional property companies and is a useful safeguard for any rent to rent agreement.
A standard commercial lease, such as an off-the-shelf Law Society lease, which would be entirely suitable for a commercial let of a small shop or office, will not suffice for a rent to rent arrangement. Rent to rent needs a purpose drawn lease, with specific technical clauses relating to the rent to rent arrangement, for example restrictions on alterations to the property, which only an experienced property lawyer can provide.
The level of risk that remains with the landlord depends largely on how this arrangement is set up between the landlord and the rent to renter. In theory, at least some of the liability for non-compliance of rules, for example letting a house in multiple occupation (HMO) without a licence, may be shared between the landlord and rent to renter.
Rent to renters must comply with all the Housing Act regulations as they are letting to a residential tenant. These regulations include making sure the necessary permissions have been granted, that lettings comply with planning Use Class rules, that licences are in place and paid for, that the deposit is properly protected, and right to rent checks are made.
They must also serve all the appropriate statutory information and notices on the occupier tenant, plus carry out the usual due diligence checks, such as credit checks and referencing. The rent to renter will organise their own rent collections and deal with any repairs that are reasonably requested. Total Landlord, also powered by Total Property, has created a comprehensive guide to legislation for landlords which explains all your legal obligations in detail.
Understanding the dual legal obligations of commercial and residential tenancy.
Ensuring compliance with Housing Act regulations for residential tenants.
Obtaining legal advice and drafting appropriate contracts for the arrangement.
