Does anyone else use licence agreements?

by Readers Question

7:16 AM, 24th December 2013
About 7 years ago

Does anyone else use licence agreements?

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Does anyone else use licence agreements?

I have a number of properties which I let as Houses in Multiple Occupation (HMOs), and I used to offer residents a standard 6 month Assured Shorthold Tenancy of their room, but I found this etremely problematic if they turned out to be destructive, or a nuisance to other residents, or just refused to pay rent (or claim Housing Benefit).

I did a lot of research into the potential for using weekly ongoing licence agreements instead of tenancy agreements, and with a few tweaks of my business processes this is what I now use. This means I can give residents 28 days notice at any time (not have to wait for the end of a fixed term), and I retain the right to enter the property at any time (so much easier to manage the HMO, and nip problems in the bud rather than allow them to escalate). This can benefit the residents enormously, as well as reducing the risk for the landlord.

Do any other landlords on here use Licence Agreements instead of tenancy agreements for their HMOs?
Would anyone like to exchange tips, templates, etc, and discuss potential problems with this approach? Share good practice.

I would love to hear from other landlords that use these.

Regards Robertlicence agreements

Comments

Neil Patterson

7:19 AM, 24th December 2013
About 7 years ago

Dear Robert and Readers,

For a reference point you may like to read Ben Reeve-Lewis's article - When is an AST not an AST? - http://www.property118.com/when-is-an-ast-not-an-ast/20925/

Starts - Most conversations I read on Property 118 and other websites centre on ASTs and the rules and regulations that surround them, but did you know that actually there are around 16 different types of tenancy and licence agreement?

Ben Reeve-Lewis

8:59 AM, 24th December 2013
About 7 years ago

Unfortunately your research has seriously let you down.

Whilst a landlord does have certain limited rights to choose what type of tenancy they can create, for instance an Assured Tenancy instead of an Assured Shorthold they don’t get to choose whether they can create a tenancy or a licence.

It is the circumstances of the letting itself that dictates that because of some pretty basic elements of land law.

A tenancy is a legal entity that is capable of transfer, that’s why council tenants can do mutual exchanges and why a partner can inherit a tenancy on death of the actual tenant, whereas a licence is merely ‘Permission to occupy’, that can be withdrawn by the landlord.

Because an occupier’s fundamental legal rights are at stake this isn’t left up to choice.

The defining case law is Street v. Mountford (1986), which in part involved the landlord reserving the right to enter the premises without permission of the occupier as a tactic for defeating security. Judge Templeman held that this reservation was not genuine and that the agreement was therefore a ‘Sham’ designed to rob the occupier of her full security.

The judge famously said “The manufacture of a five pronged instrument for manual digging results in a fork, even if the manufacturer insists he has made a spade”.

Although this might just appear as legal tosh it is absolutely crucial to be aware of because if you treat your occupiers as licensees and evict accordingly you could find yourself on the end of a very expensive criminal and civil law claim for unlawful eviction. I know….I do these all the time for a living.

Judges in these matters wouldn’t be interested in ”But I thought they were licensees” as a defence.

From what you say of your circumstances the only way that your HMO crew would be licensees is if you lived with them and shared bathroom and toilet in the style of Rigsby from Rising Damp or you provided a significant level of support services or cooked meals.

And @Neil, I would like to revise that figure and say it is actually 22 types of tenancy and licence now to my knowledge

Ian Ringrose

9:11 AM, 24th December 2013
About 7 years ago

Ben,

What is so different between a hotel that does not provide breakfast and a HMO?

A lot of hotels these days only change the beds between guest or once a week if a guest is straying longer.

Someone booked into a hotel could claim it is their home, but I have never heard of a hotel being hit with eviction problems. I have seen hotels with a max length of stray of 14 days, is this an important factor?

Ben Reeve-Lewis

9:20 AM, 24th December 2013
About 7 years ago

Reply to the comment left by "Ian Ringrose" at "24/12/2013 - 09:11":

Yeah it's about intended use on a day to day basis, or 'Nightly paid' as we call it in homelessness land which lifts it out of tenancy law although very long term residents may have an argument.

Designated hostels under the 1985 Housing Act are exempt from tenancies and where council's use B&B for temporary accommodation the case law of Mohammed v. Kensington and Chelsea & Manek kicks in in that accommodation provided as a temporary expedient pending homeless investigation will only be licences but there have been dark mutterings in recent years, notably Desnousse v. Newham that raises an argument that if the homelessness accommodation being occupied is self contained then it could be a tenancy by virtue of Street v. Mountford. So far cases of this kind havent gone the way of the occupants but several of the great and the good continue to believe there is a case for it, including Andrew Arden and Jan Luba, who are two of the top housing law barristers in the country so watch this space.

Ben Reeve-Lewis

9:23 AM, 24th December 2013
About 7 years ago

Reply to the comment left by "Ben Reeve-Lewis" at "24/12/2013 - 09:20":

Also worth noting is the recent case of Beresford v. Mexfield which clarified the point that tenants of housing associations that are what are termed 'Fully mutual', (created under the Industrial and Provident Societies Act' have little if no defence to possession proceedings.

I recently dealt with a tenant who had lived in a fully mutual housing association property for 25 years, raised her kids there but had no defence to possession and had done nothing wrong

Jeremy Smith

11:09 AM, 24th December 2013
About 7 years ago

Do the council have a different tenancy agreement (which the PRS can't use), since a friend tells me they can get tenants out within a few weeks, unlike in the PRS ?

Ben Reeve-Lewis

12:18 PM, 24th December 2013
About 7 years ago

Reply to the comment left by "Jeremy Smith" at "24/12/2013 - 11:09":

I don’t know where your mate got the impression that council’s do it quicker ha-ha It still takes an age, although I admit the staff probably don’t do it with the same sense of urgency as a PRS landlord.

A standard council house tenancy is called a “Secure tenancy” and yeah you are right. Only councils can grant these.

They have a different set of eviction grounds to PRS landlords as well, 20 of them but they are all discretionary. There isn’t the equivalent of the 2 months rent arrears mandatory eviction ground.

The notice they serve is called a Section 83 notice which is usually a month long, which is probably where your friend got the idea that evictions are quicker but unlike PRS landlords the council has to follow a lengthy pre court procedure called the “Rent arrears pre-action protocol” before they can even get to court, which includes several ‘get out of jail free’ cards that the tenant has to breach several times if possession is going to be applied for, so count your lucky stars PRS landlords don’t have to deal with that.

I once trained a group of council housing officers who had three cases in front of a judge on the same day. He got them all together and asked the officers how long they had given the tenants to seek legal advice before making the court application (a requirement of the pre-action protocol) They told him a month.

The judge adjourned the cases for a week and called the local CAB rep to court and asked them how long it was taking at that time for them to schedule interviews with clients. He replied “About 6 weeks”, so the judge threw all three cases out, saying the council had not given the tenants enough time to get advice.

And you thought you had it hard.

Councils can also grant Introductory tenancies with limited security for a year to prove the tenants can behave before granting a full secure tenancy and they can do ‘Demoted Tenancies” whichy allows councils to reduce security if the tenant is creating problems with ant social behaviour.

Also they can do Family Intervention tenancies (FITS) a kind of demoted tenancy whereby the tenant has to take part in support plans and behavioural undertakings to avoid eviction.

Mary Latham

14:27 PM, 24th December 2013
About 7 years ago

Ben has said it all and I have had this discussion with many HMO landlords. It is not the granting of a Licence that is the problem it is the enforcement of right of entry and Possession. I tell landlords to use a licence if it makes them feel that tenants will behave better but not to enforce the right of entry nor Possession because, as Ben has said, to do so will put you in big expensive doo doo. The law IS and the law says that a tenants (and these are tenants) has the right to quiet enjoyment and protection from eviction. It is far better to use a proper AST so that everyone is aware of their rights and obligations and landlords to not tarnish their reputations.

Mary Latham – follow me on Twitter @landlordtweets

Also see http://www.amazon.co.uk/dp/1484855337 for the perfect present for landlords for under a fiver

matchmade

15:42 PM, 24th December 2013
About 7 years ago

To go back to Robert's original question, what is an HMO landlord supposed to do then?

If individual ASTs create more problems than they solve, is the landlord best advised to issue a single AST and insist the tenants sign it, even if they complain bitterly that they will be left burdened with paying the extra rent if one of their number stops paying?

Also, should the landlord require the tenants to take out another AST whenever someone moves out or in, each time tying the remaining tenants into another six month minimum contract, even though they would far prefer to be on a periodic tenancy than tied down again?

Mary Latham

16:29 PM, 24th December 2013
About 7 years ago

Managing an HMO is a specialist field and landlords who do not have the skills and systems to take on this work should stick to single lets or let only to groups of friends or use a specialist HMO managing agent. A joint AST for several unrelated people who do not come as a cohesive group is not appropriate and is passing on the responsibility to good tenants when it is the job of the landlord to manage bad tenants. The reason that the return on an HMO is so much higher is because the work is so much harder - we can't have our cake and our h'penny no one forces us to go into this complicated market.

When I sold most of my HMOs and bought other properties to let to singles or families I reduced my return but I also reduced my workload and overheads so that the bottom line is not much less than it was before. An HMO is going to give you a high bottom line if you are prepared to put in the hours needed to manage it on a daily basis and to deal with the many issues that arise from this type of letting. Otherwise it is just going to drain your resources. Having let HMOs for almost 42 years I do know what I am talking about and trust me there is no magic formula for making money without the work while at the same time complying with the law.

Mary Latham – follow me on Twitter @landlordtweets

Also see http://www.amazon.co.uk/dp/1484855337 for the perfect present for landlords for under a fiver

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