My tenants have asked about taking in a lodger

by Readers Question

9:06 AM, 3rd September 2013
About 6 years ago

My tenants have asked about taking in a lodger

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My tenants have asked about taking in a lodger

I have rented a 4 bed house to four professional sharers for the last 7 years. Three of the sharers have been in the property from day one, the remaining tenant has been there for two years. My tenants have asked about taking in a lodger

When the new tenant moved in two years ago they were given a new six month AST, they were served a section 21 notice in accordance with my strategy and then given a 5 year Deed of Assurance which assured them that I would pay compensation of £3,000 if I obtained possession within 5 years for reasons other than default.

The tenant who moved in 2 years ago has now decided to buy a flat. The remaining tenants want to stay. They have found a replacement but he has failed financial referencing and now they, like me, are unsure what to do.

The reason the new person has failed referencing is that he has only been in the country for 4 months and his employment contract is temporary.

If the new tenant had passed referencing the plan was to issue a new AST, serve a new section 21 (1) b and grant a new 5 year Deed of Assurance.

Given that such an arrangement would make all tenants jointly and severally liable this concerns the original three tenants. A default on the part of the new tenant would leave them out of pocket and I might have to seek possession in the event of the new tenant defaulting if they don’t pay his rent. They are actually more concerned about this than I am. Apart from that they are very comfortable with the new tenant as he is a long standing friend of one of the existing tenants cousins and they all get on well with him socially. He also works for the same employer as two of the existing tenants.

One solution we have considered is for the three existing tenants to stick with their existing contract which is now a statutory periodic tenancy and with the benefit of their Deed of Assurance for three remaining years. The proposal is that I would give them permission to take in a lodger and they would have a lodger agreement with the incoming tenant.

The benefit of this arrangement is that if the incoming tenant defaults my existing tenants could throw him out within a week and then find another lodger, thus protecting their tenancy and Deed of Assurance.

In principal I am comfortable with this arrangement but I would like to share this concept with the Property118 community to see if you can think of any complications which I might have overlooked.

One question which is bugging me is whether I should get the outgoing tenant to sign a Deed of Surrender and how this might affect the remaining three given that the AST is joint and several.  Would I also need to get the remaining three tenants to sign something to release the outgoing tenant from the joint and several liability and for them to accept the liability is now joint and several between the remaining three? We could just start a new AST and Deed of Assurance with the remaining three tenants, however, this is not preferable to me not them. The reason is they would be tied in for 6 months and I wouldn’t be able to seek possession for 6 months either.

I look forward to reading your comments.

Kind regards

 

Mark Alexander



Comments

Mary Latham

13:24 PM, 3rd September 2013
About 6 years ago

Mark I have never used a Deed of Assurance so I have no idea how they work.

You could do as you have suggested and let your tenants take in a lodger which would give them control over his occupancy if he does not pay rent and other bills. You can use a Deed of Assignment to change the names on the AST if you wanted him as a tenant and I would certainly want a deed of assignment in place to release the original tenant who is part of the AST. If you haven't got one you will find one on the NLA webiste http://www.landlords.org.uk

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Romain Garcin

13:43 PM, 3rd September 2013
About 6 years ago

As the tenancy is periodic, the outgoing joint tenant just needs to (and actually should) serve you with a notice to quit in order to end the tenancy for him and all of the others.

You should also consider the issue of the property's condition and of the tenancy deposit if any.

Mark Alexander

15:05 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Mary Latham" at "03/09/2013 - 13:24":

Hi Mary

Put the Deed of Assurance to one side for the time being as it doesn't affect the tenancy.

Neither I nor the original tenants want to add the incoming tenant to the AST. Why, therefore, is a Deed of Assignment necessary? Are you saying that a Deed of assignment from 4 tenants to three is the neatest way to deal with the issues surrounding the vacating tenant and the ongoing liabilities to the remaining three?

Also, presumably you don't see any issues in my granting permission for the three remaining tenants to take in a lodger?

@Romain - the outgoing tenant has served notice to quit and there are no Deposit Protection issues as the place is immaculate, save for a bit of redecoration required at my expense at some point to deal with wear and tear but the tenants are not at all fussed about this and actually prefer me not to do anything as they don't really want workmen in the property or the smell of paint. happy days on that score at least 🙂
.

Romain Garcin

15:11 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Mark Alexander" at "03/09/2013 - 15:05":

If the outgoing tenant has served notice to quit, then the tenancy will end. Thus the question of 'adding' the incoming one to it is moot, and so is a Deed of Assignment or a Deed of Surrender.
The alternative is thus just either to grant a new tenancy to the 3 remaining tenants and allow them to take the incoming one as a lodger, or to grant a new tenancy to the 3 remaining tenants + incoming one.

Mark Alexander

15:17 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Romain " at "03/09/2013 - 15:11":

Ah but read my article again Romain.

There are reasons on all sides for not wanting to create a new AST.
.

Romain Garcin

15:22 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Mark Alexander" at "03/09/2013 - 15:17":

But you have no choice because the current one is ending...
I don't see any issue.

Mark Alexander

15:29 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Romain " at "03/09/2013 - 15:22":

Are you saying that one tenant vacating ends the contract for all four?

If that is what you are saying please point me to the legislation. I'm not disagreeing with you, I'm just not aware of any such legislation.

Logic tells me that if the remaining three are happy to accept the entire liability of the previous four there is no legal requirement for the contract to end. I may be wrong though as that isn't always the case in law. For example, in a business partnership, the resignation of one partner terminates the partnership unless it's been dealt with in accordance with a partners agreement.

That's the reason I've posted this question. At face value it seems simple to solve but it's the unknown potential complications which concern me.
.

Mary Latham

15:35 PM, 3rd September 2013
About 6 years ago

Yes Mark the deed of assignment is for the out going tenant to transfer to the remaining tenants. A new AST is the other option of course with just the 3 names on it

When one of my tenants went into arrears last year I offered to give her written permission to take in a lodger so that she could choose and if it didn't work out she could ask them to leave with a simple notice to leave. In my opinion this was her best option because she did not want me to find another tenant to share with her. She refused because she didn't want to share and in the end she had to leave when I told her that I would enforce the S21 Notice that I served at month 3 of her tenancy over a year before.

I cannot see an issue in your situation it should work for everyone and if the new person turns out to be a good tenant he can be added to the AST in future if everyone agrees

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Mark Alexander

15:44 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Mary Latham" at "03/09/2013 - 15:35":

Thank you so much for your help Mary.

I think I have a plan as follows:-

1) Complete the correct deed of assignment. I think I've managed to find the form I need on the NLA website, would you take a quick look and check for me please. It's this one >>> http://www.landlords.org.uk/sites/default/files/7P%20Deed%20of%20Assignment.pdf

2) Give my remaining tenants a letter which gives them permission to take in one named lodger

3) Advise my tenants to purchase a lodger agreement from Spareroom.co.uk >>> http://www.spareroom.co.uk/content/info-landlords/lodger-agreement/

Romain Garcin

15:52 PM, 3rd September 2013
About 6 years ago

Reply to the comment left by "Mark Alexander" at "03/09/2013 - 15:29":

In a periodic joint-tenancy any joint-tenant can end the tenancy by serving a valid notice to quit. Obviously this means that the tenancy ends for all joint-tenants (there is only one tenancy).
I suspect this is rooted in Common Law.

Here if joint tenant has served notice he can just leave at the expiry and the remaining 3 will be trespassing unless you grant them a new tenancy.

So again a Deed of Surrender is useless (especially that it would be from the 4 joint tenants, not only one of them since there is a single tenancy) and so is a Deed of assignment (unless everyone one agrees to 'forget' the notice to quit).
Choice is really to whom you want to grant a new tenancy (which I don't see the issue with).

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