Three Myths and Misconceptions about rent to rent

Despite the disapproval of many lawyers, it seems that the enthusiasm for rent to rent arrangements continues.

This is where the owner of the property lets it to someone else, not to live in for their home but so they can sublet it out to others.

The attraction of this is that the tenant/landlord does all the hard work in renting out and managing the property and you just sit back and collect the money. But it does not always work out like that.

In this post, I am going to take a look at three myths and misconceptions.

1. The agreement is an AST

Here I am talking about the agreement between the owner of the property (often described by lawyers as the ‘head lessor’ and the tenant who then sublets out.

As the tenant is not going to be living in the property as his or her home, this CANNOT be an AST.

In fact it will not be a residential tenancy at all. It will be a commercial or business tenancy.

2. The agreements are licenses

These are the agreements between the tenant and the sub-tenants.

In most circumstances, these will be ordinary ASTs. If the properties are let out to people who have ‘exclusive occupation’ of the property or their own room, then this will be automatic. The fact that it is a sub-tenancy does not change anything.

As was laid down in the case of Street v, Mountford in 1985, you cannot turn a tenancy into a license by getting the occupier to sign a piece of paper saying this.

That is not to say that it is impossible for the occupiers to have licenses. It isn’t.

However. it’s not straightforward, and many landlords have tried to evict people on the basis that they are licensees only to have their case chucked out by the Judge on the basis that they are tenants and the landlord has used the wrong eviction procedure.

3. The sub-tenants / licensees can be evicted without having to get a court order.

This is a common misconception, and is the main reason why many landlords are so keen for occupiers to be licensees rather than tenants.

However under the Protection from Eviction Act 1977, evicting a residential occupier without a court order for possession is a criminal offence, and a civil wrong entitling the occupier to claim damages.

This applies even if the occupier has a license rather than a tenancy.

There are a few circumstances where a court order is not necessary but these will not normally apply in rent to rent situations – they include

• Lodgers
• Holiday lets, and situations where
• No rent (or equivalent) is paid

In conclusion

Rent to rent can work, and sometimes work well, but often there are big problems. It is not something to be entered into lightly and if you are considering this, you are strongly advised to take legal advice first.

For example, once you have let out the property on this basis, you have no control over what your tenant does with it.

If the tenant (as many do) sub divides the property up and rents it out to several sharers, this will turn the property into an HMO and there may be problems if it does not have a license or (in some cases) proper planning permission.

If you just don’t want to be bothered with the management of your property, it is probably better to put it in the hands of a really good letting agent – preferably one regulated by RICS or ARLA.  They will look after things for you but you will not lose control in the way that you do with rent to rent.