Tenancy Agreements 31 days of tips – Day 25 – assignment

This is day 25 of my 31 days of tips on tenancy agreements series. To see the rest of the series click here.

Assignment

As a tenancy is a form of ownership of land, it is legally capable of being sold on or ‘assigned’.  This is commonly done with long leases, where the original tenant pays a premium and the lease provides for a small ‘ground rent’.  The owner of the lease then assigns it / sells it on to someone else when they want to move on.

Short leases are different.  There is almost invariably no premium paid and the landlord is paid a market rent.  As the receipt of rent is very important for the landlord he will not want the tenant assigning the lease on to someone else who may not be able to afford to pay the rent.  Landlords generally only want tenants who they have referenced and approved in the property.  It is common therefore for tenancy agreements to prohibit assignment.

The trouble is that when considering the Unfair Term in Consumer Contracts Regulations 1999, the Office of  Fair Trading (OFT) took the view that it would be unfair to force the tenant to continue in a tenancy agreement if they wish to leave.  Their guidance states that they will consider it unfair for a tenancy agreement to prohibit assignment after the initial three months of the tenancy.  Subject always to the landlords approval of the assignment (which should not be unreasonably refused – see Day 16).

I take the view that assignment is inappropriate for a short lease. I therefore provide in my tenancy agreements that the tenant shall be entitled to end the tenancy on one months notice, provided they are able to arrange for someone suitable to sign a new tenancy with the landlord.  Again the landlord must approve the replacement tenant but his refusal should not be unreasonably refused.

Once the new tenancy has been signed, it will automatically end the preceding tenancy and the original tenant will be able to move elsewhere.  This satisfies the OFT, as their reason for objecting to a prohibition of assignment is that it unfairly locks the tenant into a tenancy if there is someone willing to take it over.

Note that if you have taken a premium from your tenant, you will not be able to prohibit assignment during the fixed term of your tenancy.  This is set out in section 15(4)(c) of the Housing Act 1988, which states that in this context a premium includes a payment of one-sixth of the annual rent (ie two months).  As discussed on Day 13, this is the main reason why deposits should not be for more than two months rent.

Interestingly section 15(4) also says that “any fine or other like sum” and “any other pecuniary consideration in addition to rent” can be included in the definition of a premium.  Could this include mandatory ‘renewal’ fees charged to tenants perhaps?

Subletting

Turning to subletting, landlords will generally want to forbid this also, as again they will only want people that they have approved living in their property.  Therefore clauses prohibiting assignment will generally also include subletting, as well as the taking of paying guests and lodgers.  Save with the landlords consent. (Note that you will find information about lodgers in my Lodger Landlord site.)

Generally there is no harm in a landlord agreeing to the tenant taking in a lodger (particularly if this will help the tenant pay his rent).  However a sublet of the whole premises is not generally thought to be a good idea – if the tenant cannot stay there, better for him to find a replacement tenant.

Do you have any comments on this section? Have you experience of assignment of tenancy agreements?  Have you had any problems with tenants subletting? Do you have any views on other payments other than a deposit of over 2 months rent being included in the definition of a premium?

Tomorrow I will be looking at dealing with property left behind by tenants.

NB Read about my tenancy agreements service here.

Related posts:

1. Tenancy agreements – why you need to know about them
2. Tenancy agreements and Julie’s big mistake
3. How to create your own tenancy agreements