Rent to rent – what is the law?

I have recently been asked to comment on the practice of ‘rent to rent’, and explain what legal rules apply.

For example Mark Alexander has written about it on Property 118  and there is a thread on Property Tribes on the subject.

Here are some of my thoughts:

Generally

This is a ‘head lease’ / tenant or landlord / tenant or subtenant’ situation with two tenancy agreements or leases to consider.  They are both different.

I have done a diagram above which shows the chain.

The correct agreements

• Headlessor and landlord

So far as the ‘head landlord’ and the person buying to rent (who I will call the landlord) is concerned, I don’t think this can be an AST. One of the definitions of an assured tenancy (and an assured shorthold tenancy is a type of assured tenancy) is that

the tenant or, as the case may be, at least one of the joint tenants occupies the dwelling-house as his only or principal home;   (Housing Act 1988 (1)(b))

If you are renting a property so you can rent out the individual rooms to tenants, presumably you will not be living in it yourself.  So this will be a ‘common law’ or unregulated tenancy agreement.

This will be similar to a company let agreement, save that the landlord will not be a limited company (unless of course, it is!).

Note that as you will be acting as a business and not a consumer, the Unfair Terms in Consumer Contracts Regulations 1999 will not apply.

• Landlord and tenants

So far as the landlord and the tenant (or sub tenant) is concerned, this will just be a normal AST.

Tenants are not entitled to ‘look behind’ their landlords title, and it is not really any concern of theirs whether the landlord is the freeholder or is renting the property under a ‘rent to rent’ lease.

Legal obligations

So far as the landlord and the tenant/sub tenant is concerned, the landlord is bound by all the normal landlords obligations, including the statutory repairing covenants, the gas regulations, tenancy deposit regulstions, etc.

As I said, so far as the landlord and his tenant is concerned, this is just a normal tenancy.

Turning to the headlessor and the landlord, I don’t think this (ie this agreement) will be a residential tenancy agreement  as the landlord will not be renting the property to live in.  So I don’t think s11 of the Landlord & Teannt Act 1985 will apply to the tenancy between them.

S11 applies to properties let as a dwelling house and this is defined (s16) as follows:

“lease of a dwelling-house” means a lease by which a building or part of a building is let wholly or mainly as a private residence and “dwelling-house” means that building or part of a building;

A property can’t be let twice as a residence at the same time – and the residential agreement is the one between the landlord and the tenants.  So it looks as if the responsibility for the condition of the property will be down to the landlord.

Whether the landlord can pass any claim back to the headlandlord will probably depend on the terms of the agreement between them.

Generally I think this type of tenancy will fall under the legislation that regulates business tenancies rather than the legislation which regulates  residential tenancies  - but as business tenancies is an area of law I do not cover I will not comment further.

HMO Obligations

I understand that in most cases these properties are going to be let out on a room by room basis, for example to students. The property will therefore be an HMO and the landlord will need to comply with the HMO management regulations, in the same way as any other HMO landlord.

In many cases the landlord will also need to get a license from the local authority – speak to your Local Authority housing dept if you are not sure.

In short

So far as the landlord and the tenants/sub tenants are concerned, the buck stops with the landlord.

Whether the landlord can then pass on any claims the tenants may make, back to the head landlord will depend on the terms of their agreement.

However as the landlord will presumably be paying a fairly low rent (otherwise how can he make any profit?) no doubt the agreement will provide for the condition of the property and all maintenances etc to be down to the landlord.

The agreement between the headlandlord and the landlord will be regulated under the business tenancy laws rather than the residential tenancy laws.  The Housing Act 1988 will not apply.   Only the tenancy between the landlord and the tenant can be an AST.

If I am wrong about this, no doubt you will leave a comment!