I was asked this recently by a regular reader, who had heard that only four people can legally own a tenancy.
What, he asked, happens with all those tenancy agreements where there are five or more tenants listed? Are the extra people not really tenants then? What about claiming rent off them?
Joint ownership of land (lease/tenancy)
The law on this is set out in section 34 of the Law of Property Act 1925, which confirms that only four people can be the legal owners of land (which will include a lease or tenancy).
However it goes on to say that if there are more than four people listed on the deed, then the first four will hold the property ‘on trust’ for the others.
Legal and beneficial ownership of land
This goes to the heart of joint ownership of land. There are two elements to owning land.
- The actual legal title / ownership, and
- what lawyers call the ‘beneficial interest‘ ie the right to use and enjoy it.
In most cases the ‘legal’ and ‘beneficial’ interests will be owned by the same people. So if you and your wife own your house jointly, you will both have the legal ownership AND you will both hold that legal interest on trust for yourselves as beneficiaries. You will own both halves, the legal and the beneficial interests.
However they can be split up. So when a wealthy family sets up a trust for its children, the trustees (Lord Muck or the partners of ‘Posh Persons Law Firm LLP’) will own the property. The beneficiaries will be the children.
So, going back to our tenancy, if you rent a property to Angus, Brendon, Charles, David, Edgar and Freddie, (assuming they are listed in alphabetical order) Angus, Brendon, Charles, and David, will hold the legal ownership of the tenancy, on trust for themselves and Edgar and Freddie. This will happen automatically, you don’t have to set it out in the tenancy agreement.
So, you may be asking now, what is the point of Edgar and Freddie signing the tenancy agreement? They don’t get legal title, so why have them there?
One reason is so they acquire the beneficial interest. But there is another important reason.
A tenancy agreement is not just about the transfer of legal title to the property for a slice of time. It is also about the contractual obligations of the tenants to the landlord (and vice versa). Most particularly the payment of rent, but also all the other clauses in the tenancy agreement. And there is no rule in contract law against having more than four parties to a contract.
The four persons rule only relates to the ownership of the legal interest in the land.
This is why you need to have all the tenants on the tenancy agreement. If Edgar and Freddie were not on the tenancy agreement, the landlord would not be able to sue them for non-payment of rent. Or for compensation for damaging the property.
So, in our hypothetical case, the situation would be like this:
So far as legal ownership of the lease/tenancy is concerned, it would be owned by Angus, Brendon, Charles, and David on trust for themselves and Edgar and Freddie. So Edgar and Freddie would have as much right to use the property as the other four.
So far as the contractual obligations are concerned, all six tenants would be liable to the landlord for rent, and in respect of the other contractual obligations under the tenancy agreement which they had signed.
So all six can be sued (together or singly) by the landlord if they don’t pay rent. And all six tenants (again, jointly or individually) can sue the landlord if he does not comply with his part of the contract.
For example if the ceiling collapses while Freddie is underneath, and he is injured, then (assuming the collapse was due to the landlord’s failure to keep the property in proper repair) Freddie will be able to bring a claim against the landlord for damages for personal injury. Even though he is not one of the first four on the tenancy agreement and is not therefore one of the ‘legal’ owners of the tenancy.
Don’t let it worry you
Law is often confusing for non lawyers, because there are all these disparate parts which come together to make a whole. Like one of those Chinese puzzle things. You need to be careful about making assumptions.
And don’t worry too much about abstruse points of law. The four persons limit to the legal ownership of land, although it applies to tenancies, is just something there, running in the background, making the legal system ‘work’. Like the engine makes a car ‘work’. It need not worry the average landlord or tenant. You just drive the car, you don’t need to look under the hood.
Photo by smjb