Tenancy Agreements 33 days of tips – day 26 – Assignment

 Assignment and long leases

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.

Assignment and short leases

Short leases (i.e. tenancies) are different.  There is almost invariably no premium 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.

Other reasons why landlords will not want tenancies assigned is that it will be difficult to recover arrears which arose before the assignment and those arrears cannot be used as the basis of a claim for possession.

The Office of Fair Trading Guidance

The trouble is that when considering the Unfair Terms regulations, 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 landlord’s approval of the assignment (which should not be unreasonably refused – see Day 16).

This Guidance has now been withdrawn by the OFT successors, the Competition and Markets Authority but they have not replaced it (so far as I am aware) with any specific guidance on tenancy agreements.  So the old 2005 Guidance document probably still has some force.

My solution

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 month’s 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 consent 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 objections, as their reason for objecting to a prohibition of the assignment was that it unfairly locks the tenant into a tenancy if there is someone willing to take it over.

Premiums

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 14, this is the main reason why deposits should not be for more than two months rent (although it is looking as if deposits may be limited to one month’s rent when the new anti-tenant fee legislation comes in).

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?  (Although these will also be outlawed when the new rules come in).

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. (Note that you will find information about lodgers in my Lodger Landlord site.)

It is important that any clause prohibiting subletting includes the standard wording saying that consent will not be unreasonably refused as otherwise, the clause may be unenforceable.

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 a good idea – if the tenant cannot stay there, better for him to find a replacement tenant.