Question is in the thread title, but two scenarios;

1/ A normal 6 month AST, 2 months in bank take house back of Landlord, does the bank honour the remaining 4 months of the AST or can they boot the tenant out.

2/ An unusual scenario, tenant wants to rent a house at 2k PCM. The tenant has had credit problems previously, so failed the credit check. HOWEVER, tenant has resolved the issues and made 500k on a deal which he has cash in the bank, so suggests paying 48k to the landlord as 2 years rent in advance which the landlord accepts. Two months into this scenario, Landlord goes bust and bank takes the house back. Does the tenant get to stay put for the remaining 22 months?

(19-09-2012 12:57 PM)daniel_booth Wrote:  Question is in the thread title, but two scenarios;

1/ A normal 6 month AST, 2 months in bank take house back of Landlord, does the bank honour the remaining 4 months of the AST or can they boot the tenant out.

2/ An unusual scenario, tenant wants to rent a house at 2k PCM. The tenant has had credit problems previously, so failed the credit check. HOWEVER, tenant has resolved the issues and made 500k on a deal which he has cash in the bank, so suggests paying 48k to the landlord as 2 years rent in advance which the landlord accepts. Two months into this scenario, Landlord goes bust and bank takes the house back. Does the tenant get to stay put for the remaining 22 months?

Answer 1 - The bank is most likely to appoint an LPA Receiver to collect rents to pay towards mortgage and arrears. The receiver will determine the best course of action for the property - this could be to serve a section 21 to seek possession and sale at the end of the AST.

Answer 2- As with answer 1, LPA receiver will be appointed - assuming that this is genuine and not contrived - LPA would look to secure lenders position - I would serve a section 8 Notice, based upon Ground 2 - Assuming the mortgage pre-dates the tenancy and has a clause limiting any AST's to 6 or 12 month's, the court is likely to grant possession and the receiver could look at a sale.

Thanks Glenn,

Makes sense so far, but bare in mind this tenant has paid 48k for 2 years to the now bankrupt l/lord, so would the lender/LPA Receiver refund the money?

(19-09-2012 11:10 PM)Glenn Ackroyd Wrote:  Answer 2- As with answer 1, LPA receiver will be appointed - assuming that this is genuine and not contrived - LPA would look to secure lenders position - I would serve a section 8 Notice, based upon Ground 2 - Assuming the mortgage pre-dates the tenancy and has a clause limiting any AST's to 6 or 12 month's, the court is likely to grant possession and the receiver could look at a sale.

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And on this one, do they have to honour the remaining four months?

(19-09-2012 11:10 PM)Glenn Ackroyd Wrote:  [
Answer 1 - The bank is most likely to appoint an LPA Receiver to collect rents to pay towards mortgage and arrears. The receiver will determine the best course of action for the property - this could be to serve a section 21 to seek possession and sale at the end of the AST.

In practice, the answer to Q1 is that if the landlord has permission to let, the tenancy agreement will be honoured. Many BTL deals have limitations on the length of tenancy agreement, but if 24 months was okay, then this would apply equally to 6 or 24 month scenarios.

If the LL doesn't have permission to let, then the lender is not tied to the agreement but the tenant can ask for 2 months under the Mortgage Repossessions (Protection of Tenants etc) Act 2010. The tenant could also seek civil damages against the landlord - but pointless if the Landlord is bankrupt.

I believe the lender would not be tied to a 24 month tenancy if they had imposed a 12 month limit as the borrower did not have permission to let (for so long). Again, Mortgage Repossessions (Protection of Tenants etc) Act 2010 applies and Tenant would have to try and seek any excess rent paid from landlord - but a LL who can't afford his mortgage may have difficulty repaying £44k!

I believe I am correct in saying that, if the person had paid 24 months upfront, it would no longer come under the auspices of an AST.

It would change to another type of agreement where the security of tenure is different.

No lender would willingly allow payment of 24 months rent upfront and this different type of tenancy.

The whole BTL industry was born off the back of the implementation of AST's which made lenders feel comfortable that they could get possession back, if needed.

An actual case from House Price Crash:

Hi everyone

I came across this site when searching Google for advice on whether I can seek damages from either the letting agent or landlord...

My tenancy started on 22nd December 2008 and I handed the following to the letting agent:

Rent in advance: £3,900.00 (£650.00 x 6)
Deposit: £650.00
Admin fees: £80.00 + VAT
Total: £4,644.00

They are providing a full management service to the landlord for which they charge 10% + VAT, so they took their cut of £390.00 + VAT and in total received £470.00 + VAT because I became I tenant in this property.

The house was up for £700.00 PCM even though the landlord wanted £750.00 PCM but I got it for £650.00 on this basis that I decorate (I was going to do this anyway as I had the view to stay here for more than 6 months as it was a long term let).

The house was empty for 3 months before I came in here I found out afterwards.

I then made the following changes to the property...

Carpets
Carpets professionally cleaned throughout (hallway, bedroom 1, bedroom 2 and lounge)

Woodwork
Woodwork repainted in white gloss throughout including skirting boards, ceiling cove, door frames and window sills (hallway, bedroom 1, bedroom 2, lounge and kitchen)

Walls
Walls repainted in matt magnolia throughout (hallway, bedroom 1, ensuite, bathroom, bedroom 2, lounge and kitchen)

Ceilings
Ceilings repainted in silk white throughout (hallway, bedroom 1, ensuite, bathroom, bedroom 2, lounge and kitchen)

Telephone line
A new BT telephone line installed (no existing lines)

Curtain rails
Wooden curtain poles without rings in lounge (balcony) and bedroom 1 replaced with chrome effect poles with rings

Blinds
Wooden curtain poles without rings in lounge (window), bedroom 2 and ensuite replaced with wooden Venetian blinds and a new Venetian blind fitted in the kitchen (no existing curtain pole or blind)

Bathroom
New bathroom cabinets with mirrors and bathroom shelves with towel rails fitted in the bathroom and ensuite

... Only to receive a letter from Nothern Rock's solicitors on 30th January (1 month and 8 days into my tenancy) that proceedings to recover possession of the flat have been commenced. So it looks like the letting agent didn't check whether her mortgage was up to date. Should they do this and how would they do it?

When I first got the letter I phoned the letting agent and they told me "not to worry about it" but all my money had been handed to the landlord! He told me that if the flat got repossessed he would refund me the money and find me a new place to live. I asked for that in writing and he wouldn't give it to me.

I kept asking for it in writing then he changed his tune! He told me that if it got repossessed I would have to sue the landlord - and that's exactly what Shelter said. How could I sue her if she has no money?

It took until 21st February for me to receive a copy of the letter from Northern Rock's solicitors that she has paid off some of her arrears and the proceedings were "adjourned". So I knew she hadn't paid off all of her arrears.

Since then I knew that I was very likely I'd have to leave after the six months and I've even not bothered to unpack other boxes, put pictures up, etc.

I then received another letter (which I was expecting) on 30th April explaining that the court case was on 20th May. I found out on the 20th May that the possession was granted and that there was a period of 28 days where they couldn't do anything so that pretty much takes me to the end of the tenancy (21st June).

I handed in my notice on 21st May.

In all, I've spent the best part of £5,000 on this place and not had any peaceful enjoyment from it since I received the first letter. As the case has never been withdrawn it's always been hanging over my head.

I must add that the letting agent have been very unhelpful throughout the tenancy, they promised to supply me with a post box key (it's open) and after several phone calls and emails that were never responded too I still haven't got one. They also never gave me a key to the electricity cupboard - I have to get in with a screwdriver!

Now they want to charge me £25.00 + VAT to checkout. The manager was supposed to get back to me over 2 weeks ago with a few options - for example to see if I wanted them to find me a new place, etc. But never did.

The manager once told me they can't keep chasing the landlord about the repossession "it's ridiculous" and he kept putting me on hold to speak on another phone when it rung in the background (not on hold as I could hear the other conversation)! That's the type of business they are running, not very professional.

I am wondering if it possible to seek damages from the letting agent or landlord?

I think officially, I've not been allowed "quiet enjoyment of the property" between 30th Jan-21st Feb (22 days) and from 30th April-21st June (52 days) = 74 days in total. Even though I think it's questionable from 21st Feb to 30th April as I knew the arrears were never paid in full...

Thanks to everyone who has listened!

Many thanks
Chris

(20-09-2012 08:03 AM)vanessa warwick Wrote:  I believe I am correct in saying that, if the person had paid 24 months upfront, it would no longer come under the auspices of an AST.

It would change to another type of agreement where the security of tenure is different.

I am afraid I disagree with you there Vanessa, there is no limit to length or payment periods on an AST.

The key issues with length of fixed term are:
Over 3 years - must be in writing (deed)
Over 7 years affects landlords repairing obligations

(20-09-2012 08:03 AM)vanessa warwick Wrote:  I believe I am correct in saying that, if the person had paid 24 months upfront, it would no longer come under the auspices of an AST.

It would change to another type of agreement where the security of tenure is different.

It would be an AST. There is no different type of tenancy if the rent is paid in advance.

Tenants do now have some basic protection against being evicted by the Landlord's mortgage company under the Mortgage Repossessions (Protection of Tenants etc) Act 2010. However this just gives them 2 months.

I don't know if this would be affected if the tenant had paid 2 years rent in advance - I suspect not.

(20-09-2012 08:03 AM)vanessa warwick Wrote:  I believe I am correct in saying that, if the person had paid 24 months upfront, it would no longer come under the auspices of an AST.

It would change to another type of agreement where the security of tenure is different.

No lender would willingly allow payment of 24 months rent upfront and this different type of tenancy.

The whole BTL industry was born off the back of the implementation of AST's which made lenders feel comfortable that they could get possession back, if needed.

Vanessa, You are thinking of the fact that anything more than 1/6th of the annual rent is consider to be a premium. This is still and AST but the fact that the landlord has charged a premium can give the tenants rights to sublet without consulting the landlord, there is some argument that it also creats a situation where the landlord cannot use to usual routes to Possession and it could be argued that the tenant has the right to remain for 20 years. This is a very big discussion and, as far as I am aware, there is no case law but there is legislation in place that could be used and I would not risk being the landlord to end up testing it particularly if a smart TRO became involved

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Yes, "premium tenancy" was the phrase I was grasping for!! Thanks for un-confusing me.