Tenancy or Licence? There is so much legislation with which both landlords and agents find that they now need to comply. It would be unusual if we did not see either companies or individuals trying to find ways to try to circumvent the law. Most recently the Tenant Fees Act 2019 came into force, which prohibits the landlord from charging fees to a relevant person (tenant, guarantor or person acting on behalf of a tenant), in connection with a tenancy. The Act covers AST’s, licences, including resident landlord lodger agreements, and lettings to students as set out in paragraph 8 of Schedule 1 to the Housing Act 1988.
There are proposals to create legislation requiring all property agents to be licensed and all firms to be regulated. To avoid licensing and regulation one can see how it might be tempting for a letting agent to redefine their business. Whilst it is beyond the wit of this writer to dream up some new sort of avoidance scheme or scam there is recent evidence of the types of scheme that companies may seek to employ to get around a variety of laws.
In April of this year, a company by the name of Lifestyle Club LSC Ltd was fined for offences in relation to two unlicensed Houses in Multiple Occupation. The fines imposed upon the company exceeded £22,000 and one director and the landlord received fines totalling in excess of £14,000 between them. The district judge noted that in relation to both properties the occupants had ’membership agreements’ and were given licences to occupy, as opposed to tenancy agreements. He said that ‘the use of membership agreements and purported licences to occupy were entirely contrived arrangements’ and that ‘the effect was to deprive those occupiers of benefits enjoyed under a normal landlord/tenant relationship such as security of tenure.’
In July 2019 a company with a remarkably similar name was investigated over a new director’s claims that it was a membership club and not a letting agency. The company claimed that it did not charge deposits but instead charged a non-refundable joining fee, presumably to try to avoid deposit protection legislation. Customers were required to sign a membership agreement and rental payments were passed off as a monthly contribution fee and were payable if the member wished to remain in the club. The director was prosecuted and fined in excess of £42,000.
In the first instance, the use of the membership agreements was seen as curtailing the rights of the tenants in relation to living in a safe property and as a cost-cutting exercise for the defendant who, as they had not paid for the HMO licences, was not inspected. An inspection would have identified the poor state of the property.
It does not take a huge leap to see that the use of the ‘membership agreement’ could potentially be have been used to try to deceive tenants that the Tenant Fees Act 2019 did not apply and fees could, therefore, be charged. As a ‘membership club’, they may have argued that they were not a property agent and consequently could try to avoid being regulated and their staff licensed.
Street v Mountford Court of Appeal 1985
Above we have seen that the agent tried to call the arrangements by which the property was occupied as a ‘membership agreement’. If it is not a ‘membership agreement’ then what type of arrangement does the occupier have with the owner? The defendant claimed that they issued a licence, which would now, of course, be within the scope of the Tenant Fees Act 2019.
The defining case was Street v Mountford 1985. The landlord, Mr Street, gave 2 rooms of the property for a weekly licence fee which could be terminated with 14 days’ notice. Mr Street issued a licence agreement to the occupier who signed stating she understood that she had been given a licence and that she did not have a tenancy.
The question for the court was to establish whether the agreement was a licence, as stated in the agreement, or in fact whether it was a lease. Under the agreement, Mr Street was permitted to enter the rooms to read the meter and to carry out maintenance. No-one other than Mrs Mountford could occupy or sleep in the rooms without her consent.
The House of Lords held that the agreement was a lease on the basis that there was a grant of land for a term at a rent with exclusive possession. Mrs Mountford was, therefore, a tenant. Mr Street argued that the court could not decide this without interfering with the freedom of contract enjoyed by both parties. He had offered Mrs Mountford the right to occupy the rooms on lawful terms and Mrs Mountford was free to negotiate the terms.
The court though said that if the agreement satisfied all the requirement of a tenancy then a tenancy had been produced regardless of what the parties called it. They used the analogy that if you manufacture a four-pronged digging implement it is a fork, even if you call it a spade. So although Lifestyle Club LSC suggests that the agreement was a licence, applying Street v Mountford would identify the agreement to be a lease with all the additional protections that come with that.
To emphasise the decision in Street v Mountford we can consider a case in relation to a property guardian scheme which is a popular method of ensuring that a vacant property is kept secure whilst also providing temporary accommodation for people between properties or those that could be considered homeless.
Ordinarily, the occupiers of the properties are issued with licences and in the case of Camelot Property Management Ltd and Camelot Guardian Management Ltd v Greg Roynon
Bristol County Court Feb 2017, Mr Roynon signed a licence agreement with the agent of the landlord. The landlord was the local council. When Camelot sought possession on the basis of the licence Mr Roynon refused to leave claiming he was, in fact, a tenant.
It was agreed that the licence granted occupation for a specific period and at a rent below market rent. The only question revolved around exclusive possession to establish whether or not he had a licence.
The licence allowed My Roynon to occupy two rooms, chosen by him, and to use other facilities. None of the other guardians had access to his rooms. Camelot though, claimed that they had reserved the right to inspect without notice and there were additional room restrictions. The reality was that inspections were carried out with 24 hours’ notice and the room inspections were limited from a viewing from the doorway. The court decided that this was not incompatible with exclusive possession and that room restrictions were a common occurrence.
Whilst property guardians can be licensees those creating the agreements need to take care in not granting occupation of specific rooms.
In June we saw the coming into force of the Tenant Fees Act 2019. The Government have also announced they will be banning section 21. As a result, we are likely to see more imaginative, and probably failed schemes, to avoid the consequences of a more tenant orientated policy direction.
Whether the intention is to circumvent the law, or indeed simply to ensure that possession is straightforward, neither landlords nor agents should be surprised that the courts will not simply want to look at the label on the box, but will undoubtedly want to look at the contents to establish the truth.