Sitting tenants can be messy work for landlords – Paul Shamplina

Before I founded Landlord Action, I used to be heavily involved in Private Investigation – but nothing like what we have been seeing from some of our tabloids recently. It was more focussed on working on behalf of law firms investigating or gathering evidence in an entirely legal way.

Recently, I have had to put my P.I. hat back on once again, so to speak, since I have been getting helping landlords gather evidence to evict tenants with regulated tenancies. A regulated tenancy (sometimes referred to as ‘sitting tenants’) is one where the tenant has the legal right to live in a property for a period of time. They can either be fixed (ie. the term is set from the outset), or, periodic, where they roll on a periodic basis (eg. month-to-month).

The definition of a regulated tenancy (in England) is a furnished or unfurnished letting of all or part of a house, flat, maisonette, or bungalow made before 15 January 1989 unless it is covered by one of the exemptions:

• the tenancy began on or after the 15th January 1989

• the landlord and tenant live together

• the landlord is a social housing provider, local authority, housing trust, charity, Government Department, etc; the property is a universities official halls of residence

• the landlords provides services (such as board, linen, meals, etc) that form a significant part of the rent

• the letting is holiday let, or for the purposes of business

• the tenant is not paying rent, or paying a rent that is under the rateable value in relation to the Rent Act

• the tenancy is a License to Occupy

A regulated tenant pays a ‘fair rent’ – this is a remnant from an archaic version of our housing system, when rents were not set by the free market, but instead, set by Rent Officers who work for the local council (even now, for regulated tenancies, Rent Officers or Rent Committees set a maximum amount that the landlord can charge – landlords can apply every two years for the rent to be reviewed).

Recently, we were instructed by a landlord who was letting to a regulated tenant where there were rent arrears were £6,000. The tenancy charged £1,000 per month whereas the open market valuation would have been closer to £4,000 per month. We don’t often see cases of rent arrears with sitting tenants because the rents are so low it is hard for the tenant to build up severe amounts of arrears. Also, sitting tenants are aware that, if they do fall into arrears, they may lose the status as a sitting tenant.

However, cases can get a lot more complicated than this. For example, if the landlord needs to prove that the tenant is illegally subletting the property, a higher degree of investigation is going to be required.

We had such a case a few years ago where a landlord suspected that, not only was the tenant illegally subletting the property, but also, there was a brothel operating in the property. In this scenario, we needed to prove that the property was being used for a) a business (i.e. the brothel) and b) not as the tenant’s primary residence.

We decided to put up covert CCTV cameras outside the property and also in communal areas actually within the property (the property was an HMO). This showed that the property had many different visitors coming and staying for short amounts of time. The evidence held up in court and the tenant was evicted.

The tenant also managed to fall into rent arrears, too. This is surprising – from what she was purportedly charging customers, there should not have been any reason for arrears.

Landlords should be very wary about doing this type of surveillance themself. There can be a raft of other issues involved (such as privacy issues, harassment, etc) – so there always has to be good reason to be obtaining this evidence.

From this, it should be clear that evicting sitting tenants is notoriously difficult. So, should investors shy away from purchasing properties with sitting tenants?

Well, in the first instance, many do not come on the market very often. Usually because the landlord does not want to sell the property at a cut-down rate. Instead, they can carry on getting income in via rent and use the property as collateral for other borrowings.

However, there have been cases where people have purchased a property with a sitting tenant and it can have its advantages. One of those is the fact that, because rents are so low, they are often covered by any benefits that the tenant is receiving (although it is a generalisation to assume that tenants with regulated tenancies are all claiming benefits).  Obviously, this takes out a lot of credit risk.

Naturally, such an approach would be more suited to long-term investors who are not under pressure to liquidate their portfolio or parts of it. The idea is to buy the property at a knock-down rate, wait for the tenant to leave and then the property’s value will increase quite dramatically, since the landlord can let it to a tenant under an AST agreement.

But, as with all specialist types of investment, you should seek specialist advice from a conveyance solicitor who has experience of regulated tenancies. It is important because, in some cases, regulated tenancies can be passed to a spouse, partner, or child (if the property is passed to a child, it automatically becomes an AST – it doesn’t remain a regulated property) if the original agreement allows it, or, the landlord has consented.