The accidental tenant - what are the risks to a landlord of accepting rent from a stranger to a lease?

30/06/2011

By Megan Fradgley, Solicitor in Dispute Resolution.

Landlords will often be concerned if someone other than the tenant pays rent for a property. This article looks at the practical considerations for the landlord when this happens.

For a tenant to have complied with their obligation to pay rent, any rental payment should generally come from the tenant. This does not mean the tenant's agent cannot pay the rent but the payment should be made on the tenant's behalf with the tenant's authority. However, if a landlord finds an unconnected third party is paying the rent, this should be interpreted as a prompt for the landlord to investigate whether the tenant has assigned the lease, sub-let the property, or otherwise has parted with possession.

Generally assignment and sub-letting will either be prohibited by the lease, or the lease will contain requirements that must be complied with by the tenant before the assignment or sub-let takes place, such as a formal licence to assign being entered into by all parties. If a tenant has breached the terms of the lease by unlawfully assigning the lease to a third party or creating a sub-tenancy, a landlord should be aware that accepting rent from the third party may prevent it from bringing action against the tenant to forfeit the lease for the breach. Therefore prompt investigation is vital.

Further problems can arise at the expiry of the lease, when the landlord may wish to serve notices on the tenant for the purposes of the Landlord and Tenant Act 1954 and/or to deal with dilapidations. In this situation the landlord's plans may be frustrated or delayed by the time they will have to spend investigating occupancy issues at the property. In certain extreme circumstances, the third party may have acquired renewal rights under the 1954 Act despite the fact that its occupation is unlawful.

In practical terms, whenever a landlord receives a rent payment from a third party he should consider the implications of accepting that rent. One option is for the landlord to state in writing to both the third party and the tenant that the rent is being accepted by the landlord from the third party on behalf of the tenant.

Providing confirmation in these terms means the landlord avoids acknowledging any assignment or sub-let (and so cannot, by implication, be accused of legitimising a breach of an alienation covenant by the tenant). It preserves most, but not all, of the landlord's remedies if it wishes to take action at a later stage. It also provides comfort to the tenant that its liability to pay rent for the relevant period has been discharged.

However, the remedy the landlord is likely to lose by accepting rent in these circumstances, is the right to forfeit the lease for breach of the alienation covenant. If the landlord wants to preserve its right to forfeit for breach of the alienation covenant, the rent should not be accepted and the landlord should immediately investigate the position to establish whether it is appropriate to take steps to forfeit the lease.