Tuesday, September 01, 2009

Letting to companies

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.


Most residential lets are to people, real people who are alive and who physically live in the property. However sometimes lettings are made to a limited company. If this happens there are a number of important differences and a few things to watch out for.

Firstly, lets to companies are not assured shorthold tenancies (ASTs). The reason for this is that the act which set up the protective code which governs ASTs, the Housing Act 1988, specifically states that its provisions apply only to 'individuals' i.e. not to artificial beings such as companies. Companies are businesses (so the argument goes) and do not need the protection that the act gives.

What this means is that 'company lets' (as they are called) are governed by the underlying 'common law', the legal rules which regulated tenancies before the Rent Act and Housing Acts came along to change them.

The main practical effect of this is that:

  • you should not use the standard AST agreements found in shops and on the internet, but a tenancy agreement designed for company lets (we provide one at Landlord-Law here)
  • You don't use section 8 or 21 possession notices. The correct form of notice is an old style Notice to Quit
  • The procedure and paperwork for evicting tenants is different
Why do people rent property through a company and not individually? There are a number of reasons. For example, it may be tax related. It may be so that they can provide accommodation for a number of staff and directors on a short term basis. Or it could be to provide accommodation for an employee or director who would not pass normal referencing.

You do need therefore, to be careful with company lets. Although they can be lucrative, bear in mind that you do not really have any control over who the company places in the property once let (technically you can take steps to repossess for breach of contract but practically this is difficult to do during the fixed term, for anything other than rent arrears). You therefore need to take steps to protect your position, before the property is let. I would suggest :
  • Doing a search against the company at Companies House. If your property is an expensive one, consider buying a more detailed report and (in particular) checking the last few years' accounts
  • Taking a guarantee from at least one director, preferably two
  • Checking carefully the references of the guarantors and getting credit checks done
  • Asking for details of the person(s) who will be living in the property and checking them also
  • Either letting for no longer than six months at a time, or ensuring that (for longer lets, eg a year) the tenancy agreement has a break clause.
You should also take a tenant/damage deposit. The good news here is that as this is not an AST you do not need to protect it in a tenancy deposit scheme, as the tenancy deposit regulations only apply to ASTs.

If you are careful, as with all tenants, you should, hopefully, be all right.

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