Tenants left homeless by defaulting landlords

What rights do renters have if lenders want to repossess their homes?

Tenants may like to think themselves immune to the property crash, but substantial increases in the number of landlords in arrears has put more renters at risk of losing their homes too.

When landlords struggle to meet their mortgage payments, lenders are able to seek court orders for possession, whether the properties are occupied or not. Tenants can be left with little or no time to find new accommodation. On top of this, many lose any rent they've paid in advance and possibly even their deposits.

Council of Mortgage Lenders (CML) statistics show that 1,700 buy-to-let properties were repossessed in the first quarter of 2009, compared with just 900 in the first quarter of last year.

In an effort to combat this problem, the Government announced earlier this year that legislation would be introduced to give all tenants a minimum of two months' notice if living in a home that has been repossessed.

The promise, made before the latest cabinet shuffle, was welcomed by housing charities Crisis and Shelter after they and several other organisations highlighted the number of tenants made homeless after their homes were repossessed. "We now hope that the new minister will honour this commitment and introduce these changes as soon as possible," says Leslie Morphy, the chief executive of Crisis.

In the meantime, tenants need to know where they stand if their homes are at risk of repossession. Those whose landlords took out a buy-to-let mortgage should get some protection. And those who began renting a property after 28 February 1997 will have an assured shorthold tenancy (AST).

These agreements are typically either fixed, often for six months or a year, or periodic, and rolling from one week or month to another. In these cases, lenders who take possession of the property will usually be bound by the tenancy agreement, unless the tenants are in breach of its terms and conditions. So tenants with a fixed agreement in place can stay put, complete their contractual period and then have two months' notice to vacate the property. With a periodic contract, the lender is free to issue two months' notice immediately.

Where the real problems start is with landlords renting out properties under a standard residential mortgage, and therefore without consent from the lender. In these cases, the landlords are in breach of the terms of their mortgage contracts and the tenants are unauthorised.

The lenders are under no obligation to uphold the tenancy agreements and tenants can be evicted with 14 days' notice. The recent surge in accidental or reluctant landlords, who are unable to sell their homes and opt instead to rent them out until the property market picks up, has meant that far more tenants are in this worrying situation.

Once properties have been repossessed, tenants cannot delay eviction, but all may not be lost as lenders can appoint what is known as a receiver of rent. "A receiver will act as a landlord and manage the property as well as collect the rent," says Bernard Clarke from the CML.

This was the case in 2,400 instances in the first quarter of 2009, up from just 100 in the first quarter of 2008. A receiver, typically a member of the Royal Institution of Chartered Surveyors, allows the tenant to remain in the property until the lender has decided what to do with the property.

Tenants are advised to continue paying their rent as usual, even if they are concerned about repossession, because failure to pay rent for two months or more in a row will mean that a landlord (or the lender if it has been repossessed) will consider that a breach of contract and can serve a Section 8 notice under the 1988 Housing Act – giving tenants just 14 days' to leave the property.

The Government has taken some steps to offer more protection for tenants. Changes that came into effect in April ensure that tenants now get seven weeks' notice if their landlords are called to attend repossession hearings. But if the hearing concludes with a decision to repossess, the tenant then has a fortnight to relocate.

But many tenants are unaware of these notices because they leave post not addressed to them personally unopened, thinking it is junk mail, or belongs to the landlord.

"The first and most important thing is, if you get a letter addressed to the occupier, always open it and read it because the court is obliged to write to whoever is in the property before repossessing it," says John Socha, the vice-chairman of the National Landlords Association.

The problem arises because tenants are not directly involved in the repossession procedure. The mortgage agreement is between the landlord and the lender, not the tenant, so the lender deals with the landlord alone. Also, while landlords are free to comb through credit checks and references to deem how reliable a prospective tenant is, it is not so easy for tenants to make similar checks on a potential landlord.

Tenants looking for more security should do a couple of things before signing contracts. First, they should verify that their landlords have consent from their lenders to let out the properties. Second, since all deposits must be put into one of three deposit protection schemes, they should ask which scheme is being used.

Landlords can also take steps to protect themselves and their tenants. Landlords struggling to meet payments should talk to their lenders straight away. Despite statistics showing a substantial increase in the number of repossessions, lenders will work towards alternatives and many offer repayment holidays of several months to give landlords a reprieve from paying their mortgages until they can organise their finances.

Experts recommend that landlords set up buffer or reserve funds equal to at least two months' rent for protection against tenants missing payments, particularly for landlords relying on rental income to cover their mortgages.

They can also serve a Section 8 notice if at least two months' rent is unpaid and some landlords may also want to look into paying for rent guarantee insurance to cover for loss of rental income. These policies should pay out for missed rent payments, as well as legal fees if a tenant has to be taken to court.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
The clocks go forward an hour at 1am on Sunday 30 March
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
footballMatch report: Real fight back to ruin Argentinian's debut
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?