Landlord law expert Tessa Shepperson explains the law behind renting your property to a company.
A Bit of History
Tenancies have been around for a long time. The underlying law relating to tenancies developed gradually over the years, through custom and decisions made by Judges in legal cases.
This sort of law is known as the ‘common law’. One of the main problems with it is that it is often hard to know what it is. You need to know where to look.
Legislation is used to change the common law. This may be done because there are aspects of the common law which are considered undesirable, or so people know what the law is: to codify it.
During the 20th century there were several attempts to amend the common law relating to housing, which resulted in two major acts of Parliament: the Rent Act 1977 which applies to all tenancies which were created before 15 January 1989 and the Housing Act 1988 which applies to all tenancies which were created on or after that date.
Individuals and Artificial Persons
Both of these great acts however, specifically state that they apply to ‘individuals’. For example, section 1(1)(a) of the Housing Act 1988 describes assured (and assured shorthold) tenancies as applying where
the tenant or, as the case may be, each of the joint tenants is an individual;
What does this mean? It means that the tenant must be a living person. Which excludes tenancies granted to ‘artificial persons’ i.e. companies.
(Note, by the way, that it does not matter if the landlord is a limited company. It only matters if it is the tenant which is a limited company).
Companies and Residential Tenancies
A company is in a sense a ‘person’. It has a legal identity and is capable of owning a business, hiring staff, and owning and renting property.
Property can be rented by a company as a ‘residential tenancy’. Of course, a company cannot live in the property itself. It does not have a body or exist in a corporeal form. When a company has a residential tenancy, it lives in it through its directors and employees.
When a company rents residential accommodation for its own staff or directors this is known as a ‘company let’. Note, however, that if property is rented for the purpose of subletting to customers, this will be a commercial tenancy and not a residential one.
Considering residential tenancies, there are significant differences between lets to people and lets to companies. Let us take a look at them.
The Housing Act 1988 Does Not Apply
As we have seen, s1 of the Housing Act 1988 specifically excludes company lets from the statutory code set up by that act. This means that
- A let to a company cannot be ‘an assured shorthold tenancy’
- The procedures set out in s13 for increasing rent by notice in periodic tenancies cannot apply, and
- The eviction procedures set out in section 21 and in section 8, and the second schedule to the act, also cannot apply.
The rules developed over the centuries under the ‘common law’ will apply instead. The trouble is that people are so used to the Housing Act 1988 rules that the old common law rules are often forgotten. For example:
Rent and Increasing Rent
Rent for company lets is unregulated. Therefore, there is no way that a company can challenge a rent – once they have signed a tenancy agreement – and claim it is too high (as can sometimes be done under the statutory codes).
A rent will be as set out in the tenancy agreement. If a landlord wants to increase this, it can be done via a rent review clause or by agreement or by the parties signing a new tenancy agreement.
Its very easy for a landlord to end a common-law tenancy after the end of the fixed term. They just serve an old style Notice to Quit and then, if vacant possession is not given up, bring proceedings for possession.
If a landlord wants to end a tenancy during the fixed term, this can only be done if the tenant is in breach of the terms of the tenancy agreement, when the landlord can use the old ‘forfeiture’ procedure.
Note that I have guidance on both of these procedures in the Eviction Guide which is part of my Landlord Law service.
Living tenants are deemed to be consumers. Needless to say, a company being an artificial person created for business purposes, cannot take advantage of the various consumer laws which exist to protect living tenants.
In particular, the unfair terms rules and the various other measures set out in the Consumer Rights Act 2015 will not apply.
Renting Property to Companies
Company lets can be very lucrative and large, wealthy companies will often rent high end properties at high rents for accommodation for their staff, for example when on secondment.
However, you do need to be careful. A company can close down, for example if it becomes insolvent, in which case it may prove impossible to recover unpaid rent. For this reason, it is often a good idea to take guarantees from the directors.
You also should be aware that sometimes someone will seek to rent accommodation through their company because they would not pass normal referencing. It is important therefore to find out who will be living at the property and, if possible, take references.
Renting property to companies can be very lucrative but if you rent to the wrong company it can also be problematic. As always, proper checking before the tenancy agreement is signed is essential. It does not guarantee a trouble free let, but it makes it very much more likely.
OpenRent’s tenant referencing service can handle both individual and company referencing, for just £20. If you are considering a company as a tenant, get them comprehensively referenced in 3-5 working days.