When a mortgagee wants to sell the tenant’s home
When a rental property is in receivership, and the mortgage lender wants to exercise the power to sell the property, the tenant can find themselves caught up in repossession proceedings against their landlord.
In Part 1 we discussed a tenant’s fate if the mortgage lender chooses to keep collecting rent from the tenant. In this article, we will explore what happens to a tenant when the mortgage lender wants to exercise a power of sale. In this case, the receiver will likely need the property to be empty (vacant possession) and will seek to evict the tenant.
When a tenant receives a letter from the receiver informing them of the risk of repossession, they should ask the following questions:
QUESTION 1: Was the tenancy granted before the mortgage?
Check the Land Registry — If the mortgage in question was granted after the lease had been granted, then the tenants will have an overriding interest by virtue of Schedule 3 to the Land Registration Act 2002. This means that the tenancy will be binding on the mortgage lender.
You can access the Land Registry search here.The date when the tenancy was created should be before the date that the mortgage was registered. If you cannot find the mortgage, try checking for the date that the landlord was registered as owner of the property. Alternatively, you can ask this information from the receiver or the landlord.
QUESTION 2: Did the mortgage lender consent to the tenancy?
- Check the type of mortgage the house is under — If the property is subject to a buy-to-let mortgage then the mortgage lender clearly knew that it was going to be rented out to a tenant. As long as the general terms of the buy-to-let mortgage were complied with by the landlord, then the tenancy will be regarded as binding.
- Check the tenancy agreement — It’s common for a mortgage lender to require the landlord to give the tenant written notice of the mortgage at the very start of the lease. This notice, which may be in the tenancy agreement, will explicitly say that the property is subject to a mortgage and repossession can be sought under Ground 2 of Schedule 2 to the Housing Act 1988. This process is known as serving a Section 8 notice which, if successful, would give the tenant at least 2 months’ notice period before an eviction can be ordered.
- Check for any evidence that the mortgage lender expressly agreed to the tenancy, since this may mean that they are therefore bound to it. If the landlord didn’t even get the mortgage lender’s consent to rent out the property, the tenancy may be considered “unauthorised”. This means that the receiver can disregard the lease, but probably won’t do so as long as rent is being paid to them
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QUESTION 3: Has the mortgage lender recognised the tenancy?
Check if the mortgage lender has done anything to accept the tenancy as their own. It is not enough that they have simply acknowledged the existence of the tenancy, they must have done something which effectively creates a new tenancy. This could be a request from the receiver to the tenant asking them to stop paying rent to the old landlord and start paying rent to them, or the receiver taking on landlord-like behaviour such as carrying out repairs and mandatory inspections. Note that many lenders will avoid doing this, and if they demand payment from the tenant, will call it something other than “rent”.
Under the new tenancy, the receiver (as the agent of the mortgage lender) will be the landlord of the tenant. The new tenancy is valid even if the old tenancy was unauthorized. The terms of the new tenancy will not necessarily be the same as the old one e.g. by accepting regular rent, a periodic tenancy may arise. However, this tenancy is likely to be an assured shorthold tenancy meaning that the tenant can be evicted through a section 8 or section 21 notice.
ANSWER 1: Yes, the tenancy is binding on the receiver
If the answer reveals that the tenancy is binding on the mortgage lender, this means that the receiver will become the tenant’s new landlord. The receiver will take on the rights and duties of the old landlord under the tenancy agreement. To evict a tenant, they will need to go through the same process as any regular landlord would. You can read about the notice periods they will need to give.
ANSWER 2: No, the tenancy is not binding on the receiver
If the answer reveals that the tenancy is not binding on the mortgage lender, then the tenant may be evicted. However, under the Mortgage Repossessions (Protection of Tenants etc) Act 2010, the tenant has the following two opportunities to delay possession of their home for up to 2 months while they find somewhere else to live.
- At the court hearing for repossession — The receiver will send a letter to the property informing its occupiers of this court date. The tenant can attend the hearing and ask for the delay.
- After the court hearing — Once the tenant receives a notice from the mortgage lender saying that they are applying for a warrant of possession (what authorises a bailiff to evict), the tenant can ask the lender for a delay. If the lender refuses or does not respond, the tenant can then use Form N244 to apply to the court for a delay. The tenant must act quickly because a warrant of possession can be issued as soon as 14 days after the date the notice was sent by the mortgage lender.
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