Agent prosecuted for issuing “licence” agreements to tenants

Tenancy legislation provides people with vital protection against homelessness, by legislating against harassment and unlawful eviction and ensuring that certain rights are enshrined in law. Some agents have tried to circumvent these protections by issuing tenants with “licence agreements”, which purport to diminish the tenant’s legal status. A London council has successfully prosecuted one such agent using consumer protection legislation.

In this case, a letting agent had issued “licence” agreements to tenants in a house share, despite the fact that the facts of each arrangement satisfied the tests to establish a tenancy, as per Street v Mountford, [1985] UKHL 4, [1985] AC 809, [1985] 2 WLR 877. Over the years, case law has established that a tenancy will exist if certain conditions have been satisfied. The tenant must have exclusive occupation of defined premises, there must be some form of consideration paid by and to defined parties for this occupation and the occupation must be granted for a defined period of time, usually denoted by the frequency of payments. In Street v Mountford, the court also held that a tenancy could not be created in limited, exceptional circumstances, such as in an act of charity.

Agent ordered to pay over £20K in fines for breach of consumer protection legislation

The tenants in question originally complained to Islington Council because the landlord refused to return their tenancy deposits. On investigating this issue, the council became aware of the “licence” agreements. Islington Council’s Trading Standards division began an investigation, which resulted in a successful prosecution and in the agent being ordered to pay significant fines, including £3000 compensation to the tenants affected.

The council’s case was predicated on the agent’s breach of Regulation 3 of the Consumer Protection from Unfair Trading Regulations 2008, which prohibit traders from unfair trading practices. Under Regulation 8 of this legislation a trader will be guilty of an offence if he knowingly or recklessly engages in a commercial practice which contravenes the requirements of professional diligence and this practice materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product.

In this case, the council argued that the tenant’s behaviour was likely to be distorted by the agent’s practice as the tenant would mistakenly believe that the protections afforded to tenants by legislation would not apply to him. This could, for example, give rise to a tenant being unwittingly illegally evicted from his or her home.  Trading Standards made the following points in support of its argument:

• the facts gave rise to a tenancy
• issuing a licence agreement was likely to distort the behaviour of the average person entering into an agreement, as they would no longer pursue remedies available to them
• the agent is a professional letting agent and is required to understand the circumstances which give rise to a tenancy and the distinction between a licence agreement and a tenancy
• the average consumer is unlikely to understand the distinction between a tenancy and a licence and cannot, therefore, be said to have willingly entered into an agreement that greatly reduced his or her legal rights

The agent entered a guilty plea and was ordered to pay fines totalling £20,500.

Sham “licences” in Northern Ireland?

Practically, we have seen evidence of such practices being adopted by landlords and agents in Northern Ireland who may, mistakenly, believe that they can grant a licence agreement in circumstances which otherwise present as a tenancy. This largely occurs in shared housing, where the property is rented room by room or one tenant may be authorised to sublet the remainder of the rooms. In the majority of these cases, the occupant will be a tenant and will enjoy the protections of tenancy law, regardless of what the agreement says.

Landlords and property managers should ensure that they are aware of the distinction between a tenant and licensee and that their agreements accurately reflect an occupant’s legal status.

Any tenant who is unclear as to their status or who has been issued with a licence agreement should contact Housing Rights for advice.

Trading Standards is responsible for investigating breaches of consumer protection legislation in Northern Ireland.  You can contact Trading Standards via Consumerline on 0300 1236 262

Improving the private rented sector in Northern Ireland

Housing Rights’ annual private rented sector conference on 15 November 2017 will consider alternative dispute resolution and the role it has within the PRS.  The programme will look at key issues facing the sector, showcase good practice from other jurisdictions, and stimulate policy debate.

Confirmed speakers to date include:

• Brian Robson, Joseph Rowntree Foundation
• John Blackwood, Scottish Association of Landlords
• Bethan Jones, Rent Smart Wales
• Natasha Miller, Letting Agent Plus
• Jon Anderson, Choice Housing

Reserve your place by booking online or email [email protected].