It may seem unusual, but there are times when a landlord may wish to stop taking rent.

Mesne profits: How to accept rent without jeopardising possession

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Today we are sharing a guest blog from The Commercial Trust.

It seems unusual, but there are occasions where a landlord might not want to accept rent - such as when a tenant is in the process of being evicted.

This necessity dates back to the Law of Property Act 1925, in which it is stated (in section 54) that a tenant remaining in a property, in exchange for rent, will result in a “creation by parol” (orally) of a lease. In modern terms, continuing to accept rent after a tenancy ends implies that a periodic tenancy exists.

Under the law, a deed need only exist if:

  • the term exceeds three years
  • the tenancy does not start immediately
  • a rent other than market rent (“the best rent which can be reasonably obtained”) is charged

The periodic tenancy runs from rent due date to rent due date, which will usually be monthly. Unless your tenant pays rent triennially, or less frequently, a binding agreement will be created, paperwork or no. Under section 5 of the Housing Act 1988, when a periodic tenancy is created, the tenant is still entitled to the same security of tenure and quiet enjoyment of the property.

Issuing a Section 8 notice is one of the ways a tenancy can end; when it expires, the tenancy is terminated. Therefore, accepting rent and implying a new periodic tenancy may jeopardise a Section 8 possession claim in the eyes of the law.

Mesne profits

Mesne profits (pronounced ‘mean’ profits, and also known as ‘occupation charges’) are a handy hangover from old feudal law that still informs much of today’s legislation. Mesne profits represent the value that a tenant derives from the occupation of a property between the time a tenancy ends and the time the tenant leaves.

If, following the issue of a Section 8 notice, you wish to accept rent as mesne profits, do not continue to accept rent under the old terms of your contract. Instead, write to your tenant informing them that they should continue to pay an occupation charge equal to the sum of the original rent, at the original intervals, but that the charge should not be taken as intention to create a new tenancy.

Send this letter by recorded delivery and keep a copy for yourself.

What about a Section 21?

A Section 21 notice does not have an expiry date, and therefore does not end a tenancy – the tenancy only ends when a court awards possession.

Additionally, the Local Government and Housing Act 1989added an amendment to Section 21 of the Housing Act 1988 to the effect that periodic tenancies, “whether statutory or not”, were exempt from the original stipulation that no further tenancy should be in effect if a court is to grant a possession order.

You shouldn’t therefore need to be as cautious with a Section 21; of course, the law is only ever as rigid as a judge’s interpretation. You may wish to treat money given to you by your tenant after serving them with a Section 21 as mesne profits regardless. Remember, if in doubt; seek advice from a professional property solicitor.

 


Posted by Ben Gosling, Commercial Trust on 8 July 2014

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