Landlords have been warned to be extra careful if trying to find loopholes in the Renters’ Rights Act.

According to property lawyer David Smith, some are actively looking for constructive ways of avoiding granting a tenancy or granting one that falls outside the scope of the Housing Act 1988, such as by using licences to occupy as an alternative. These typically involve providing additional services and having the ability to reallocate occupiers to an alternative room.

Smith, at Spector Constant & Williams, tells LandlordZONE: “Some of them are just scammers but there are some more serious and professional players looking too. Most of it relates to students and specifically overseas students.”

Premiums

Another example is the use of lease premiums - used historically because tenants got a considerable income tax advantage from a premium lease if their employer paid the lease premium as the premium was not a taxable benefit whereas rent was. Once that loophole was closed their use evaporated. “Using them to avoid the operation of the Act is not very likely to be in the tenant’s interest, or they will not perceive it that way,” says Smith.

Other proposals would never work, he adds, such as agents talking about taking rent in advance and then ‘drip feeding’ it to the landlord so that they get paid monthly. “This is obviously ridiculous as it treats the agent and landlord as distinct when they mostly are not.”

Attempts

Smith warns that local authorities are likely to perceive attempts to avoid the legislation as sham agreements. “I have been told that some local authorities will treat anything unusual which falls outside the Housing Act 1988, other than obvious high-value tenancies and company lets, as a sham, fine the landlord accordingly, and let the landlord try to appeal to the property tribunal and demonstrate otherwise.”

The Independent Landlord, Suzanne Smith, adds that switching an HMO to a licence to occupy model will only work if the operation is genuinely run as hotel-style serviced accommodation, without long-term occupiers who consider it to be their home. “If not, the arrangement is likely to remain a tenancy. Any HMO landlord wishing to test a licence to occupy model as a loophole needs to be aware this is a high-risk strategy,” warns Smith.

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