Apr

Be careful when giving rent holidays to tenants, warn experts

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Landlords may want to help struggling tenants and give them a rent holiday, but past experience shows putting it all down in writing correctly is the key to future problems.

Landlords need to be clear about the
timeframe of any rent holiday given during the crisis to avoid confusion and
future disagreements with tenants, leading experts have warned.

Giving a rent concession for a specified period of months, rather than trying to limit it to the duration of the emergency is a safer bet, according to David Smith, policy director at the National Residential Landlords Association.

He advises landlords to get something clear in writing, decide
whether it’s a temporary reduction or a waiver – if the money is going to be paid
back later, and if so on what basis – and if interest needs to be paid.

Says Smith: “There’s no point in saying ‘until the current
situation ends’ as that’s too uncertain. Better to say three months and then
extend it later on.”

Tim Frome Legal Director at Landlord Action says: “There is legal precedent which states that a landlord should agree the specifics of any changes to the rent with their tenant.

“A written and signed agreement stating the
amount of any reduction and the period of time would be best.

“Remember if the situation changes in the
future you can always revisit the agreement, but I would urge landlords to
discuss any issues directly with their tenant, then formalise any changes to
accepted rent in this way.”

Legal precedent

Confused landlords have
been directed to an old but relevant legal case of Central London Property
Trust v High Trees House, where the owner of a block of flats agreed that a
tenant could halve their rent in 1940 due to the “prevailing conditions” at the
time.

The agreement simply
stated, “We confirm the arrangement made
between us by which the ground rent should be reduced…to £1,250.” However, it
didn’t mention the length of time this should be, and the tenant argued the
arrangement was permanent.

The
court decided that the rent should revert to the full amount in early 1945,
when the prevailing conditions at the start of the war had disappeared.

Smith tells LandlordZONE
that the High Trees case is used a lot,
although not in this way.

He explains: “The High Court actually declined
to find any agreement existed at all but held that it would be unconscionable
for the landlord not to keep the promise of the reduction. Which is why it’s an
estoppel.”

Download a free pro-proforma
rent reduction agreement.

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