Part V               

sub-occupation agreements

Introduction

                    5.1               In this Part we consider the position where an occupier wishes to give rights of occupation to another, while preserving the occupier’s position with respect to the head landlord under the agreement. By analogy with the concept of sub-tenancy, we refer to these agreements as “sub-occupation agreements”. Under such agreements, the occupier would be the landlord of the sub-occupier.

                    5.2               We discuss the cases where sub-occupation agreements would themselves be covered by our new scheme.[1] We ask in what circumstances this should be permitted, and whether there are circumstances where it should not be permitted. We consider what the type and content of these sub-occupation agreements should be. And we discuss the effect on head landlords of properly authorised sub-occupation agreements.

                    5.3               As with other questions addressed in this project, we seek to provide a framework that is comprehensible to both landlords and occupiers, and strikes an appropriate balance between their interests. We also wish to build on the framework we proposed in CP 162.

The current law

                    5.4               At present, tenants, who wish to grant the right to occupy either all or part of their property to someone else for a limited period,[2] may be able to do so through the process of sub-letting. The law of landlord and tenant permits tenants to sub-let the whole of their premises, at the same time recognising that landlords may wish to control sub-letting. Sub-letting is thus permitted unless prohibited by a term in the tenancy agreement.

                    5.5               In many situations, sub-letting may be permitted only after the consent of the landlord has been obtained. Sub-letting in breach of such a covenant will be valid as between the tenant and the sub-tenant. In other words, although the sub-tenancy has been created without the permission of the head landlord, there is a valid relationship of landlord and tenant between the tenant (who becomes the immediate, or “mesne”, landlord) and the sub-tenant. However, the sub-tenancy may not bind the head landlord. The breach of covenant by the tenant involved in the sub-letting may then result in the sub-tenant becoming liable to proceedings for forfeiture brought against the tenant (mesne landlord). Thus if the tenant (the mesne landlord) disappears, the position of the sub-tenant, as against the head landlord, becomes very precarious.

Statutory provisions

                    5.6               Special statutory provisions allow a sub-tenant to apply to become the head landlord’s tenant in proceedings for relief against forfeiture when a head landlord seeks to forfeit the lease of the sub-tenant’s immediate (mesne) landlord.[3]

                    5.7               In addition, each of the current legislative regimes relating to housing makes different provision on this issue.

                                            (1)             The Rent Act 1977 contains no implied term against sub-letting.[4] The general landlord and tenant rules outlined above therefore apply to Rent Act protected tenancies. However, a statutory tenancy which arises under the Rent Act terminates as soon as the statutory tenant ceases to occupy it as his or her residence. Thus, sub-letting the whole will usually terminate the statutory tenancy. Sub-letting of part of the premises may be possible.

                                            (2)             The Housing Act 1988 provisions relating to sub-letting are the same whether the tenancy is fully assured or an assured shorthold tenancy, but they differ according to whether the tenancy is fixed term or periodic. In relation to a fixed term tenancy, the normal rules of landlord and tenant law mentioned above apply. However, under section 15 it is an implied term of a periodic assured tenancy that the tenant will not sub-let without the consent of the landlord. The landlord is allowed to withhold consent on any grounds, however unreasonable they may be.[5] Sub-letting of the whole premises will normally take the tenancy out of its assured tenancy status, as the tenant will not be able to show that he or she is still using the premises as their only or principal home.

                                            (3)             Under the Housing Act 1985 the position is more complex. Section 93(2) provides that, on sub-letting the whole property, not only does the tenancy cease to be a secure tenancy (even if the tenant actually remains in the property) but it also cannot again become a secure tenancy (for example, on termination of the sub-letting).[6] Sub-letting of part of the property is permitted, subject to the tenant obtaining consent from the landlord, consent which must not be unreasonably withheld.

                                            (4)             Under the Housing Act 1996, an introductory tenant or licensee can sub-let freely, subject to any express prohibitions, as that Act and the secondary legislation thereunder contain no implied term on sub-letting.[7] However, an introductory tenancy must meet the same “tenant condition” as a secure tenancy.[8] Therefore a sub-letting of the whole will abolish the tenant’s introductory status, as the tenant will no longer be occupying it as his or her home.[9]

                    5.8               We conclude that, in law reform terms, there is a clear need to simplify the complexity of the current law as outlined above.

Our approach

                    5.9               It is consistent with the emphasis on the agreement, which we spelled out in CP 162, that the agreement itself should define the circumstances in which an occupier with an occupation agreement covered by our proposals should be able to create a sub-occupation agreement of the premises.

                5.10               We provisionally propose that the issue of whether or not an occupier should be able to enter a sub-occupation agreement of the premises should be determined by a term in the original agreement.

Type I agreements

                5.11               We consider first the extent to which occupiers are entitled to create sub-occupation agreements of part of the premises; we then consider the position where occupiers wish to create sub-occupation agreements of the whole of the premises.

Sub-occupation agreements of part of the premises

                5.12               As noted above, the Housing Act 1985 currently provides that secure tenants should have the right to sub-let part (but not the whole) of their premises.[10] This is not an absolute right but is subject to their obtaining the written consent of the landlord, consent which must not be unreasonably withheld.[11]

                5.13               In the case of periodic assured tenancies for which no premium has been taken, it is an implied term, which can be overridden by express terms, that the tenant cannot sub-let the whole or part of the property without the landlord’s consent.[12] Consent can be unreasonably withheld as section 19 of the Landlord and Tenant Act 1927 does not apply.[13]

                5.14               In the case of other categories of tenants, the position is determined by the terms of any tenancy agreement or lease under normal rules of landlord and tenant. Thus sub-letting part of the premises is permitted where the agreement so provides. Whether or not the consent of the landlord is required also depends on the agreement; if it is, it must usually not be unreasonably withheld.

                5.15               It might be asked whether, if a right to take in lodgers is to be part of our proposed scheme – as discussed in Part IV above – it is necessary for there to be separate provision relating to the creation of sub-occupation agreements of part of the premises.[14]

                5.16               The answer is that there will be situations in which a third party coming into the dwelling does not share living accommodation with the landlord, so that they wouldnot fall within the proposed definition of lodger.[15] They would therefore be a sub-occupier rather than a lodger.[16] The obvious example is where the size and configuration of the premises are such that a sub-occupation agreement is possible which does not involve sharing with the landlord (for example, where there is a separable “granny” flat).

                5.17               In view of the fact that secure tenants already have a statutory right to sub-let part of the premises, albeit subject to the consent of the landlord, we think that a similar right should be retained in the scheme which we propose. In order to sustain the principle of “landlord-neutrality” we think that such a right should form a term in all type I occupation agreements.

                5.18               We provisionally propose that there should be a compulsory term in the type I agreement that the occupier may enter a sub-occupation agreement of part of the premises, subject to the consent of the landlord, which may not be unreasonably withheld. This right would not however be available where the occupier would have to cease to occupy the property as a home in order to grant the sub-occupation agreement.

Sub-occupation agreements of the whole of the premises

                5.19               This leads to the next issue: should there be a different principle for sub-occupation agreements of the whole of the premises?

                5.20               We would anticipate that social landlords, whose primary purpose is the provision of housing to satisfy housing need, might be unhappy if, having granted a right to occupy a dwelling to a person or family in housing need, such person or family then entered a contract with others, who did not have the same degree of housing need, entitling them to come and live in the home.

                5.21               This argument could certainly be used to justify a landlord’s veto on sub-letting of the whole property. This would reflect the effective prohibition that currently exists in the context of secure and periodic assured tenancies.[17] This argument could indeed be used to justify an extension of the existing statutory prohibition to all grants of rights of occupation by social landlords.

                5.22               Against this it may be suggested that, where an occupier can demonstrate that he or she needs to leave their current home for a defined period – but can also demonstrate that he or she will wish to regain possession at some future date – the occupier should be able to make a temporary transfer of his rights of occupation over the whole of the premises to another.[18]

                5.23               Further, if a right to enter a sub-occupation agreement of part of the premises is, subject to consent, to be permitted, why should this principle not extend to a sub-occupation agreement relating to the whole of the premises? Arguably, the distinction between sub-occupation of part and sub-occupation of the whole is an unnecessary element of complexity which we should be striving to avoid.

                5.24               While private landlords who have let on type I agreements may be less concerned about meeting housing need, they will also wish to be able to control the identity of the people living in their properties, not least so that they can be assured that they are people who will be able to pay the rent.

                5.25               We would expect a well-drawn agreement to make express reference to the position on sub-occupation of the whole. Thus we think our proposed agreements should contain a term which deals with this question.

                5.26               Notwithstanding the points made in para 5.23 above, we have come to the provisional view that the distinction between creating sub-occupation agreements of part of the premises, and of the whole of the premises should be retained. We therefore think that a default term, that there be a landlord’s veto on the granting of a sub-occupation agreement of the whole of the premises, would be appropriate.

                5.27               To deal with the issue in para 5.24 above, a landlord, who chose to do so, could replace the default term with a more generous one, allowing the occupier to make a sub-occupation agreement subject to the landlord’s consent. The landlord could indeed remove any requirement for consent. And even if a landlord adopted the default term, the landlord could still, in any particular situation, choose not to exercise their veto.

                5.28               We provisionally propose that it should be a default term in the model type I agreement that there be a landlord’s veto on the granting of a sub-occupation agreement which would involve the occupier moving out of the whole of the premises.

                5.29               We dealt in Part II above with the legal position as between the (head) landlord, the original occupier and the sub-occupier where an occupier has purported to grant a sub-occupation agreement, either in breach of the landlord’s veto or without having obtained a necessary consent.[19]

Type II agreements

                5.30               We anticipate that type II agreements will be used primarily by private landlords, and only in special cases by social landlords. We have considered whether the right to enter sub-occupation agreements of the whole or part of the premises should be possible under a type II agreement.

                5.31               Under current housing law, private landlords and tenants have rather greater flexibility to agree the basis for any such arrangement than is available to social landlords. However, the present legal position is notorious for its lack of clarity.

                5.32               To assist in simplifying the law on this point, we think that the same principles relating to sub-occupation agreements, which we have suggested should apply to type I agreements, should also apply to type II agreements.

                5.33               We provisionally propose that the principles relating to sub-occupation agreements under type I agreements should apply equally to type II agreements.

The type and content of the sub-occupation agreement

                5.34               If occupiers are to be entitled to create sub-occupation agreements, three consequential questions arise: what type of agreement it should be, what the terms of the sub-occupation agreement should be, and what formalities should be required.

The type of agreement

                5.35               The first point to note is that sub-occupation agreements will, by definition, be created by private individuals. Therefore, under the principles set out in CP 162, the default position would be that the sub-occupation agreement would fall in the type II category.[20]

Periodic or fixed-term

                5.36               This still leaves open the question of whether the sub-occupation agreement would be a periodic or a fixed-term type II agreement.

                5.37               Problems could arise if the sub-agreement purported to give greater security than the original agreement. This could occur where an occupier under a periodic type II agreement purported to create a fixed-term type II sub-occupation agreement.

                5.38               The significance of these problems would depend on whether or not the head landlord is bound by the sub-occupation agreement.[21]

                5.39               If they are not bound, then the head landlord will be able to seek to repossess the premises by taking proceedings against the original occupier. Once the head landlord had obtained an order for possession against him or her, any others on the premises would be trespassers, who could be evicted as such. Thus the new occupier will turn out to have less security than the sub-occupation agreement suggested. The new occupier would have been misled about his or her level of security. But their redress would be against the original occupier, not the head landlord.

                5.40               If the landlord is bound by the sub-occupation agreement, and indeed is bound to the terms of the sub-occupation agreement rather than to the original agreement, then the landlord might end up taking on the new occupier under terms less favourable to the landlord than those which had originally been contracted for with the original occupier.[22]

                5.41               However, as the head landlord would only be bound by the sub-occupation agreement if they had consented to its creation in the first place, arguably they should live with the consequences of giving their consent.

                5.42               To avoid the problem of the sub-occupation agreement granting more contractual security than the original occupier has, a number of options can be considered.

                5.43               The first is that our new scheme could prescribe that sub-occupiers should always take on a type II periodic tenancy, as a matter of law and irrespective of what the occupier and sub-occupier have agreed. This would protect landlords from accidentally agreeing to too high a level of (contractual) security in the sub-occupation agreement, which they might be saddled with if the original occupier disappeared. However this might be too inflexible and fail to cater for a minority of cases where all three parties were happy for the sub-occupier to have a greater degree of contractual security.[23] Further, it would be contrary to our general approach that, where possible, the agreement itself should be an accessible and accurate statement of the terms binding the parties.

                5.44               A second option would be to provide that, where the landlord was bound by a sub-occupation agreement, the landlords’ obligations towards the sub-occupiers should be determined by the terms of the original agreement rather than those of the sub-occupation agreement. This would ensure that landlords could not be prejudiced by the terms of the sub-agreement. They would only be concerned to vet the potential sub-occupier, rather than also vetting the sub-agreement itself.[24] However this might unfairly result in the sub-occupier, who may or may not be aware of the head agreement, ending up with a new agreement which is different from the terms of their sub-agreement.

                5.45               We provisionally conclude that both these options are over-protective and inflexible. Our preferred option, therefore, is that there should be a default term in the original agreement which provides that, where the landlord consents to the creation of a sub-occupation agreement, such sub-agreement should be a periodic type II agreement. If the head landlord found they were bound to accept the sub-occupier on the terms of the sub-agreement, they would be able to use the notice-only procedure to terminate the agreement in the normal way. If they wished to be more flexible and, for example, accept a sub-occupier on the basis of a fixed term type II agreement, they would be free to do so.

                5.46               We provisionally propose that the model agreements contain a default term which provides that any sub-occupation agreement should be a type II periodic agreement.

The terms of the sub-occupation agreement

                5.47               A further question arises whether the head landlord should be able to prescribe the terms which the original occupier was seeking to include in the sub-occupation agreement. The relationship between the occupier and the sub-occupier should be principally a matter for them. Initially, the landlord’s interest in the sub-occupier’s agreement will be limited, as at that point there will be no direct contractual relationship between them.

                5.48               The landlord will, of course, wish to ensure that the sub-occupier does not appear to be the sort of person likely to cause nuisance or damage to the property, both of which are matters which may directly affect the landlord. But the fact that no sub-occupation agreement can be made without the landlord giving consent should avoid many of these problems.

                5.49               If the landlord gives consent to the creation of the sub-occupation agreement, this raises the possibility that, at some point in the future, the landlord will become bound by the sub-agreement.[25] We have asked ourselves whether, because of this possibility, the landlord should, when giving consent, also be able to impose conditions relating to the content of any sub-occupation agreement.

                5.50               In view of the fact that the default position we have proposed is that the sub-occupier will have a type II periodic tenancy, in relation to which security of tenure is limited, it could be argued that it would not be proportionate for our scheme to seek to prescribe that a landlord should be able to impose conditions as to the content of any sub-occupation agreement.

                5.51               On the other hand it could be suggested that a landlord might actually be more willing to grant consent if they were able to exercise some control over the content of any sub-occupation agreement, or indeed simply wished to be given a copy of any sub-occupation agreement.

                5.52               In order not to undermine the basic proposition that consent should not unreasonably be withheld, it would be essential that any conditions that the landlord might seek to impose on the content of a sub-occupation agreement should, equally, be reasonable.

                5.53               If consent to the creation of a sub-occupation agreement was given, subject to reasonable conditions being met, the further question arises as to what the consequences should be of the occupier ignoring one or more of those conditions when entering the sub-occupation agreement. Should this failure to adhere to the conditions mean that the original consent was, as a consequence, to be deemed not to have been given?

                5.54               We think that it would be unfair on the sub-occupier were the whole process of the creation of the sub-occupation agreement to be invalidated by a failure on the part of the occupier to adhere to one of the conditions. But we also think that, for example, if the landlord had required any sub-occupation agreement to be a type II periodic agreement, and the occupier sought to create a fixed-term sub-occupation agreement, the landlord should not be stuck with this breach of condition.

                5.55               We provisionally propose that landlords, on giving their consent to the creation of a sub-occupation agreement should be able to impose reasonable conditions as to the type or terms of the sub-agreement.

                5.56               We further provisionally propose that breach of these conditions should not invalidate the consent, but that any sub-occupation agreement created without compliance with such conditions should be deemed to be a type II periodic agreement.

Formalities

                5.57               In cases where an occupier has the right to grant a right of sub-occupation, we think that the normal rules relating to the provision of a written copy of the agreement should apply.[26]

                5.58               We provisionally propose that, where a sub-occupation agreement has been properly entered into, the same rules and sanctions relating to the provision of a written copy of the agreement by the occupier to the sub-occupier should apply as they apply to the original agreement.

The effect on head landlords of authorised sub-occupation agreements

                5.59               It seems obvious that, where the sub-occupation agreement has been authorised by the giving of consent by the landlord, or because the landlord has not required consent to be given, the landlord should be bound by the consequences of these decisions.[27] It is an essential concomitant of this that if it is agreed that the landlord can only withhold consent to a sub-agreement on the grounds that it is reasonable so to do, then one of the factors in assessing that reasonableness must be whether the landlord would have been willing to grant an occupation agreement to the sub-occupier in place of the original occupier.[28]

                5.60               If the original occupier brings the original agreement to an end by issuing a notice to quit, or a notice under a break clause or by surrendering the agreement, in such a case the sub-occupier would broadly step into the shoes of the original occupier from the date on which the notice or surrender took effect.[29]

                5.61               This does not mean that the head landlord comes into a contractual relationship with the sub-occupier by virtue of the sub-occupation agreement as such. The occupier remains the person with liabilities to the landlord, and, in particular, is liable for the sub-occupier’s behaviour where it puts the occupier in breach of the head agreement. This position is similar to the occupier’s liability for the behaviour of visitors and other household members.[30] However, once the agreement between the head landlord and the occupier is terminated, the landlord may become bound by the agreement with the sub-occupier in the following circumstances.

                5.62               If the landlord brings possession proceedings against the original occupier for breach of the original agreement (say, for failure to pay the rent) and the court orders possession to be given up and such order is executed, the sub-occupier will, from the date of execution of the order for possession, become the occupier under an agreement directly from the landlord.

                5.63               We have considered what type of agreement would then bind the original landlord and the sub-occupier. It could be argued that the type of agreement should be the same as under the original occupation agreement. But this could have the effect that a sub-occupier with only a type II sub-occupation agreement could be promoted to a type I agreement, if that was the status of the original agreement.

                5.64               On the other hand, it could be argued that the type of agreement created by the original occupier with the sub-occupier should be the type which the landlord takes over. After all that will have been the basis on which a landlord will have given his consent.

                5.65               We provisionally propose that, as between the landlord and the sub- occupier, the question of what type of agreement the landlord should be bound by should be determined by the type of agreement created by the original occupier with the sub-occupier.

                5.66               We further provisionally propose that if the landlord has given consent, or has included a term in the agreement allowing sub-occupation agreements to be made without consent (replacing the default term), then on the termination of the original agreement:

                                           (1)             The landlord should be bound by the sub-occupation agreement if the original occupier terminated the agreement by giving notice to quit or by exercising a break clause or surrendering. The sub-occupier should step into the shoes of the original occupier but only under the terms of the sub-agreement.

                                           (2)             If the landlord brings proceedings for possession against the original occupier or if the landlord used the abandonment procedure, then the landlord should have to serve notice on the sub-occupier (at the premises), who should be entitled to be joined in the action. The sub-occupier should be entitled to seek an order of the court converting the sub-occupier into a direct occupier of the landlord, but, again, on the terms of the sub-agreement. The court should do so unless it would have granted possession against this person if they had already been the occupier.[31]

The resulting liabilities of landlords and sub-occupiers

                5.67               Where the head landlord (“L”) becomes bound to accept the sub-occupier (“S”) on the terms of the sub-agreement, this will effectively operate as a change of landlord in that sub-agreement. This leads to the question of the extent to which L or S will be liable for breaches of the sub-occupation agreement, which occurred before L became the new direct landlord.

                5.68               We take the view that, as the new direct landlord, L should not be liable to S for any breaches of the sub-agreement by the previous landlord (the former occupier, “O”) which occurred before L became the new direct landlord of S. Any remedies for breach should be pursued by S against O.

                5.69               Nor do we think that L should be able to take action against S for any breaches of the former sub-agreement which S committed before the change of landlord.[32]

                5.70               We do not believe that this latter proposition should cause landlords excessive hardship. L should have ensured that the terms of the sub-occupation agreement contained provisions to protect L’s interests. These would provide that O should be able to take proceedings for possession against S for breach of the sub-occupation agreement and, where relevant, for damages. The original agreement between L and O should also provide that any damages obtained by O for damage to the premises should be passed to L. These proposals are in any event broadly consistent with the general rules of privity of contract and the Landlord and Tenant (Covenants) Act 1995.

                5.71               If L took proceedings for possession against O, and it was clear that the primary cause of the breach was actually the behaviour of S, then the court would not require L to become the direct landlord of S.[33]

                5.72               We provisionally propose that the new direct landlord should not take the benefit or burden of any breaches of the agreement which occurred before the change of landlord.

                5.73               We thus provisionally propose that the liability of the new direct landlord to the former sub-occupier should be limited to breaches of the agreement occurring after the date on which the new direct landlord became the new direct landlord. Any claims for breach of the sub-occupation agreement occurring before that date should be pursued by the former sub-occupier against the former occupier.

                5.74               We further provisionally propose that the liability of the former sub-occupier to the new direct landlord should be limited to breaches of the agreement occurring after the new direct landlord became the new direct landlord. Where a breach of the sub-occupation agreement occurred before the new direct landlord became the new direct landlord, the former sub-occupier should remain liable to the former occupier.