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The Law Commission
You are here: BAILII >> Databases >> The Law Commission >> RENTING HOMES 2: CO-OCCUPATION, TRANSFER AND SUCCESSION (A Consultation Paper) [2002] EWLC 168(6) (22 August 2002)
URL: http://www.bailii.org/ew/other/EWLC/2002/168(6).html
Cite as: [2002] EWLC 168(6)

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Part VI          

transferring rights of occupation

Introduction

                    6.1               In this Part we consider the general question of the extent to which occupiers should be able to transfer the totality of their occupation rights to another. We also discuss more specific issues arising from

                                            (1)             the right to exchange,

                                            (2)             transfers to those with a potential right of succession, and

                                            (3)             certain powers of the courts to order transfer.

                    6.2               We also discuss a number of related matters, including

                                            (1)             the effects of the transfer of the right to occupy to another,

                                            (2)             the relationship between sub-occupation agreements and transfers, and

                                            (3)             transfers of the residual periods of long leases.

Transfers

The current position

                    6.3               The total transfer of the property interest held by an existing tenant/leaseholder to another is currently achieved by the process of assignment. As with the law on sub-letting, the law on assignment is a complex mix of contract law, real property law and statute law. Broadly, whether a tenant/leaseholder has the right to assign to another will depend on the terms of the lease/tenancy agreement.

                    6.4               In the case of secure and introductory tenancies there is a more straightforward approach. The Housing Act 1985 and the Housing Act 1996 respectively provide that secure and introductory tenancies are completely incapable of assignment[1] except in prescribed circumstances.[2] A consequence of these provisions is that there can be no argument about the effect of a purported assignment; it is of no effect. The absolute nature of these provisions is – to an extent – counter-balanced by the statutory “right to mutual exchange”[3] which we discuss below.

Our approach

                    6.5               As with our proposals on the creation of sub-occupation agreements, we think that the rules regulating the ability (or otherwise) of an occupier to transfer the whole of his or her rights of occupation to another should be set out in the agreement.

                    6.6               We provisionally propose that any restrictions on the ability of occupiers to transfer the whole of their rights of occupation should be by way of a term in the occupation agreement.

                    6.7               The process of assignment is essential for long leaseholds of over twenty-one years, not covered by our scheme.[4] Restrictions on the ability of the leaseholder to transfer his or her title to property would seriously undermine the leasehold market in those areas of the country where leasehold is commonly found.[5]

                    6.8               However we are not convinced that, in the context of the occupation agreements covered by our new scheme, an untrammelled ability permanently to transfer occupation rights to others who are total strangers to the original contract is appropriate. Indeed, to provide otherwise would seriously undermine the ability, particularly of social landlords, to allocate their properties to those most in need of social housing.

                    6.9               If an occupier wishes to give up his or her rights to occupy a property, this should be done through the process of issuing a tenant’s notice to the landlord, surrendering the right back to the landlord, or, if the worst comes to the worst, abandoning the premises.[6]

                6.10               We provisionally propose that occupation agreements should contain, as a default term, a provision stating that there is a landlord’s veto against the transfer of the right to occupy by the occupier to a third party.

                6.11               Because we propose this as a default term, landlords will be able expressly to grant more generous freedoms to their occupiers if they so wish.

Transfer of Rent Act statutory tenancies

                6.12               We note here that Rent Act 1977, Schedule I, Part II, paragraphs 13 and 14 provide for a process of “transfer” of statutory tenancies by agreement between the outgoing tenant, the incoming tenant and the landlord. We have no knowledge of how frequently these provisions are used in practice, but we think that they would need to be preserved for Rent Act tenants under the scheme we propose.

                6.13               We provisionally propose that the rights of Rent Act statutory tenants to agree with their landlord to transfer their statutory tenancy should be preserved.

Special cases

                6.14               This general approach may need to be subject to a number of exceptions, which we now consider. They are

                                            (1)             the right to exchange,

                                            (2)             the right to transfer an agreement to a potential successor before death, and

                                            (3)             the requirement to transfer an agreement to another person under a court order in certain family proceedings.

A right to transfer by mutual exchange

Type I agreements

                6.15               The right of secure tenants to exchange their tenancies was an important part of the “tenants’ charter” to which the Housing Act 1980 gave effect. It is now contained in Housing Act 1985, section 92. It should be stressed that the right is not an unconditional one. It can only be exercised with the consent of the landlords involved. Special provisions on consent are found in Housing Act 1985, Schedule 3.[7]

                6.16               Housing Corporation guidance says registered social landlords should make up for the lack of this statutory right in assured tenancies by including equivalent contractual provisions in their tenancy agreements.

                6.17               The right retains its policy importance in helping to promote mobility across the country. It is “mutual” in that the exchange must be with another social tenant who wants to exchange his or her property with that of the transferor, or there must be a complete ring of tenants moving around a circle. This means that the interests of social landlords in meeting housing need will not be prejudiced as no new tenants, not in housing need, can come in to social housing because of the right. It is a right which many council tenants currently make use of. We have concluded that it is a right which should be reproduced in our new scheme.

                6.18               As one of the objects of our proposals is to create a level playing field across the social rented sector, we think this right could properly be extended to all grants of the right to occupy made by social landlords under type I agreements. Most of the current problems caused by attempts to exchange between secure and assured tenants of social landlords will be removed by our proposal for a unified type I agreement covering both sectors.[8]

                6.19               We provisionally propose that it should be a compulsory term in any type I agreement granted by a social landlord that the occupier should have the right to exchange his or her right of occupation with another occupier granted a type I agreement by a social landlord. The right to exchange would be subject to consent being given by the landlords affected.

                6.20               The question then arises whether this right should be extended to occupiers under type I agreements which have been created by private landlords. We have stated that we want to make the new agreements as landlord-neutral as possible. A private landlord offering type I agreements could be seen as having voluntarily opted in to providing a high degree of security for their occupiers.

                6.21               On the other hand, it is arguable that while the right to mutual exchange is properly a feature of the public/social rented sector, it would impose an unfair and unnecessary burden on private landlords. In any event, it might be suggested that the imposition of a right to exchange would be regarded as a significant extra burden by any private landlords who might thereby be deterred from entering type I agreements, which otherwise they might have considered.

                6.22               Furthermore, private landlords will not usually allocate their homes on the basis of an assessment of housing need. If private landlords are included in the right of exchange, this could lead to social landlords having to accept as occupiers, via the exchange process, those who would not otherwise qualify for social housing on the basis of housing need.

                6.23               Nevertheless, if we are correct in our assumption that use of type I agreements by private landlords would be rare, and that where this happened, the landlords might well be motivated by similar considerations that apply to the provision of social housing (for example, philanthropic organisations which did not want to register with the Housing Corporation), this might lead to the conclusion that there would have been some assessment of need. Thus, in the few cases where occupiers sought to use the right of mutual exchange to move from private to social landlords, the policies of social landlords would not be seriously compromised.

                6.24               Equally it is now commonly accepted, that the policy behind social housing should not be purely about need, as sustainable mixed communities should be encouraged instead of “ghettoisation” of social landlords’ estates. This might also indicate that to include occupiers of private landlords within the scope of the right to exchange would not seriously prejudice a social landlord’s allocations policy.

                6.25               If it was felt that to impose a compulsory term giving the occupier the right to mutual exchange on private landlords would be unacceptable, we wonder whether, as an alternative, there might be a default term in type I agreements created by private landlords providing for the possibility of the occupier having the right to exchange.

                6.26               We invite views on the following questions:

                                           (1)             Should private landlords be required to make any provision for a right of mutual exchange in any type I agreement they may enter into?

                                           (2)             If the answer is yes, should this be by way of a compulsory term, or a default term?

                                           (3)             Would private landlords who might otherwise consider using type I agreements be deterred from doing so by the existence of a right of mutual exchange?

                                           (4)             Would the interests of social landlords be prejudiced if mutual exchanges led to their receiving type I agreement occupiers from private landlords who had never been through the allocations procedure of any social landlord?

Type II agreements

                6.27               The right of mutual exchange does not currently apply to introductory or assured shorthold tenants. Given their short-term nature we do not think that such a right would appropriately apply to type II agreements

                6.28               We provisionally propose that such a clause should not be a compulsory term in any type II agreement.

Consent to exchanges

                6.29               Turning to the issue of consent, the current provisions are set out in great detail in Housing Act 1985, section 92 and Schedule 3. Unusually, there is no general discretion to refuse the application, which could be the subject of challenge if unreasonably withheld. Rather, these provisions are couched in a much more positive fashion. Consent can only be withheld on specific grounds listed in Schedule 3. If consent is withheld on other grounds it is to be treated as given.[9] This puts the tenant in a stronger and clearer position than in most other situations where consent is sought.

                6.30               As there is no specific requirement of reasonableness, this might suggest that consent could be withheld on a Schedule 3 ground, even where it was unreasonable to do so. Nevertheless, it appears that Landlord and Tenant Act 1927, section 19 would imply a requirement that any refusal of consent must be reasonable into the provisions. Any refusal would also be subject to normal administrative law challenge for unreasonableness. Secure tenancies are not affected by the Landlord and Tenant Act 1988, because of section 5(3) of that Act.

                6.31               There is a strict time-limit of 42 days from the tenant’s application (though there are no provisions requiring the application to have been in writing or in a particular form) for the landlord to be able to rely on any of the grounds for withholding consent.[10] Oddly, there is no provision deeming a failure to reply to be either a refusal or a consent.

                6.32               Finally there are strict provisions on conditional consent.[11] The only condition which can be validly imposed is one that before consent is granted the tenant should first remedy any breach of their agreement.

                6.33               One of the specific problems with the combined effect of subsections 92(3) to (6) is the lack of clarity as to the position where a landlord does not respond to a request within 42 days. After the time has expired, they cannot rely on any of the grounds for refusal. But as they have not actively replied withholding consent on any other non-permitted grounds, they cannot be deemed to have given consent under section 92(3). They may still be able to give consent subject to a condition under section 92(5), and there is no time limit on how long they take to do that.

                6.34               We would like to see a much clearer time-table applied to the whole process, with a set of rules which is determinative of the position at the end of that time limit.

                6.35               We provisionally propose that the right to exchange should be subject to the landlord’s consent.

                6.36               We invite views as to whether the new scheme should reproduce the current requirements as to the landlord’s consent to mutual exchange in Housing Act 1985, section 92 and Schedule 3, or whether instead a simpler, more clearly time-limited procedure should be adopted.

                6.37               We ask whether, in the alternative, the same criteria of general reasonableness should be adopted as we are suggesting in other cases where consent is required, based on Landlord and Tenant Act 1927, section 19 and the Landlord and Tenant Act 1988.

Chains of exchanges

                6.38               It has been suggested to us that a problem with the current mutual exchange provisions is that they do not cater for “chains” of potential transfers unless the chains connect round in a complete loop, with the last person taking on the tenancy of the first. Thus if A exchanges with B, B exchanges with C, and C exchanges with D, it is essential that D moves into A’s home. This conflicts with the wishes of some social landlords to be able to innovate with current ideas about “choice-based lettings”.

                6.39               It may be preferable to develop the current scheme so that not only would an occupier’s right crystallise, as now, where the chain formed a complete circle of exchanging occupiers, but also where the chain started with a landlord who was prepared to accept the creation of a “void” and ended with a landlord who was prepared to allocate a “void”. In the latter case, A could exchange with B, B could exchange with C, C could exchange with D, but D would not be required to complete the circle by moving into A’s home. D could move into quite different premises; and A’s home would be available for letting to someone new.The landlord’s consent would remain the deciding factor, but it would involve new criteria for determining the reasonableness of the decisions of the landlords at either end of the chain.

                6.40               We understand that social landlords involved in exchange schemes also want to be able to facilitate chains of moves which may involve private landlords who have been approved for the purpose by all the participating social landlords. Further changes to the current system could be made to add this flexibility. It might be easier to achieve this through landlords’ allocation policies than by an extension of the right to exchange. If all the landlords are willing to allow the moves, these can be done without the exercise of rights by the occupiers, but rather by using a series of surrenders connected to grants of new tenancies of the next property in the chain.

                6.41               We invite views as to whether the current requirement for the existence of a complete chain of exchanges should be retained, or whether it should be able to be waived by the landlords concerned.

Transfers to potential successors

                6.42               In Part VII, below, we discuss the question of the circumstances in which a person should be able to take over the rights of occupation of an occupier who has died. We provisionally propose that there should be, as there is now, a statutory scheme allowing certain people closely connected to the occupier to succeed to the agreement on the death of the occupier. Here we consider the prior question of whether an occupier should be able to transfer his or her rights to a potential successor while still alive.

                6.43               Under the present law, secure and introductory tenants, though denied any general right of assignment, are permitted to assign to a potential successor.[12] This seems a very sensible provision. It does not prejudice the landlord as they would have exactly the same people as tenants as they would have had after the operation of the right of succession after the original tenant died; but it allows tenants to set their affairs in order before they die. It is particularly useful in situations where someone is considering going into residential care and wants to ensure that their potential successors are protected against the risk of loss of the home.

                6.44               It should be noted, however, that the ability to assign is not an unqualified one. Under Housing Act 1985, sections 91 and 92, assignment to a potential successor is only a possibility and can be prohibited by express terms of the tenancy. Four possible situations can be envisaged.

                                            (1)             There is no express term prohibiting assignment; thus the common law applies so the tenant is able to assign to a potential successor without consent.

                                            (2)             There is an express term prohibiting such assignment absolutely; in such a case any assignment in breach of that term is effective to transfer the tenancy to the assignee, but will render the assignee (and assignor) liable to action for breach of the covenant and in particular to repossession (whether by forfeiture or for breach of the agreement).[13]

                                            (3)             There is an express term prohibiting assignment without the consent of the landlord, which may not be unreasonably withheld.

                                            (4)             There is an express term prohibiting assignment without the consent of the landlord, which may be withheld on any basis.

                6.45               If an assignment goes ahead in circumstances (3) or (4), without the consent of the landlord, the assignee and assignor will also be liable to proceedings for forfeiture or for possession. However, the court in deciding whether to make a forfeiture or possession order, it will have to consider the reasonableness of so doing. One of the factors will be the age of the tenant and accordingly the likelihood that the prospective assignee will succeed in due course anyway.

                6.46               In our view the present provisions allow for an unnecessarily complex range of options. We think a simpler approach would be to establish a general rule that transfer to a potential successor should be possible, subject to the landlord’s consent.

                6.47               We provisionally propose that type I agreements should contain a compulsory term allowing for the occupier to transfer his or her rights to a potential successor, subject to the landlord’s consent.

                6.48               The nature of the current market for type II agreements is more short-term and less secure than for type I agreements. There is therefore less likelihood that those occupying under type II agreements will have the same sense of attachment to home and location as those under a type I agreement. For this reason, we do not think that it is appropriate for there normally to be a right to succeed to a type II agreement, particularly not to a periodic type II agreement. Thus there would be no right to assign to a potential type II successor.

                6.49               Different considerations apply where a fixed-term type II agreement has been created. Here we will be provisionally proposing that such an interest should be capable of being left by will or on intestacy. This does not necessarily mean, however, that the person entitled under the will or on intestacy should have the right to succeed to the agreement prior to the death of the occupier.

                6.50               Nevertheless, we would not want to prevent a landlord and occupier agreeing this if they so wished.[14] We think that the best way to achieve this is to propose a default term that, in the case of type II agreements, there should be a landlord’s veto over the ability of an occupier to transfer his right to a potential successor, prior to his or her death. This will not prevent the landlord from agreeing to this in any particular case.

                6.51               We provisionally propose that there should be a default term in the type II agreement giving the landlord a veto over the assignment of the agreement.

Transfers to joint successors

                6.52               We have suggested above that there should be circumstances in which a new joint occupier may, subject to the consent of the landlord, be brought into the agreement.[15] In the context of the present discussion, we think it would often be useful for the occupier to be able to pass the agreement to more than one person. This is not possible in the present state of the law.

                6.53               In particular this can be an issue in cases where an elderly parent is the secure tenant,[16] but is having to consider moving into residential care, leaving behind their adult child who may have been acting as their carer. Currently the only option available to the parent is to assign to their potential successor.[17] The problem with this is that the parent has to give up the tenancy completely to their child at a time when it is not clear whether they will be coming back out of residential care. If transmission could be to joint occupiers then the parent could transmit the agreement to the child/carer, jointly with themselves.

                6.54               The current position can also lead to problems where there is a period of uncertainty while a choice is made by the potential successors, and in default by the landlord or the court, as to which of several potential successors should take up the position.

                6.55               These difficulties could be eased by permitting transfer to joint occupiers. Indeed, if there is to be a right to apply to join an agreement then it would seem odd not to allow a joint agreement from the start.[18]

                6.56               We provisionally propose that it should be possible for the transfer to a potential successor to lead (subject to any terms in the contract) to the transfer to joint successors.

Transfer by order of family courts

                6.57               The family courts can currently order the transfer of a tenancy from one family member to another as part of their powers of dealing with the family’s affairs. We believe that it is important that the family courts retain these powers.

Current family legislation

                6.58               There are two principal sets of family law provisions under which a court may currently order a transfer of a tenancy between family members.

                                            (1)             Provisions aimed at property generally.

                                            (2)             Provisions aimed at tenancies specifically.

General property provisions

                6.59               In the case of spouses, a court can make a property adjustment order (on divorce, nullity and judicial separation) under Matrimonial Causes Act 1973, section 24.[19] Such orders only apply to “property” in the strict sense, so they would apply to contractual tenancies but not to (Rent Act) statutory tenancies or licences.[20] The order is not effective until the spouse complies by assigning the tenancy.

                6.60               The Children Act 1989 contains similar powers to make property transfer orders.[21] These are available between parents of children, irrespective of their marital status, but are only for the benefit of the children. The court can make orders for settlement or transfer, to or for the benefit of a child, of “property” belonging to either parent. This will therefore cover tenancies where they are treated as property, as under Matrimonial Causes Act 1973, section 24.

                6.61               The fact that a court orders an assignment under these provisions does not remove the requirement that, if the tenancy requires the landlord’s consent before an assignment can occur, the landlord’s consent to these court-ordered assignments is also required. By contrast, consent is not required when a court makes an order under the Family Law Act 1996.[22] This leads to confusion as to whether the landlord’s consent is needed for these various orders to take effect. We believe our scheme should, if possible, result in greater transparency on this point.

                6.62               The powers of the courts under the Matrimonial Causes Act 1973 and the Children Act 1989 to order transfers of property interests are based on there being property interests which can be transferred. These rules sit awkwardly with the underlying principles of the scheme we are proposing, which moves away from a reliance on the creation of a property interest as the basis of the occupation agreement.

                6.63               This raises the question whether the Acts of 1973 and 1989 should be amended to ensure that they cover all occupation agreements that come within the scope of our proposed scheme, or whether those with occupation agreements under our scheme should simply rely on the provisions of the Family Law Act 1996 (discussed below).

                6.64               We can understand that amending the Acts of 1973 and 1989 might lead to unintended and even unacceptable consequences which we have not anticipated. We therefore make no provisional proposals on the issue. However we would be pleased to learn the views, particularly of family law practitioners, on this issue.

                6.65               We invite views on whether Matrimonial Causes Act 1973, section 24, and Children Act 1989, Schedule 1 paragraph 1(2)(d) to (e) should be amended so that they apply to all occupation agreements falling within the scope of our new scheme, irrespective of whether they would otherwise be regarded as creating a property interest.

Specific provisions on tenancies

                6.66               The Family Law Act 1996, section 53 and Schedule 7, paragraph 7[23] makes provision for the court to vest protected, assured (including assured shorthold), secure or introductory tenancies in non-tenant partners of tenants. Schedule 7, paragraph 8 makes separate but similar provision for Rent Act 1977 statutory tenancies.[24] There is no equivalent of this provision in the Children Act 1989, and so these powers of transfer cannot be used between parents of a child where the parents are not married or cohabiting.

                6.67               It is worth noting the following.

                                            (1)             This provision covers “tenancies” defined in the relevant housing legislation rather than by strict principles of landlord and tenant law. This is consistent with our fundamental approach of not relying on property law to define the nature of the agreements covered by our new scheme.

                                            (2)             This provision is available to heterosexual (but not homosexual) cohabitees and also to spouses even outside of the context of divorce and separation proceedings.[25]

                                            (3)             It does not rely on any action by the tenant, as the vesting is effected by the court order.

                                            (4)             In recognition of the potentially significant impact on the landlord who may be faced with a new tenant, the Family Law Act 1996 requires the courts on considering making such orders to have regard to the suitability of the parties as tenants, and to give the landlord an opportunity of being heard.[26]

                6.68               The Family Law Act also makes explicit provision for both binding the new tenant into the benefits and burdens of the agreement and releasing the old tenant from them.

                6.69               As the thrust of our provisional proposals is to move away from treating agreements covered by our new scheme as property and to see them as contracts governed by a special statutory scheme, and as the Family Law Act 1996, Schedule 7 already takes this approach, it therefore appears that that Act would need only minimal adjustment to cater for our new scheme.

                6.70               We provisionally propose that the Family Law Act 1996, Schedule 7 should be amended to refer to any agreement covered by our new scheme.

                6.71               We provisionally propose that the model agreements under our new scheme should contain a compulsory term allowing agreements to be transferred by order of the court made under the Family Law Act 1996, Schedule 7.

Effects of the transfer of the right to occupy to another

                6.72               The law of landlord and tenant also deals with the effects of an assignment on the rights and liabilities of the assignor, assignee and landlord where a tenant has assigned the tenancy to another. As with the law on sub-letting, the law on the effects of assignment is a complex mix of contract law, real property law and statute law, much of which is ignored in practice. We believe the law should be simplified, so that transfers can be effected with a minimum of formality and result in the previous occupier having no ongoing liability for any future breaches of the agreement.

Consent

                6.73               We have suggested, above, that there should be a default term in any occupation agreement that the landlord should have a veto over any proposed transfer. If, despite this, the landlord agrees that a transfer can take place, this consent should be binding on the landlord, and the transferee should, in general, step into the shoes of the transferor.

                6.74               We provisionally propose that a transfer should not take effect until after any necessary consent has been given by the landlord.

Method of transfer

                6.75               Under the current law, a tenancy can only be assigned by deed, even where the original tenancy did not have to be granted by deed.[27] If no deed is used, a contract to assign a tenancy may be enforceable in equity, but only if it complies with the requirements of Law of Property (Miscellaneous Provisions) Act 1989, section 2 by being in writing, signed by both parties and containing all the terms of the contract.[28]

                6.76               These restrictions have a valuable role in leasehold conveyancing. They appear unnecessary in relation to occupation agreements of the sort covered by our new scheme. We recommended in CP 162[29] that agreements should be binding between landlord and occupier without having to comply with land law rules on requirements for deeds or signatures. Similarly we believe that there should be minimal requirements in our new scheme for a transfer to take effect.

                6.77               We provisionally propose that any transfer should take effect from the moment at which the intention of the transferor and transferee is confirmed either in writing, or by the transferor giving up occupation to the transferee, or by the first instalment of rent which is paid to the landlord by the transferee and not by the transferor.

Formalities

                6.78               The resultant effect of the transfer is that an agreement now exists between the landlord and the transferee, in place of the agreement between the landlord and the transferor. It is central to our proposals that the occupier should have a written statement of the terms of the agreement.

                6.79               It would be possible to regard the process of transfer merely as a variation of the original agreement, which should be treated on the same basis as any other variation of the agreement.[30] This would mean that the transferee would be entitled to ask for a written copy of the agreement should he or she so wish.

                6.80               However, we think that it would be better to ensure that the landlord should have to provide sooner rather than later the transferee with a copy of the agreement. The transferee should have a full statement of the terms of the agreement, rather than relying on what information the transferor might have passed on. This would ensure that any misunderstandings were identified and resolved as soon as possible. Thus we think that it is preferable to regard the process of transfer as creating a new occupation agreement.

                6.81               We provisionally propose that the landlord should be required to serve on the transferee a written copy of the agreement, amended to show the change of occupier, within two weeks of the transfer. The same sanctions for failure to comply should be available as would be apply for failure to give a copy of the written agreement to the original occupier at the start of the agreement.

The position of the parties after a transfer

                6.82               Once a transfer has been properly completed, questions remain about the effect of the transfer of the liabilities of the transferee, the transferor and the landlord.

The current position

                6.83               At present, in the case of leases rather than licences, these issues are addressed either through landlord and tenant law’s twin doctrines of privity of estate and privity of contract, or, in respect of post-1995 tenancies,[31] by the Landlord and Tenant (Covenants) Act 1995.

                6.84               In general, the assignee steps into the shoes of the assignor, becoming liable under the lease as well as being entitled to the benefit of it.[32] The assignor retains the benefit and burden in respect of any breaches which occurred before the assignment. The assignee only takes on the benefit and burden in respect of breaches which occur after the assignment.[33]

                6.85               The doctrine of privity of contract still applies to pre-1996 tenancies. This means that the tenant who originally entered the lease (the assignor) remains liable – even though the assignee also becomes liable under privity of estate – on the covenants in the lease even after an assignment, or any further assignments, until the lease is terminated. While this is subject to a predictable end date in fixed term tenancies, it is entirely open-ended in the case of periodic tenancies.

                6.86               By contrast, in relation to post-1995 tenancies, Landlord and Tenant (Covenants) Act 1995, section 5(2) releases the assignor from ongoing liability for breaches by assignees. This change did not receive much attention amongst housing practitioners, where many had already been working on the basis that assignors had no ongoing liabilities.[34]

                6.87               Section 25 provides that the parties cannot contract out of the Act. However, section 16 allows for the use of “authorised guarantee agreements” (AGAs). In the circumstances in which a landlord can insist upon an AGA as a condition of consenting to the assignment, the assignor gives the landlord a guarantee for the performance of the covenants by the immediate assignee.[35] The AGA is limited in that under section 16(4) it cannot be made to cover breaches by any subsequent assignees.[36] Also the guarantor has the right, where the guarantor has had to make a payment under the guarantee because of the assignee’s default, to an “overriding lease” under section 19 which is for three days more than the tenancy. This effectively gives the guarantor the ability to protect their interests through becoming the landlord of the defaulting assignee and thereby becoming entitled to forfeit the lease and evict the assignee.

                6.88               The other potential problem is as to the effect on the assignee where, before the assignment, the assignor was in breach of the terms of the lease, or the landlord had served notice on or issued possession proceedings against the assignor. If the tenancy is assigned, then the landlord can still sue the assignor for any debt, but loses the ability to use the threat of eviction against the assignor or the assignee for that breach. However, it is not clear what the effect is where a tenancy is assigned after possession proceedings have begun or where there is a suspended possession order. It seems that a tenant/assignor can use the assignment effectively to avoid repossession. Where the assignee is a member of the household of the assignor, who will continue to allow the former tenant to live there as a member of their household, this may have the effect of undermining the effect of the possession order.

                6.89               Usually this will not cause problems because a landlord can reasonably refuse consent to the assignment where there is an unremedied breach, such as outstanding rent arrears, or where possession proceedings have started. If the tenant/assignor assigns unlawfully the landlord can separately seek an order for possession for the breach constituted by the unlawful assignment. If the landlord fails to check properly before giving consent, or fails to use the breach to refuse consent to the assignment, then the assignee cannot be evicted for the default of the old tenant.

                6.90               The landlord could of course grant consent subject to the condition that the breach was remedied before the assignment, or subject to the assignee agreeing to


pay an appropriate sum.[37]

                6.91               Where the consent of the landlord is not required, then the landlord will be unable to retain the ability to threaten eviction. This can cause problems where a landlord has forgotten to include a prohibition against assignment in the tenancy and no statutory prohibition is implied. This may occur in the context of fixed term assured shorthold, or fully assured, tenancies, because Housing Act 1988, section 15 does not imply any prohibition on assignment into fixed term assured tenancies.[38] In relation to secure tenancies, some landlords wrongly believe the Housing Act 1985 always implies prohibitions on any assignment without consent; again they may omit to include an express prohibition, in which case assignments can be freely made to potential successors.

                6.92               These complications do not arise where the transfer of the interest is the result not of an assignment, but by the operation of a statutory provision. The principal examples of statutory transfer are the procedure for a change of statutory tenant by agreement under Rent Act 1977, Schedule 1, paragraph 13, and the vesting powers of the courts under Family Law Act 1996, Schedule 7. Under these a person is deemed to be the new tenant in place of the former tenant. The Family Law Act 1996, Schedule 7, paragraph 7(2) specifically provides that any liabilities or obligations of the former tenant falling due to be discharged or performed after the order shall not be enforceable against the former tenant.

                6.93               The doctrine of privity of estate does not apply to licences, as they do not create an interest in land. Licences will not normally be transferred to new licensees, except by novation of contractual licences where the original contract is terminated and a new one entered into by the new parties. The problems of the effects of transfer do not normally therefore crop up in licences, which are not anyway protected under the Rent Act 1977 or assured under the Housing Act 1988. However, secure and introductory licences, with exclusive possession, can exist under Housing Acts 1985 and 1996.[39] The right to assign by way of mutual exchange would appear to apply to secure licences under Housing Act 1985, section 92. However, there is no case-law as to the operation or effect of such an assignment.

Our approach

                6.94               We believe it is essential to simplify this complex body of law, to render it more suitable to the residential occupation agreements, and to bring it more into line with common housing law practice.

                6.95               We have already suggested above that there should be a default term in the agreement imposing a landlord’s veto on assignment. This will ensure landlords do not ignore the issue. None of our proposals suggests that any occupier should have a right to transfer without the landlord’s consent.[40]

                6.96               We think that where a transfer has occurred with the consent of the landlord, there should be a distinct statutory provision, modelled on the provisions of the Family Law Act 1996, Schedule 7, providing that the effect of a transfer of an occupation agreement which falls within the scope of our scheme should be that the occupation rights are vested in the transferee, who should take the place of the transferor in the agreement. It would not matter whether the occupation agreement constituted a tenancy[41] or a licence.[42]

                6.97               Transferees should therefore not be liable for any breach of the agreement by a former occupier/transferor. Rather, landlords should be expected to protect their interests when considering whether or not to give their consent to a transfer.[43]

                6.98               In situations where the occupation agreement was, in law and fact, a tenancy, the effect of the transfer should be that the tenancy was thereby transferred to the transferee. Thus, should the landlord assign their interest to another landlord at any future date, the rights of the transferee as a tenant would be preserved.[44]

                6.99               These proposals would replace, for the purpose of occupation agreements that are classified in law as tenancies, the provisions of the Landlord and Tenant (Covenants) Act 1995, sections 17 to 20, which deal with the rights of former tenants following assignment.

           6.100               We provisionally propose that the effect of a transfer to which the landlord has given consent should be to vest the rights and liabilities under the occupation agreement in the transferee. Thus the original occupier would be replaced by the new occupier as the party to the agreement with the landlord. The transfer should not of itself confer on the transferee any rights or liabilities relating to any time before the transfer took place. The former occupier should cease to have rights and liabilities for any events occurring after the transfer.

Authorised guarantee agreements

             6.101               We mentioned above that the Landlord and Tenant (Covenants) Act 1995, section 16 allows for use of “authorised guarantee agreements” (AGAs). These enable the landlord to insist that, as a condition of consenting to the assignment,[45] the assignor gives the landlord a guarantee for the performance of the covenants by the immediate assignee. The ability of the landlord to so insist does not, however, apply in the case of residential tenancies, where the question remains solely one of reasonableness in the particular case.[46]

             6.102               We accept that these are of considerable importance in the assignment of commercial leases or other leasehold interests. We are not however convinced that they are appropriate for use in the context of the transfer of residential occupation agreements.

The relationship between sub-occupation agreements and transfers

             6.103               Under the law of landlord and tenant, one of the conditions for the creation of a lease is that there must always be a reversion. This means a period of time during which the landlord can resume possession of the property. Where a tenant attempts to create a sub-lease of the whole of the remaining term of a fixed term lease, so that there is no reversionary period left, this is deemed by operation of law to amount to an assignment of the original lease.[47] We accept the logic of the argument that sub-leases should be shorter than the leases out of which they are granted, and that the mesne landlord should retain a reversion. We have considered whether this principle should be applied to occupation agreements created under our new scheme.

             6.104               We think that the reality is that the circumstances of our occupation agreements under our proposed scheme are really rather different from those in which business and other long leases are created.

             6.105               First, the bulk of occupation agreements are periodic agreements, not fixed-term agreements. It is difficult to apply the requirement that there should be a reversion where a periodic sub-occupation agreement is carved out of a periodic occupation agreement.

             6.106               Secondly, and by contrast, in the leasehold market, periodic leases are rare. Where a lessee with a periodic lease lawfully grants a fixed term sub-lease which expires later than the end of the next period of the periodic head lease, it is not regarded as odd that such grant is not deemed to be an assignment. This inconsistency would become much clearer where occupiers under periodic agreements granted fixed term sub-agreements. The logic of the current rule is partly based on what is the soonest date on which each lease could be determined, but in the residential market periodic agreements cannot normally be determined by the landlord at the end of the next period.[48]

             6.107               Thirdly, the implications of a distinction between a sub-tenancy and an assignment of a tenancy are not straightforward. In particular the liabilities of the sub-tenant are quite different from those of the assignee. It can be expected that those creating sub-leases or assignments of commercial or other leases will obtain legal advice. This cannot be assumed in the case of residential occupation agreements. Even where there is a fixed term agreement, it appears undesirable to make such an important distinction turn on whether provision was made for the sub-occupation agreement to end a few days before the head agreement.

             6.108               Fourthly, following Bruton v London & Quadrant Housing Trust,[49] licensees can grant a sub-lease, at least for the purposes of the relationship between them and their sub-tenant, even though that interest is greater than their own. Our new scheme is also focused on the relationship between the landlord and the occupier. It will make any sub-occupation agreement effective as between occupier and sub-occupier, irrespective of the legal classification of the interest of the occupier in the premises.

             6.109               Fifthly, in the residential long lease market there is usually no requirement for the landlord’s consent for any sub-letting or assignment. In the rented sector of the housing market, and as proposed for our scheme, the landlord’s consent is normally required. The landlord does not have the same need to be able to resume possession of the premises at the end of a sub-occupation as they would have at the end of a sub-lease.

             6.110               More pragmatically, the sub-occupier under a sub-occupation agreement will, so long as the original occupier remains undisturbed, regard the original occupier as his or her landlord. He or she would not regard the head landlord as such unless the immediate (mesne) landlord for some reason dropped out of the picture. By contrast, where the head landlord has given consent to the transfer of the whole agreement to another, the transferee would normally regard the head landlord as his or her landlord, the transferor having effectively dropped out of the picture.

             6.111               We think that our scheme should reflect this practical expectation.

             6.112               We provisionally propose that where a sub-occupation agreement has been lawfully created out of a head agreement which is also covered by our new scheme, and the landlord (where consent is needed), the occupier and the sub-occupier have all intended to create a sub-agreement rather than a transfer, then the sub-occupation agreement should take effect as such and should not be deemed to be a transfer even if it is for the whole of the remaining term of the head agreement.

Transfers of the residual periods of long leases

             6.113               By contrast, where the head lease is a long lease or other lease which is not covered by our new scheme any transfer of the residual period of such a lease, even if the period is for less than 21 years, should be remain outside the scope of our proposed scheme and be governed by the ordinary rules of landlord and tenant law.

             6.114               In this context, we are aware that in some parts of the country, particularly in London, there is an active, if niche, market in the sale of what have been described as short-term leasehold reversions. These arise where a leasehold title to a property, originally the subject of, say, a 99 year lease, now has only a small number of years – fewer than 21 – left to run and the leaseholder or head landlord wishes to dispose of this remaining period for a capital sum.

             6.115               Some might regard such tenancies as fixed-term occupation agreements for a period of less than 21 years, and thus within our proposed scheme. We think that this would not be the appropriate way to characterise such arrangements. They have been created out of a long-term leasehold tenancy which clearly falls outside the scope of our proposed scheme. The fact that they have been purchased by the outlay of a single capital sum shows that they still retain the character of “leasehold”. They already fall within their own legislative scheme which determines, among other things, what happens at the end of the term.

             6.116               The assignment of a long lease should not come within our new scheme, even where there is less than 21 years left to run on the long lease. The law on long leases should continue to apply in such cases.

             6.117               Any question of whether such a fixed-term agreement constituted a sub-tenancy or an assignment should be determined by normal rules of landlord and tenant law.


[1]Housing Act 1985, s 91(1); Housing Act 1996, s 134(1).

[2]Housing Act 1985, s 91(3); Housing Act 1996, s 134(2).

[3]Housing Act 1985, s 92.

[4]CP 162, paras 9.18 to 9.20.

[5]The nature of these markets may change as the provisions of the Commonhold and Leasehold Reform Act 2002 come into effect; but they will not alter the basic assumptions made in the text.

[6]These issues are discussed in CP 162, paras 10.49 to 10.69.

[7]We discuss the question of consent in this particular context paras 6.29 to 6.37 below.

[8]In practical terms, the differences, which will persist unless Government policy changes (CP 162, paras 1.91 to 1.93), between local authority occupiers with the right to buy and registered social landlord occupiers who do not have the right to buy, may provide a significant disincentive to transfers between the two categories.

[9]Housing Act 1985, s 92(3). The grounds include the fact that the landlord is taking repossession action or that the estate management grounds would be available if the exchange took place. They also include, in grounds 3 and 4, provision for refusal if the property would be substantially too large, or unreasonably small (or otherwise unsuitable), for the needs of the assignee.

[10]Section 92(4).

[11]Section 92(5) to (6).

[12]Housing Act 1985 s 91(3)(c); Housing Act 1996, s 134(2)(b).

[13]Governors of the Peabody Donation Fund v Higgins [1983] 1 WLR 1091.

[14]A similar outcome could be achieved by an occupier exercising his or her right to have joint occupiers brought into the agreement, then serving a tenant’s notice, terminating his or her interest.

[15]See paragraphs 3.29 to 3.50.

[16]Or in cases of assured tenants to whom registered social landlords have contracted to grant improved succession rights in accordance with Housing Corporation guidance.

[17]We suggest in paras 7.67 to 7.68 below that we should adopt a version of the Scottish list of qualifying successors, to include non-family-member carers.

[18]Discussed at paras 3.29 to 3.50 above.

[19]Similar provisions, for transfer of property on foreign divorces, are currently in the Matrimonial and Family Proceedings Act 1984 Part III, particularly s 17(1).

[20]See Hale v Hale [1975] 1 WLR 931 and Thompson v Thompson [1975] 2 WLR 868 – tenancies count as property if they are legal interests capable of assignment.

[21]Schedule 1, para 1(2)(d) to (e).

[22]See para 6.67 below.

[23]Formerly in the Matrimonial Homes Act 1983, Sched 1, which consolidated earlier legislation and only applied on divorce, nullity and judicial separation.

[24]Separate provision is not made for statutory tenancies arising under the Housing Acts 1985 and 1988, presumably because they are treated as actual tenancies whereas Rent Act statutory tenancies are not – see para 8.11 below.

[25]This was as a result of Law Commission recommendations in Family Law, Domestic Violence and Occupation of the Family Home (1992) Law Com No 207.

[26]Schedule 7, paras 5(c) and 14(1). In practice a court is unlikely to make an order transferring an assured shorthold tenancy or introductory tenancy in the teeth of opposition from the landlord. Equally they are unlikely where the order would lead to repossession on some other ground, eg the estate management ground.

[27]Law of Property Act 1925, s 54(2) allows the creation, but not the assignment, by parol of certain short leases. See Crago v Julian [1992] 1 WLR 372 on whether Law of Property Act 1925, s 53(1)(a) can enable assignment by writing without a deed.

[28]Under s 2(5)(a) there is an exemption for short leases from the requirement for writing, but it only applies to contracts for their creation rather than for their assignment.

[29]CP 162, paras 6.63 to 6.71.

[30]For our proposals on what should happen following a variation of the agreement, see CP 162 paras 6.140 to 6.158.

[31]Those created on or after 1st January 1996, under s 1(3), referred to by the Act as “new” tenancies.

[32]In a “new” tenancy this is the effect of Landlord and Tenant (Covenants) Act 1995, s 3(2), which applies to any covenants “whether or not the covenant has reference to the subject matter of the tenancy” under s 2(1)(a). It also applies to agreements for leases and equitable assignments under s 28(1), but under s 3(6) it does not apply to covenants which are expressed to be personal or which should have been registered. In a legal lease which is not a “new” tenancy, on the legal assignment of the tenant’s interest, the benefit and burden will pass only in respect of those covenants which “touch and concern the land”, under the rule in Spencer’s Case (1583) 5 Co Rep 16a; 77 ER 72. Whilst in commercial leases this led to the precautionary practice by landlords of imposing, as a condition of their consent, a requirement that the assignee should enter direct covenants with the landlord, it was generally ignored in social tenancies. Many social landlords would grant a fresh tenancy to the purported assignee, sometimes as a way to avoid the formalities required for effective assignment, or through not appreciating the effect of assignment, but with the effect of binding the new tenant to all the covenants. However, some would be reluctant to do this where it would mean the assignee would avoid taking on the assignor’s status as a successor (see the Appendix for an account of the current law relating to statutory succession).

[33]In a post-1995 tenancy this is because of Landlord and Tenant (Covenants) Act 1995, ss 23 and 24. In a pre-1996 tenancy the position is more complex – see C Harpum, Megarry & Wade: The Law of Real Property, (6th ed 2000) at 15–008 to 15–063.

[34]See Stuart Bridge, “Assignment Under Attack” Conv [2000] 474, pointing out that in Burton v Camden LBC [2000] 2 WLR 427 the court could have used the doctrine of privity of contract to hold that the departing tenant would still be liable for rent (so that the remaining tenant’s entitlement to housing benefit would not increase).

[35]Landlord and Tenant (Covenants) Act 1995, s 22 added subsections (1A) to (1E) to Landlord and Tenant Act 1927, s 19. The effect is that a post-1995 lease can specify that it will be taken to be reasonable for the landlord to refuse consent to an assignment in the absence of an authorised guarantee agreement. However, by s 19(1E)(a), this does not apply to residential tenancies, so the court would look at reasonableness in the individual circumstances.

[36]Whether subject to an authorised guarantee agreement or not, the former tenant is also protected by ss 17 and 18. These provide that the former tenant will not be liable unless given notice of the new tenant’s breach within six months, and that the former tenant will not be liable for any increase in rent or other payments which was voluntary on the part of the landlord.

[37]The commonest position is where the landlord wants to be able to continue to use the threat of eviction to back up a demand for arrears. The landlord may be able to persuade the assignee to accept a term in the tenancy binding the assignee to pay an amount equal to the arrears of the assignor. However, this must be done as a condition of the assignment and cannot be imposed later or there will be no consideration – see Mrs Rakey Jones v Notting Hill Housing Trust (unreported, 20 January 1999). In relation to councils, the Local Government Ombudsman has for some time warned such practices may amount to maladministration, as demanding a premium, or effectively selling the tenancy – see investigation 90/B/1668 into Wellingborough Borough Council, 5 December 1991.

[38]See para 2.15 above.

[39]See Westminster v Clarke [1992] 2 AC 288.

[40]See paras 6.19 and 6.35, 6.47 and 6.51, and 6.65 and 6.70 to 6.71 below for the position on mutual exchange, potential successors and family court orders, respectively.

[41]It should be made clear that any transfer of an occupation agreement should be governed by these principles, not by the rules found in the Landlord and Tenant (Covenants) Act 1995.

[42]In practice, many licences – including licences of supported accommodation, or those granted to lodgers – fall outside the scope of our scheme in any event.

[43]A particular difficulty might arise where it was proposed that the transfer should be to joint occupiers, and one of the transferees was to be a former occupier under the original agreement. In this situation, if such a person had rent arrears, the position of the head landlord should be protected by their refusal of consent to the transfer, rather than by taking possession proceedings after the transfer has taken effect.

[44]The question of the effect of the assignment of the landlord’s interest is considered in Part VIII, below.

[45]See note 34 above.

[46]Ibid, s 19(1E)(a).

[47]See eg Parc Battersea Ltd v Hutchinson [1999] 22 EG 149, and C Harpum, Megarry and Wade: The Law of Real Property, (6th ed 2000) at 14–110 and 14–111.

[48]The current notice under Housing Act 1988, s 21 and the notice-only notice under our new type II periodic agreements, are of set lengths which are longer than the usual weekly, fortnightly or monthly period. Protection from Eviction Act 1977, s 5 requires four weeks notice to quit in unprotected tenancies.

[49][2000] 1 AC 406. See para 5.43, note 23 above.

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