Buy To Lets And Sitting Ducks

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The Government’s concern is with how any further rise in property repossessions may add to the problem of homelessness. In this regard, tenants in the buy-to-let sector, who are less well protected, are likely to be worst affected. The Department of the Environment and the Department of Finance are considering “duty of care” legislation, which would prohibit banks and lenders evicting a tenant who had no alternative accommodation.

Quite whether this can be achieved remains to be seen, given the potential difficulties such legislation presentsnot least on constitutional grounds. At present sitting tenants in buy-to-let properties may well be the last to hear about legal moves taken by banks and lenders to secure repossession orders, as the issue is contested between lenders and landlords, and sitting tenants are mere bystanders.

A welcome first step to protect tenants in buy-to-let housing (Irish Times editorial)

Constitutional grounds?

Potential difficulties with such legislation?

We asked Legal Coffee Drinker what’s it all about.

Broadsheet: “Legal Coffee Drinker, what’s it all about?

Legal Coffee Drinker: “Sitting tenants in buy to let properties secured by a mortgage are at risk of eviction if the lender has not consented to their tenancy. Most mortgages contain a clause prohibiting the borrower from entering into leases or tenancies without the consent of the lender. Leases and tenancies so entered into are valid against the borrower landlord but void against the lender. This usually only presents a problem if the borrower gets into arrears and the lender applies to the court for a possession order, to get rid of the tenant. Such order will generally be granted, unless it can be shown that the lender has consented to the tenancy.”

Broadsheet: “And what if the lender has consented to the tenancy?”

LCD [unwraps Nespresso ‘Arpegio’ capsule]: “If the lender has consented to the tenancy, or if the mortgage permits letting without the consent of the lender, then the lender is bound by the tenancy and cannot be granted possession of the property until the tenancy ends.”

Broadsheet: “So any prospective tenant of buy to let property should ask if there is a mortgage on the property and if so whether the lender is consenting to the letting?”

LCD: “They can ask, but in a high rental market the landlord may not want to rent to tenants who are asking difficult questions.”

Broadsheet: “If a tenant is dispossessed in this way, can they even get back their deposit?”

LCD:
[pause] “The tenant has a right to get back their deposit from the landlord, but not from the landlord’s lender. If the landlord does not have funds, then the tenant will not recover their deposit.”

Broadsheet: “So basically a huge category of tenants is in a very insecure position.”

LCD: “Absolutely. There is a stark division between tenants whose landlords have a mortgage, and those who have not.”

Broadsheet:
“Can this be changed by legislation, to give the tenant more protection?”


LCD:
“Easily. One very simple step would be to legally require landlords, when offering a tenancy for letting, to provide evidence of lender consent to lettings of the type offered. Alternatively, the law could be changed to make all lenders of buy to let property bound by lettings granted by the borrowers whether they had consented to them or not.”

Broadsheet: “Would this be a breach of the property rights of the lender?”


LCD
[Drains coffee]: “Not if the lender was granted the rights of a landlord under the Residential Tenancies Act. Such rights, which include not only the right to have the rent increased to market rent in the case of below-market rent lettings (Part II of the Residential Tenancies Act) but also the right to determine the tenancy on notice in the event that the property is being advertised for sale (Section 34 of the Act), provide perfectly adequate protection for buy to let lenders while at the same time ensuring that the tenants retain the same level of protection as they would have if the property was not buy-to-let.”

Broadsheet: “So there’s no constitutional property rights bar to a change in the law in this area as the Irish Times suggests?”

LCD: “No. In fact, far it could be argued that there’s a constitutional requirement to implement such change to protect the property rights of tenants.”

A Welcome First Step For Buy To Let Tenants (Irish Times)

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13 thoughts on “Buy To Lets And Sitting Ducks

  1. Clampers Outside!

    Well, it’s a bit nuts in it…. if the bank gives a “buy-to-let mortgage” then by the very fact they gave them that type of mortgage means they’re giving consent. That would be common sense, but this is banks we’re dealing with…. King Knuts!

    1. Anne

      +1
      Was thinking the same myself..
      Buy to let mortgage interest rates are higher too.

      Are there that many who end up on the streets over this, or is this just the government trying to be seen to do something about the homelessness problem? I’d imagine most landlords would advise their tenants well in advance of a repossession. Why would they not..

      1. Clampers Outside!

        I wouldn’t imagine that. These ‘landlords’ aren’t professional landlords for the most part.

        Yep, i’d say this is a knee jerk response around homelessness. Yesterday they blamed the charities for not doing enough. As a charity spokeperson said on the news, it’s not that they are not doing enough but that the backlog is so big.
        The govt hasn’t built social housing to requirements for so bloody long, and now they’re changing the rules, putting more focus on AHBs (who account for a small part of social housing) which allows govt to put blame on someone else… that’s what I’m seeing.

  2. fosull

    I may be missing something here, so I welcome any corrections if that is the case…

    If have a rental agreement with a landlord, it is normally time-limited (i.e. a 12 month lease) after which time the agreement lapses and if the landlord decides to not renew, I’m on my way. Or if I choose to terminate, then so be it.

    From what I read here, if a lender repossesses a house, they are obliged to see out any rental agreement that is in place.

    To me, that looks like you’re getting precisely the same rental terms regardless of who the landlord is (the person who bought to let, or the lender).

    1. Legal Coffee Drinker

      @F

      Currently a lender is only bound to see out a tenancy agreement that they have specifically consented to. If they have not consented to the letting, they get an order for possession against the tenant even though the tenancy is not at an end, on the basis that they cannot be bound by lettings to which they have not consented. The tenant therefore loses the rights that they would otherwise have as a tenant. That’s the current law. I’m suggesting it should be – maybe even needs to be – changed in order to protect tenants’ constitutional property rights.

      1. Clampers Outside!

        It should be changed. Why did the bank give a “buy-to-let” mortgage if there were to be no tenents in the property.

        It’s a ridiculous nonsense of a law that appears more to do with banks shirking responsibility for the money they lend than anything else.

        1. Bonkers

          its nonsense. Also isnt there a rule of intrepretation in law that the common usage of terms and words are what should be used to determine meaning? The very name Buy to Let says in big letters that the bank intended for the property to be let, and even charged a higher interest rate because of this.

          I wonder how a tenant might fare taking a case solely on the basis that the product the landlord bought was called a Buy to Let mortgage. It did what it said on the tin so its a bit puke inducing now for the banks to say they can trample over the rights of tenants because they didn’t consent for the Buy to Let apartment that was purchased with the Buy to Let mortgage to be actually used for, shock, horror, letting to tenants.

          If it went to court the banks would probably say they meant for the apartment to be let to sheep, not humans. Anything to wriggle out of it. And their cheerleaders in IBEC and FG will continue to let it happen

  3. ollie

    So if I’ve a buy to let property that NIB bank reclassifed as a “commercial” mortgage, I can sign my tenant into a 5 year lease, stop paying the mortgage and the bank can’t throw them out until the lease has expired.
    Very interesting.

    1. Legal Coffee Drinker

      Again, the bank can throw them out if the bank hasn’t consented to the lease. The law is the same for commercial and residential property – the lease is void if not consented to.

      1. Anne

        Is a landlord supposed to get written consent from the bank with each lease?
        I’ve never heard of it… then again, I’ve only had a normal mortgage, not buy to let.

        1. Anne

          And RE:”Most mortgages contain a clause prohibiting the borrower from entering into leases”

          This makes no sense with a buy to let mortgage..

      2. ollie

        but a commercial mortgage given specifically for buy to let implies consent………. or does it?

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