A working guide to sham agreements

by | Jul 14, 2020 | Safer Renting

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Someone asked me recently to explain what a “Sham agreement” was. Rather than explain in person, I told her I would write an article on it, because in rogue landlord world they are more common than genuine agreements.

A Sham Agreement is simply a contract that tries to claim that a letting is a different type from what it actually is, usually claiming that a tenancy is a licence of some sort, or just as commonly, a lodger agreement.

The reason for this is the commonly held myth among the rogue landlord community and Property Guardian companies that if a person is a licensee you don’t have to get a court order to evict them.

This is not true. There are around 30 different types of tenancy and licence available in England and only 6 of them aren’t entitled to be evicted by a possession order[1] these occupancy types are known as “Excluded occupiers”

One of those 6 is a lodger, hence the proliferation of “Sham” lodger agreements, issued when occupiers are in fact tenants.

The big misunderstanding supporting the use of sham agreements, is in thinking that a landlord gets to choose which of the 30 different types of letting arrangement to grant.

A landlord or agent does not get to choose, such matters are dictated by fact and circumstance, not what label someone may want to give a contract.

Summing up in the seminal case on defining tenancies[2] Judge Templeman famously said:-

“The manufacture of a five pronged implement for manual digging results in a fork, even if the manufacturer, unfamiliar with the English language, insists he has made a spade”.

In other words, if it walks like a Duck and quacks like a Duck, it’s a Duck and no amount of calling it a Pig will make it one.

This same case established the three hallmarks of a tenancy that we all work to:-

1.       Rent or service.

2.       For a clear term (weekly, monthly etc)

3.       Exclusive possession.

So the minute someone tells you they pay £100 a week, you have your answer to the first two questions.

A renter and a landlord can mutually agree not to create a tenancy but I’ve never seen this in 30 years and the provision of a high level of services and meals can mean it isn’t a tenancy, despite the hallmarks being in place.

We regularly see contracts allowing for a cleaner to be provided. This doesn’t work and in reality no cleaner actually turns up anyway. Its just another attempt to make tenancy look like a licence.

Unfortunately, if you are a renter you don’t necessarily know about such legal distinctions and if you are given a written agreement titled “Lodger” and then look up your rights online, you can be forgiven for thinking that the landlord only has to give you reasonable notice before expecting you to leave. So people can be hoodwinked out of their rights by the title placed on the contract.

The assumption being, if you have a signed piece of paper saying “Lodger Agreement” on it, then that is what you are.

Its not just renters who get fooled either. A couple of years back I was dealing with a case where an agent had told a tenant with a sham lodger agreement that he had to leave in a month’s time.

He went to the homelessness unit of his local authority and asked what his rights were but the person interviewing him didn’t know about sham agreements either and upon reading the word “Lodger” told him the agent was within his rights and he did indeed have to leave.

So a month later, leave he did. Handing the keys back he then returned for advice to the homelessness unit to be interviewed by another person who actually knew about sham agreements who informed him that he was a tenant, not a lodger.

However, this adviser also informed him that because he had given up his accommodation he had made himself intentionally homeless and that as a consequence they could not assist.

They didn’t push it and a lot of forehead slapping took place, while they scrambled around to find funds to assist him with sourcing alternative accommodation, which they wouldn’t have had to do if the first adviser had known their stuff.

When challenged under Consumer Protection regs, the law also takes these matters seriously.

Back in 2017, the London Borough of Islington obtained a successful prosecution against local letting agents Green Live Estates, for issuing just 2 sham licence agreements that should have been tenancies, who were fined £11,000 under the Consumer Protection from Unfair Trading Regulations 2008[3] for misleading commercial practices.

The prosecution came via trading standards, responsible for letting agents but as everyone knows, there are less TSOs than housing enforcement and individual local authority commitment to tackling rogue agents is patchy at best.

If all local authorities were to take Islington’s lead on sham agreements, an awful lot of agents would be shelling out an awful lot of money.

So the upshot, as I tell all delegates on my training courses, comes down to three principles:-

1.       Whether a person is a licensee or a tenant is a matter of fact and degree, not the label put on a contract.

2.       A landlord does not get to choose whether to grant a tenancy or a licence.

3.       Never, EVER, go by the title on a rental agreement to identify security of tenure.

Perhaps another way to approach this would be for government to rescind the doctrine of Parol, that only requires a written contract where a tenancy is for less than three years[4] and require a standard, government approved written contract that applies to all.

Easily identified and understood by landlord, tenant and advice worker.

Until that happens, be aware of scammers.

[1] S 3A Protection from Eviction Act 1977

[2] Street v. Mountford (1986)

[3] https://www.londonpropertylicensing.co.uk/islington-letting-agent-prosecuted-issuing-tenants-bogus-licences-instead-tenancy-agreements

[4] S54 Law of Property Act 1925

By Ben Reeve Lewis

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About Cambridge House Safer Renting

The Cambridge House Safer Renting team present the ‘go-to’ blog on the world of the Shadow Private Rented Sector.

We monitor the world of rogue landlord and agent activity, publicise developments, circulate innovative ideas, keep readers abreast of changes in laws and regulations, raising awareness of criminal trends and scams, celebrate successful actions and interview people working in the field, connecting up anyone involved, from tenants and their advisers, to enforcement officers, lawyers and journalists.

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