The Law Commission

PART XII

SPECIFIC ISSUES 3: LODGERS AND SUB-OCCUPATION AGREEMENTS

Introduction

12.1     This part deals with two issues.

(1) The right of occupiers to take in lodgers;

(2) The right of occupiers to enter sub-occupation agreements.

Lodgers

12.2     Under existing law, tenants of local authorities have a statutory right to take in lodgers. They may do this without the need to seek the permission of the landlord. Housing association tenants (and other assured tenants) do not have the same right to do this.
12.3     This is a right that we have concluded should be taken into the proposed scheme. The arguments in favour are that:

(1) it encourages full use of accommodation;

(2) it may assist with the mobility of labour;

(3) it enables occupiers to obtain some additional income from their homes;^[1] and

(4) it also supports a degree of personal autonomy for occupiers.

12.4     We have previously recommended that any agreement should be excluded from our scheme if the landlord shares actual living accommodation^[2] with the occupier.^[3] For the purpose of the following recommendation, a lodger is an occupant living in such accommodation under such an excluded agreement.

Type I agreements

12.5     Given our "landlord-neutral" approach, we recommend that there should be a compulsory-minimum term in all type I agreements that the occupier shall have the right to take in a lodger, without the need for the landlord's consent.

Type II agreements

12.6     We recommend that, in relation to type II agreements, there should be a default term that the occupier can ask to take in a lodger, but subject to the landlord's consent which cannot be unreasonably withheld.
12.7     In either case, the lodger will not be legally entitled to a written agreement, though it may be good practice for a landlord to provide one. Our aim is to ensure that lodging agreements can be entered with a high degree of informality.

Status of the lodger

12.8     The lodger will have the right to lodge, only so long as the original occupier who granted the right continues to live in the premises. If the agreement between the landlord and the occupier is ended, the lodger will have no rights as against the (head) landlord to remain in the premises.

Sub-occupation agreements^[4]

12.9     A sub-occupation agreement arises where an occupier (A) enters into an agreement with another (B) which gives B the right to occupy the premises instead of A. The (head)landlord, who entered the original contract with A, should be able to control who finally ends up in possession of the property, if A departs leaving B behind. For example, a social landlord will not want a person not in housing need to occupy the accommodation; a private landlord will not want a person to occupy who cannot comply with the terms of the sub-occupation agreement. We have concluded^[5] that the default position should be that the landlord should have the right to veto any request by an occupier to enter a sub-occupation agreement.
12.10     If, despite this, the head landlord gives consent to the creation of a sub-occupation agreement, this agreement might purport to grant more contractual security that the original occupier has. To ensure that this only occurs where this has been positively agreed by the (head) landlord, there should be a default term in the model agreement that any lawful sub-occupation agreement (that is, a sub-occupation agreement to which the head landlord has consented) will be a type II periodic agreement. This will contain the term providing for the landlord to seek possession on the notice-only basis.
12.11     The head landlord could become bound by the sub-occupation agreement if the original occupier (A) leaves. Thus any consent to the sub-occupation agreement given by the head landlord – essential if the sub-occupation agreement is to be lawful – should be subject to any conditions regarding its length, security, and terms that the head landlord may require. Failure to observe any conditions imposed by the landlord as to the content of the sub-occupation agreement should not invalidate the consent. But the landlord must be protected against the occupier attempting to create a sub-occupation agreement with a greater degree of security or other more generous terms than those allowed by the landlord's consent and any conditions attaching to that consent.
12.12     Thus, where the original agreement is brought to an end, a lawful sub-occupier will be able to stay in the accommodation on the basis set out in the sub-occupation agreement – to which the head landlord will have consented when it was granted, and subject to any conditions that the head landlord imposed when giving consent. The head landlord will then be able to take proceedings for possession against the sub-occupier where he can show a ground for possession exists.
12.13     The direct contractual liabilities between the (head) landlord and sub-occupier ought only to arise and relate to breaches of the agreement occurring after their direct contractual relationship began, following the termination of the original agreement.
12.14     To achieve these objectives, we recommend that there should be a default term in all type I and type II agreements providing for a landlord's right to veto any request by an occupier to grant a sub-occupation agreement, whether of the whole or of part of the property. This will mean that the landlord can give his consent to the occupier creating a sub-occupation agreement or other parting with possession, but does not have to do so. In any case where the landlord does in fact give consent to the creation of a sub-occupation agreement, any sub-occupation agreement should be a type II periodic agreement.^[6]
12.15     There should be a further default term that if the landlord does give consent for the creation of a sub-occupation agreement, the landlord should have the power to impose conditions as to the type or term of that agreement; and that, while a breach of these conditions should not invalidate the consent, any sub-occupation agreement granted without compliance with them should be deemed to be a type II periodic agreement.
12.16     If the head landlord and original occupier decide not to adhere to these default terms and the sub-occupation agreement becomes binding on the head landlord, then the type of agreement by which he or she will become bound will be the type of agreement created by the original occupier with the sub-occupier.^[7] It should be open to the landlord to stipulate, as a condition of giving his consent to a sub-occupation agreement, that the terms imposing obligations on the sub-occupier shall be for the benefit of the head landlord under the Contract (Rights of Third Parties) Act 1999.
12.17     If the landlord gives consent to the creation of a sub-occupation agreement or has included a term in the occupation agreement allowing sub-occupation agreements to be made lawfully without consent, then the landlord should become bound by the sub-occupation agreement if and when the original occupier under the original agreement terminates it, either by giving notice, or by exercising a break clause.^[8]
12.18     If the lawful sub-occupier so requests, the head landlord must supply a written copy of the occupation agreement and the sanctions for failure to do so should also apply, but only after the lawful sub-occupier (B) is in a direct contractual relationship with the head landlord, that is, following the termination of the original agreement with (A).
12.19     The Civil Procedure Rules should be amended to provide that if the head landlord has given consent to a sub-occupation agreement, or has included a term in the agreement allowing a sub-occupation agreement to be made without consent, then if the head landlord brings proceedings for possession against the original occupier (A) or if the landlord uses the abandonment procedure, the head landlord must serve notice on the sub-occupier (B), who should be entitled to be joined in the action.
12.20     We recommend that the sub-occupier (B) should be able to seek an order of the court converting him or her into the direct occupier of the landlord, but on the terms of the sub-occupation agreement. The court should be required to do so unless it would otherwise have granted a possession order against the sub-occupier, for example, where the sub-occupier is in breach of the sub-occupation agreement. The CPR should be amended to implement these recommendations.^[9]
12.21     Where the head landlord becomes the new landlord of the sub-occupier, we recommend that he should not take the benefit or burden of any breaches of the sub-occupation agreement that occurred before the change of the sub-occupier's landlord. The liability of the head landlord and the former sub-occupier to each other should be confined to breaches of the agreement taking place after they have come into a direct contractual relationship. Breaches of the sub-occupation agreement before this date should give rise to liability between the original occupier (A) and the sub-occupier only (except in so far as the head landlord had the benefit of obligations of the sub-occupier).

Note 1    This is supported by the tax authorities, which allow income from the letting of a room of less than £4,250 a year to be tax-free. See the Income Tax (Furnished Accommodation) (Basic Amount) Order 1996 (SI 1996 No 2953).    [Back]

Note 2    That is to say, any accommodation, other than storage, staircase, passage, corridor, or other means of access.    [Back]

Note 3    See para 6.29(2) above.    [Back]

Note 4    We are not using this phrase in any narrowly technical sense. The discussion covers any arrangement whereby the occupier (A) parts with possession of the accommodation.    [Back]

Note 5    We considered whether the general rule should be that a sub-occupation agreement should be not be able to be made lawfully without the landlord giving his consent, but, in accordance with general principles, with such consent not being unreasonably withheld. We have, however, concluded that this would undesirably weaken the ability of the landlord to continue to manage his estate.    [Back]

Note 6    CP 168, para 5.46.    [Back]

Note 7    CP 168, paras 5.55, 5.56 and 5.65.    [Back]

Note 8    CP 168, para 5.66.    [Back]

Note 9    CP 168, para 5.66.    [Back]