The Law Commission

PART XIII

SPECIFIC ISSUES 4: TRANSFERRING RIGHTS OF OCCUPATION

Introduction

13.1     In this Part we discuss the circumstances in which a contractual occupier should be able to transfer his or her rights of occupation to another person, not a party to the contract.
13.2     Under the current law in relation to tenancies this is dealt with by the rules on assignment. In relation to licences it is dealt with by more restrictive contractual principles on novation and the assignment of benefits of contracts. These provisions are complex and poorly understood, both by landlords and occupiers and by their legal advisers.
13.3     For agreements covered by our new scheme, we wish to replace assignment, and the contractual principles of novation and assignment of benefits, with a statutory scheme of transfers, operating largely through compulsory-minimum and default terms in the agreement. The statutory-contractual scheme should cover the conditions for, methods of, and effect of a transfer.
13.4     The ideas on which these recommendations are based were set out in Part VI of CP 168. Most respondents to CP 168 agreed with our provisional proposals on transfers without substantive comment on them.

The default position

13.5     We recommend that, subject to the three exceptions discussed in the immediately following paragraphs, there is a default term in all type I and type II agreements which gives the landlord the right to impose a veto on any request by a contractual occupier to transfer his or her rights to occupy to another.

Exceptions

13.6     In the case of type I, but not type II, agreements there should be compulsory-minimum terms to allow for transfer:

(1) to a potential successor; and

(2) by way of (mutual) exchange.

In respect of both types of agreement, it will be possible for transfers to take place by order of the court under family law.

13.7     The compulsory-minimum terms permitting transfers to potential successors and transfers by way of mutual exchange should be subject to the landlord's consent, which must not be unreasonably withheld. The compulsory-minimum term in relation to transfers by way of mutual exchange should not apply to type I occupation agreements entered into by private landlords.

Transfers to potential successors^[1]

13.8     A version of this exception is currently to be found in section 91(3)(c) Housing Act 1985. We believe that this is an important provision^[2] and that an equivalent exception should be provided in our new scheme.
13.9     We recommend that it should be possible, subject to the consent of the landlord not to be unreasonably withheld, for an occupier to seek to transfer his or her occupation rights to a person or persons who would have the statutory right to succeed if the current occupier died. The exception should extend to all type I agreements, not just those granted by local housing authorities.
13.10     At present, succession can only be to a single person; thus, only one potential successor can benefit from this exception. In our new scheme, more than one person will be able to succeed jointly, and it should be possible to transfer the right to occupy to joint occupiers.
13.11     Where there are joint occupiers (whether because they took the agreement in this way originally, or because a joint occupier was added in later) and one of them dies, the remaining one(s) will take by operation of the principle of survivorship.^[3] As any survivor always takes priority, while the joint occupiers remain alive, they will have no potential statutory successors. Thus, they will not be able to transfer to a potential successor. However if all the joint occupiers act in unison, they could seek to transfer the agreement to anyone else who could be their statutory successor.^[4]
13.12     If there is more than one potential successor, and all the potential successors agree that they should all take jointly, then the transfer can proceed, subject to the landlord's consent not to be unreasonably withheld. If this is not so, and the current joint occupiers cannot all agree on who the transferees should be, the transfer cannot go ahead.
13.13     If all the occupiers and potential successors agree to leave out one or more of the potential successors, then the transfer could still proceed to the remaining successor(s) subject to the landlord's consent as before. Thus the transferors could cut out one or more of the people who might otherwise succeed them, but this degree of choice should be respected.
13.14     If, even though all the current occupiers agree, the potential successors cannot agree on who should be left out, the transfer should not be classified as a transfer to a potential successor but as an ordinary attempt to transfer the right to occupy. In this case, the attempted transfer will, in accordance with the default position set out above, be subject to the landlord's veto.
13.15     It will only be necessary for an occupier to use the right to transfer to a potential successor where they do not intend to remain as contractual occupiers themselves. (This may assist the elderly person who has to give up occupation to go into a residential or retirement home, thereby leaving their own home.) Otherwise they can seek to add the potential successor to the agreement as a joint occupier.
13.16     As we explain in Part XIV, paragraphs 14.48 – 14.52, transfer to a potential successor will not count as using up a succession right, unless the landlord makes this a condition of the consent. Nor will the transferee be regarded as a successor just because the transferor was a successor; and the transferee will cease to count as a successor, even though he or she had held an occupation agreement under which he or she held this status.^[5] This is because, subject to the exception mentioned above, only actual succession will count as use of a succession right. Instead it will be up to the landlord to impose a condition on the transfer, as a reasonable condition of granting consent, that the transferee must accept that he or she should be regarded as having used up a succession right.

(Mutual) exchanges

13.17     The current version of this exception is set out in section 91(3)(a), section 92 of and Schedule 3 to the Housing Act 1985. We believe that this is an important and useful right available to secure tenants. We recommend that it be extended to all type I agreements made by social landlords, not just local authorities. In the light of responses to CP 168, we have decided that it would be inappropriate to extend the right to occupiers of private landlords, particularly given that they do not select their occupiers on the same (social policy) bases that social landlords do.
13.18     We recommend that type I agreements^[6] entered into by social landlords should include a compulsory-minimum term allowing for mutual exchanges, subject to the consent of the landlord being sought and obtained, which cannot be unreasonably withheld.
13.19     Currently, the right takes the form of an assignment of the tenancy to someone else who is also mutually exchanging. Effectively, it means that the secure tenant must find another tenant to swap with who is also secure or assured tenant with a social landlord, or that all the people participating must form a "ring" of such tenants.
13.20     We recommend that this mutuality condition should be amended so that it can apply to what practitioners refer to as "chains" as well as "rings". The last person in a "ring" under the current system must assign to the first person in the ring, thereby completing the circle of exchanges. From our consultation, we conclude that social landlords, and their tenants, now wish to sacrifice this circularity, so that "chains" can be included. This is to encourage mobility and facilitate "choice-based letting" approaches which partly try to mimic patterns of buying and selling houses.
13.21     The "chain" approach means that the ring of transfer does not have to be complete. There can be a void at the top of the chain, and an otherwise empty house can be filled at the bottom of the chain. This may particularly suit social landlords in, respectively, high demand and low demand areas, and adds to the flexibility of the present arrangements.
13.22     The right to exchange should be set out in a compulsory-minimum term, and be subject to the landlord's consent, which must not be unreasonably withheld.
13.23     The same general criteria of reasonableness should apply in this context as apply to other circumstances involving the unreasonable withholding of consent. In Part X, paragraphs 10.13 – 10.16, we discuss "structuring" this reasonableness. Among the factors that should be considered in this context, should be:

(1) what voids are left over after a transaction, and

(2) what prejudice, if any, is caused to the landlord's allocation policy.

13.24     This will be particularly important in the context of mutual exchanges where both or all the occupiers have the same landlord and the same sized properties. In such cases, there will be no prejudice to the landlord's waiting list as a result of the exchange. This is one reason why mutual exchange was created as a statutory right in the first place.

Family court orders

13.25     We recommend that relevant family law statutes are amended to ensure that family courts can continue to make appropriate orders in relation to our new agreements, as they can in relation to existing tenancies.

Formalities for transfers

13.26     Under current law, a tenancy can only be assigned by deed, even where the original tenancy did not have to be granted by deed.^[7] 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^[8] (subject to the possible effect of equitable estoppel).
13.27     We wish to avoid any requirements for deeds. We do not regard them as useful in the context of residential renting. Instead, we wish to see transfers taking effect from the point at which all the parties' intentions are confirmed in writing.
13.28     We recommend that a transfer should be effective as a legal transfer from the earliest of the following points in time:

(1) the intentions of the transferor and transferee to transfer are stated in writing; or

(2) the transferor gives up occupation and the transferee takes up occupation of the accommodation; or

(3) the first instalment of rent is paid to the landlord by the transferee and not by the transferor.

13.29     In cases where there are land registration requirements to be completed, these must also be carried out.
13.30     These propositions are all subject to any necessary consents being obtained from the landlord. If consent is required by the agreement, or if there is a landlord's veto, then the transfer should not be effective unless and until the landlord's consent is granted and communicated to the transferor or transferee.
13.31     If the required consents are not obtained, the purported transfer will be of no legal effect. Thus the landlord will be able to take proceedings against the purported transferee who will have no legal entitlement to occupy the premises. Alternatively, the landlord could agree to enter an agreement with the purported transferee; but this will be entirely a matter for the landlord.
13.32     Once a lawful transfer has taken place, the landlord should be required to serve on the transferee a written statement of the agreement, amended to show the change of occupier, within two weeks of the transfer. The same sanctions for failure to comply with this requirement should apply as for failure to give a written statement of the agreement to the original occupier at the start of the agreement.^[9] Where, exceptionally, the original agreement permits the occupier to transfer without having to obtain the consent of the landlord, the time limits for this sanction should not start to run until the landlord is notified of the transfer.

Effect of a transfer

13.33     The effect of a properly conducted transfer should be to substitute the new contractual occupier for the old one from that point on, in a clean break. The former occupier should only be liable under, and benefit from, the obligations and rights of the agreement in respect of things happening before the transfer.
13.34     The new occupier should only be liable under, and benefit from, the obligations and rights of the agreement in respect of things happening after the transfer.

Transfers of parts of the premises

13.35     The new scheme of transfers will not make any specific provision for transfers of part of the property. It is rare for this to be practical in relation to residential tenancies covered by the current housing legislation, and we would anticipate that it would continue to be rare under the new Act. We do not see that there should be any implied right for the occupier to transfer part only of the property.
13.36     The landlord and occupier can, of course, agree that they want to reduce the space available to the occupier and bring a new occupier into part of the property under a separate agreement direct with the landlord. In that case, they can vary the original agreement (or terminate it by mutual consent subject to entering a new agreement for the smaller part of the property) on the basis that the landlord will enter a separate agreement with a new occupier for the other part.

Note 1    Persons with the right to succeed are discussed in Part XIV.    [Back]

Note 2    For instance, allowing people to pass a tenancy to their carer-successor before they move into residential care.    [Back]

Note 3    See below para 14.21. This is subject to para 14.58 – 14.59 which provides for the possibility of the parties to a type II agreement agreeing that, on the death of any joint occupier, his or her interest is to be transferred in accordance with his or her will or on intestacy.    [Back]

Note 4    There may be more than one such person. In paras 14.46 – 14.47 we discuss the situation where potential successors cannot agree between themselves who should actually be the successor.    [Back]

Note 5    This would be comparatively rare as the potential successor would have to have their home at the transferor’s property, and so would not normally have another property on which they had an agreement covered by the new Act.    [Back]

Note 6    No provision should be made for this exception as a compulsory feature of type II agreements. It will therefore be covered by the default veto on transfers. The landlord will therefore be able to choose to include a similar right if they wish, but will not be forced to do so.    [Back]

Note 7    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.    [Back]

Note 8    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.    [Back]

Note 9    See para 7.23 above.    [Back]