Unreasonable consent to let

[mandarin]

A BTL mortgage has in it's product conditions consent to let. The consent to let is conditional on the borrower/landlord complying with a clause that says:

"The dwelling must not be let to tenants on benefits".

It is a condition of the mortgage that this is complied with. If the borrower breaks any condition, the entire loan must be repaid immediately!

In practice the borrower can only choose not to grant a new tenancy to someone on benefits at the time of signing the AST. The borrower cannot prevent a tenant from losing his job mid-tenancy and ending up on the dole! If that happened, the dwelling would be "let to someone on benefits".=reposession.

If the borrower has no control over the tenant's circumstances mid tenancy. How can such a promise be valid?

The BTL is intended to allow the dwelling to be let to typical tenants who are working. Any worker can lose their job. Over a long enough period with enough properties it is inevitable.

Surely, the condition should be interpreted in the light that the lender must know this is foreseeable and can only expect the borrower to take reasonable steps to reduce the likelihood (i.e. make sure T has a job before you sign them up).

Can the borrower be held to have broken the condition if his tenant makes a benefit claim mid tenancy? Thanks

[des8]

Re: Unreasonable consent to let

This clause must make it difficult to let the property in the first place as even whilst working Council Tax Benefit could be available, and what about child benefit?

Regarding the matter of a tenant's change of circumstances, I assume that does not give a landlord reason to legally evict a tenant. Presumably in the UK a landlord can't evict a tenant because that tenant is suddenly claiming a legal benefit to which he is entitled.
If you can only evict illegally IMO the mortgage condition could not be enforceable. The purpose of the condition would be an illegal act and so unenforceable.

[stevemLS]

Re: Unreasonable consent to let

I suspect these conditions are conditions on the lender granting consent to let.

It would follow that they would be relevant only at the point where the lender was giving consent and a mid-tenancy change of circumstances would have no effect - the lender gets the one opportunity to consent or not, they can't withdraw consent part way through a tenancy.

[mandarin]

Re: Unreasonable consent to let

This clause must make it difficult to let the property in the first place as even whilst working Council Tax Benefit could be available, and what about child benefit? Regarding the matter of a tenant's change of circumstances, I assume that does not give a landlord reason to legally evict a tenant. Presumably in the UK a landlord can't evict a tenant because that tenant is suddenly claiming a legal benefit to which he is entitled. If you can only evict illegally IMO the mortgage condition could not be enforceable. The purpose of the condition would be an illegal act and so unenforceable.

Thanks, that has got me thinking.

If L makes the AST conditional on T not claiming benefits, then in theory, L may be able to apply for eviction if T goes on the dole? No judge would ever grant it but it may not actually be unlawful for L to put a no DSS clause in the AST and attempt eviction over it's breach?

That is about all L can do to comply with the lender's condition.(Whether or not it is an unfair term of the AST) By the time T is on benefits, it is already too late. L would only be trying to remedy a breach that had already occurred. L could still face a repo.

I am trying to find as you say, an arguement why the mortage condition is unenforceable.

[mandarin]

Re: Unreasonable consent to let

I suspect these conditions are conditions on the lender granting consent to let.

It would follow that they would be relevant only at the point where the lender was giving consent and a mid-tenancy change of circumstances would have no effect - the lender gets the one opportunity to consent or not, they can't withdraw consent part way through a tenancy.

Thanks Steve. Your post crossed mine so I only just saw it. Is what you describe how it works for resi mortgages consent to let?

The mortgage is a 'buy to let' so the consent to let is for the full duration of the mortgage no matter how many tenancies are granted. Consent does not need to be applied for each time.

The question you raise is whether consent is required only for the instance of granting a new tenancy or whether consent is a continual thing that applies so long as the requirements are adhered to.

The wording seems ambiguous on that point. "The dwelling must not be let..." has two possible meanings. 1. let (verb) as in the act of granting a tenancy, or 2. 'let' (adjective) describing the state of the property as let or unlet.

If consent is continuous (2), a departure from the conditions of consent would mean they could withdraw consent, so the property would then be let without consent. They could call the loan in or appoint receiver due to breach of condition.

The meaning could easily have been made unambiguous by referring to the 'act of granting a tenancy' or stating that 'for the duration of the tenancy...'.

The drafter chose to make it ambiguous. Where does the borrower stand?

[stevemLS]

Re: Unreasonable consent to let

There is a rule in interpretation, dredging my mind to 25 year old lectures, contra preferentem (?), meaning that where there is ambiguity in a contractual clause, it shall be interpreted against the party that seeks to rely on it.

I think you are spot on in both the ways you have interpreted it and in my view the operation of this rule would give rise to the first of your meanings being adopted. This combined with the analysis that des has given you which would suggest that if the second of the meanings was the correct interpretation then you would be contracting to do an unlawful act, which is itself never lawful.

Is this an actual issue or a hypothetical question?

[mandarin]

Re: Unreasonable consent to let

There is a rule in interpretation, dredging my mind to 25 year old lectures, contra preferentem (?), meaning that where there is ambiguity in a contractual clause, it shall be interpreted against the party that seeks to rely on it.

I think you are spot on in both the ways you have interpreted it and in my view the operation of this rule would give rise to the first of your meanings being adopted. This combined with the analysis that des has given you which would suggest that if the second of the meanings was the correct interpretation then you would be contracting to do an unlawful act, which is itself never lawful.

Is this an actual issue or a hypothetical question?

It is about a real financial product. The situation described is hypothetical but could turn real given the harsh economy. It is wise to avoid being tripped up.

I read about contra preferentem this morning in Chitty on Contracts.(i'm a layperson)
It may go some way to defend against 2. The granting of a tenancy is a discrete transaction that requires consent but the lender may argue that their interests must be protected all the time.
I hate grey areas.

Chitty says a promisor is not relieved from an obligation if an event occurs beyond his control. Although there was also something about frustration and impossibility discharging an entire contract.

The intention of the mortgage deal as a whole was to lend money for 25 years on condition the dwelling is let for the purposes of investment.

Over 25 years it is improbable to avoid at least one tenant claiming benefits at some time (even for just a few weeks). If interpretation 2. is accepted, the only way the borrower could guarantee to never break the condition, would be to grant tenancies only to persons ineligible for benefits. Those are scarce (full time students, those with no NI record, certain foreign nationals, persons with no income) but exclude anyone with a job in case they get fired!

Excluding employed tenants would be absurd in relation to the main purpose of the contract.

What do you think?

I will follow up about the point of it being illegal to deny benefits next.

[stevemLS]

Re: Unreasonable consent to let

Mandarin, I really think you are "overthinking" the issue if that makes sense.

I don't envy you delving into Chitty - it must be 20 years since I looked at that.

Frustration as I recall is an extreme set of circumstances beyond the control of the party in breach, such as non-availability of a wedding venue burning down.

Impossibility is a little more fluid.

Are you absolutely certain that consent to let is not required for the grant of each you tenancy?

If you are and the second interpretation was right then I agree it could be problematic but for the reasons I gave, I don't think that interpretation would be accepted.

Have a look at what Chitty has to say about the modern interpretation of the officious bystander test - that used to be used to imply terms, which are "obvious", such that the bystander would say that it was from the Department of the bleeding obvious.

Now, though it is used as an aid to interpretation. In AG of Belize v Belize Telecom Ltd [2009] Lord Hoffman says:

23. The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p 459) when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties."

According to Westlaw this authority has been followed in a good number of cases but not applied in two - it is too late for me to be bothered looking up those two cases though!

[mandarin]

Re: Unreasonable consent to let

I will need a little time to absorb your last post. in the mean time...

I do tend to over think but in this case, the lender has turned into an axe wielding debt collector desperate to recover all the money it ever lent. Only the squeaky clean are safe.

A landlord is free to choose tenants based on their status, e.g. 'no DSS',
but is he allowed to make a tenancy conditional on no benefits being claimed for it's duration? There is freedom to contract and the Landlord should not be prevented from complying with lender's rules.

Is it actually 'illegal' to get agreement from a tenant to waive his entitlements? What if the tenant breaks his promise and claims anyway? The consent clause is still broken.

There may be an argument for "no claiming DSS" being an 'unfair term'. If so, I am hoping that if found to be unfair, it would absolve the borrower/landlord from his obligation to the lender as it would then be deemed unlawful to comply with the condition and deny the tenant his benefits? It is not clear to me whether this is so.

If a lender restricts the type of tenants the borrower is allowed to let to, is it restraint of trade?

[stevemLS]

Re: Unreasonable consent to let

Really is getting a little late for me to keep up with you :tinysmile_twink_t2:

However, it might help us help you if you told us a little more about the concrete situation you face.

In general terms, there are usually restrictions on a consumers ability to contract out of statutory protections they might enjoy.

s5 of the Housing Act 1988 sets out the circumstances in which a landlord may bring an end to an Assured Tenancy, of which an AST is one flavour.

In my view it is only those circumstances which entitle a tenancy to be ended. Unsurprisingly it doesn't include loss of employment or receipt of benefit.

As you say, a landlord can select tenants as he chooses subject to discrimination law, so "No DSS" is fine, but "No gays" is not.

I really do not believe that a landlord could lawfully incorporate a clause which automatically gave him the ability to end the tenancy in the event that his tenant started to receive benefits, as you said in an earlier post that would be absurd and would offend the officious bystander test I mentioned before.

Now, I'm off to bed!

- - - Updated - - -

Sorry, meant to say on the restraint of trade point, yes it probably is, but my view is that a court would find that it was a reasonable and proportionate restraint imposed by the lender to protect their own economic interest and so would not amount to an unlawful restraint.

[Crazy council]

Re: Unreasonable consent to let

I used to deal with these from both the owners and mortgage co side as an agent.

1. Consent to Allow the property to be let is a standard requirement of BTL mortgages, this is also a condition of standard mortgages when the owner is not occupier ( letting out on standard mortgagee requires proof of insurance, )

then you have conditions that are sometimes tied to the btl mortgagee conditions, but sometimes the insurance conditions.

2. No local authority tenants without prior consent ( because evictions procedures for the MC can be different )
3. No Unemployed ( not no HB ) ( and means at the time of letting ( AST ) )

Only a judge can really grant an eviction in most circumstances, and if the rents being paid, no chance for a standard tenancy, have seen it as a condition in a shared property, but would not be enforceable on a standard dwelling.

The conditions are usually about the insurance the bank has to get to cover there losses incase you dont pay back, not just your buildings insurance. So its not really the mortgage lender saying anything bad about the unemployed, its the mortgagee and insurances are different if your buying property specifically for HB or LA tenants ( assisted tenants ).

Terms for mortgages and insurances for properties or developments thtt will mainly be let to LA HB tenants, are usually so complex that you need a solicitor clarify the terms and pitfalls for you.