What if your landlord isn't paying up?

Tenants who keep up rent payments and look after their accommodation can reasonably expect little hassle from their landlord and a return of their deposit at the end of their tenancy. Or can they?

Tenants may be shocked to find how few rights they have if that landlord fails to keep his or her side of the bargain by not making their mortgage repayments. Sarah and James (not their real names) were shocked when they arrived back from a holiday recently to find a letter on their doorstep telling them that the property they rented was being repossessed and they had four days to pack up and leave.

'The letter was from a solicitor acting for our landlord's mortgage company,' said Sarah. 'When we called them they said there wasn't much we could do but get out and that we would have two weeks to remove our furniture. We had no idea our landlord was not paying the mortgage - we had paid our rent every month on time and he has over £1,000 of our money as a bond.'

Figures from the Council of Mortgage Lenders at the end of last month show that increasing numbers of homeowners are falling behind on repayments. The numbers of repossessions and cases of mortgage arrears both rose in the first half of this year. Yet while a lender will negotiate with a borrower before repossession, tenants have few rights if a property is taken over, regardless of how much they are paying and whether they pay on time.

'This is something that does come up and basically tenants are stuck,' says Moira Haynes of Citizens Advice. 'Your security comes to an end when the landlord's does. If you do get a letter about repossession, first let the lender know you are there and tell them you will need time to find somewhere else. It may be possible for them to delay repossession.'

If the tenancy agreement was entered into before the mortgage, the tenant may have an overriding interest in the property, and they therefore may be entitled to remain, says Anna Gregson of Dawsons Solicitors. But if the tenancy agreement was entered into after the date of the mortgage, the tenant will have no right to stay in the property if the lender applies to the court to repossess it.

There may, Gregson adds, be some scope for the tenant to enter into negotiations with the lender as 'mortgagee in possession'. She says: 'The lender may be prepared to allow the tenant to stay, at least in the short term, as the lender will not want squatters in the property while it is on the market for sale.'

One estate agent told Cash that he had dealt with two such situations in the past where his agency had ended up taking possession of the flats. In one case, the tenant had to call the police when she found that her locks had been changed. The police organised a locksmith for her, but it cost her £80. The other tenant was a female lawyer who was abroad when the agency took possession. In that case, the landlord made the payments about five hours after repossession and the tenant got new keys.

Malcolm Harrison, a spokesman for the Association of Residential Lettings Agents, says tenants are not normally in a bad position in the case of repossession. 'What tends to happen is that the lender will let the tenancy run to give the landlord time to sort themselves out, or they will use the rental payments to cover the mortgage repayments until the tenancy is up. That is fairly standard procedure.'

Yet while estate agents frequently charge tenants up to £150 to undergo credit and reference checks, there is little tenants can do to check on the history of a landlord or on his or her creditworthiness.

'Tenants can't run credit checks on landlords,' says Ian Swale, City of London lettings manager for estate agent Knight Frank. 'The onus is on the tenant and the agent to make sure the landlord is who they say they are. If the mortgage lender is aware that there are tenants in the property, the tenants will be OK in the case of repossession.

'The landlord needs to get mortgage approval from the lender before he lets the property out, and tenants can check this if they want. But they should bear in mind that, if they want to be in quick, doing this will slow things down considerably.'

Tenants (or potential tenants) can also run a Land Registry search on the property they live in, or are about to live in, which will bring up details of its value at the time of purchase and more importantly any charges which are registered against it such as bankruptcy notices - although the search won't show how much the owner owes on a property or if he or she is in arrears. The search costs £2 and can be done online at www.landregisteronline.gov.uk. Another option is to talk to neighbours and, if possible, previous tenants.

One worry for tenants if a property has been threatened with repossession is what will happen to their deposit. In October next year, the government's tenancy deposit scheme will start: tenants' money will be protected by an independent body, which will also facilitate the resolution of any disputes in connection with the deposits.

For the time being, tenants have to trust landlords and agents to be fair.