Tenants of Mortgaged Homes

What should be included in a tenancy agreement?

Most mortgages have a condition that the property cannot be let without the prior written consent of the lender. Landlords should always seek the consent of the lender before letting their property.

This is important because any tenancies granted without the consent of the lender and after the date the mortgage was taken out will not protect the tenant(s) against the lender.

This means if the landlord falls into arrears with his / her mortgage repayments and the lender repossesses the property the tenant(s) will be evicted.

The tenant will have no right to stay in the property, but may have a right to sue the landlord for compensation.

If however, the lender does something to recognise the tenant as a tenant, such as accepting rent from the tenant, then the tenant may be able to defend the repossession and argue that the lender has created a new tenancy with them.

If a tenancy was granted before the date of a mortgage then the tenant may be allowed to stay in the property. This applies if the tenancy is a lease for a period of not more than 3 years, or a lease for a period not exceeding 21 years.

If a tenant wishes to sue a borrower (i.e. the landlord) because their tenancy is invalid, because it was created after the date of the mortgage the tenant should apply to be joined as a defendant to the repossession proceedings and claim compensation against the landlord for breaching their right to peacefully enjoy the property. If there is sufficient equity in the property the tenant's claim could then be settled on the sale of the property.