CMA to tackle “sham” licences to occupy and other issues
The Competition and Markets Authority (the “CMA”) has recently announced plans to investigate the private rented sector and, in particular, to take enforcement action against landlords who use “sham” licences to occupy as well as tackling other issues. We consider what this may mean for property guardian providers below.
Who is the CMA?
The CMA is the competition regulator in the UK. It is an independent, non-ministerial government department, responsible for strengthening business competition and preventing and reducing anti-competitive activities across all sectors.
What is the CMA investigating?
On 25 August 2023, the CMA announced its “consumer protection project on issues that private rental tenants are experiencing”. This plan particularly focuses on ensuring that competition and consumer rights are protected in relation to where people live.
The CMA plans to take action to provide updated guidance for letting agents so that landlords and tenants are really clear about their own rights and responsibilities. It has identified some areas of concern, including:
• Zero deposit schemes – these schemes alleviate the need for tenants to come up with a large cash deposit (which sounds tenant-friendly on the face of it), but the CMA is concerned that some tenants may be unaware of their liabilities under such schemes, alongside reports of pressure-selling and undisclosed commission earning by letting agents.
• “Sham” licences – the CMA has reportedly been told that there are still landlords who claim that tenants have licences to occupy rather than assured shorthold tenancies and who fail to recognise the rights that consumers (in this case, tenants) have under a tenancy.
• Onerous guarantee clauses – the CMA has concerns about onerous guarantee clauses which impose wide obligations on tenants – such as requiring them to provide extensive evidence of assets.
• Possible unlawful discrimination – which includes, for example, looking at those who advertise properties as not available to housing benefit claimants (i.e. “no DSS”).
Our comments
In several of the hundreds of possession claims we have acted on against property guardians, we have often seen the “sham licence” argument raised as a defence to the possession proceedings (which we have robustly defended on behalf of those clients). The CMA report at paragraphs 4.12 and 4.13 specifically talks about “sham licences” being a “particular concern where property is let on a ‘per room’ basis. We heard that these licences often purport to allow the landlord and/or letting agent to move the tenant to another room with little or no notice given to the tenant.” The property guardianship model may therefore be on the CMA’s radar.
As ever, best practices must be followed by property guardianship providers to avoid any finding of a sham licence during the course of possession proceedings and/or during the course of the CMA’s investigations and potential enforcement action being taken.
Historically, some property guardian providers had “no DSS” clauses in their licence agreements, although this has been largely eradicated over the years in our experience. It is important to avoid this type of wording which can result in potential unlawful discrimination claims either by the CMA tackling unfair practices and/or brought personally by the property guardian – both against the property guardian provider.
What next?
The CMA has indicated it will consider further intervention against landlords and/or letting agents (which would also include property guardianship providers) if necessary, which may include enforcement action.
Our specialist Property Guardianship team can help you with an array of services relevant to this update. From reviewing or redrafting your licence agreements to ensure best practices, to bringing possession proceedings (and expertly advising on any defended possession proceedings, particularly in circumstances where a tenancy and/or sham licence defence is raised) to advising on unlawful discrimination claims. With our extensive knowledge and expertise of key arguments we are well placed to advise on issues raised in this update. As ever, if you need help, please get in touch.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. Greenwoods Legal LLP is a Limited Liability Partnership, registered in England, registered number OC306912. Our registered office is Queens House, 55-56 Lincoln’s Inn Fields, London, WC2A 3LJ. A list of the members’ names is available for inspection at our offices in Peterborough, Cambridge and London. Authorised and regulated by the Solicitors Regulation Authority, SRA number 401162. Details of the Solicitors’ Codes of Conduct can be found at www.sra.org.uk. All instructions accepted by Greenwoods Legal LLP are subject to our current Terms of Business. VAT Reg No: 161 9287 89.