Property owners are often attracted to the idea of letting to a company rather than a private individual, seeing it as more secure and better remunerated. But there can be complications, warns Allanah Bourne-Arton.
Company lets are common among the expatriate community, as local employees are usually responsible for their own housing. In general, while London continues to accommodate a thriving and expanding expatriate community, companies are increasingly moving away from company leases, insisting their employees sign their own.
A company let is when a company takes on a residential tenancy agreement as the 'tenant', rather than an individual. A company employee then occupies the premises as a 'licensee of the tenant'.
In this capacity as tenant, the company is responsible for all the tenant's obligations under the terms of the lease, including the payment of rent, council tax and utilities bills.
However, it is common practice for the occupant to pay council tax and utilities, while the company pays the rent. The landlord's only concern is that the various costs are paid, and the company is fully accountable for any default of payments of any of these costs.
Unless the property is in a fairly specific part of the UK, a landlord may find it difficult to let to a company. Popular locations in London include Notting Hill Gate, Holland Park, Chelsea, Knightsbridge, Kensington, parts of the West End, the City, Wapping and Docklands.
Occasionally, company leases are found south of the Thames in some of the new riverside developments. Houses in the Home Counties that are close to reliable commuter links are also popular. Traditionally, company leases were mainly in the financial sector, but they are now found increasingly in the information technology and telecommunications industries.
The most common agreement signed in the residential lettings market is an Assured Shorthold Tenancy (or AST). Inexperienced letting agents occasionally try to use these agreements for company lets. Landlords must note that an AST cannot be signed by a company and is only appropriate for personal lets.
Many companies have their own tenancy agreements, which they insist on using. However, the landlord usually reserves the right to review and propose amendments to the agreement. In the event that the company does not have its own agreement, the landlord's agent should be able to provide one, in which case both parties reserve the right to review and propose reasonable amendments. If an agent is not involved, the landlord should produce an agreement from a solicitor.
When using a solicitor to produce or review a tenancy agreement, landlords should ensure that he or she has experience with tenancy agreements rather than in conveyancing, which is quite different. The landlord should not incur legal costs for reviewing agreements as they are usually very straightforward.
Occasionally, companies request what is known as a ‘premium lease’, which can vary in term from two to four years, under which all the rent is paid annually in advance. As a result, a reduction in the asking rent is usually granted.
Unless the company wishing to take on the tenancy is a recognised name, it is advisable for the landlord to request company registration details, just as the tenant is entitled to request proof that the landlord is the registered owner of the property.
Rents can be paid monthly, quarterly or annually. The most popular method of payment for company lets is quarterly, and rents are always paid by standing order on the same day of each month or quarter.
Companies occasionally see a tax benefit to paying rent in lump sums in advance. However, this might have the opposite effect for the landlord, though at least he or she is assured of the money up-front and can invest it.
Most companies require flexibility due to the movement of their expatriate staff around the world. A common break clause required for the tenant is 60 days’ written notice, which may be served at any time after the first four months of the tenancy. If the landlord is unhappy with this arrangement, it may be possible to negotiate what is known as a 'business break clause' or a 'diplomatic break clause'. This imposes conditions on the clause, whereby the tenant can only break in the event that the occupant is being relocated outside a 30-mile radius of the property, or ceases to be employed by the company. In this event the tenant may agree to this within the first year, but may request that the break clause become unconditional from the start of the second term.
It is important for the landlord to know the name of the licensee of the tenant, i.e. the person living in the property. The agreement will usually allow the property to be occupied by the 'permitted occupier together with their family’. Within a company let, the tenant usually reserves the right to replace the occupant with another employee of the company as a licensee of the tenant. While it may be possible to insist that appropriate wording is included in the agreement providing the landlord with the right to approve the replacement occupant, this is not in fact the landlord's legal entitlement under a company let.
It is worth bearing in mind that company lets invariably require a high standard of decoration, often in a fairly neutral style. The demand for furnished/unfurnished accommodation varies, depending on the potential occupier, but if furnished, they tend to require the property to be fully equipped, including everything from beds and bed linen to kitchen appliances, cutlery, crockery and glassware.
Not all companies pay a security deposit to be held against any unpaid bills or damages to the property agreed at the end of the tenancy. Often the company will instead produce a letter of indemnity confirming that in the event of unpaid bills or damages it will be accountable for the agreed amount. This letter is occasionally replaced by a clause within the agreement. Landlords should ensure they are happy with the wording.
In the event that the company pays a deposit in cash, it will invariably insist that this is held by a stakeholder, independent of both parties, who will only release the funds upon approval by both parties.
Companies invariably insist that a formal check-in and check-out is done at the start and end of the lease. The landlord should produce a complete inventory of contents and a schedule detailing the condition of the property, which is checked by an independent inventory clerk. The landlord is usually responsible for the cost of making the inventory and for the check-out, while the tenant pays for the check-in. The inventory clerk is effectively employed by both parties and should therefore be seen as independent and unbiased, so the report should be uncontested.
The pros and cons of company lets
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