Letting Agents Beware: Granting “sham” licences could result in prosecution

Letting agents who grant tenants “sham” licences run the risk of being prosecuted by the local authority following a successful prosecution in Islington London Borough Council v Green Live Ltd, t/a Green Live Estate Agents (Highbury Corner Magistrates’ Court, 10 August 2017).

The difference between a licence and a tenancy is trite law. The hallmarks of a tenancy were set out by the House of Lords in a case which should be familiar to all property lawyers: Street v Mountford [1985] AC 809.

In Street the court identified the fundamental elements of a tenancy to be:

1. The grant of exclusive possession;
2. For a term;
3. In return for the payment of rent.

The court concluded that if these three features are present, then it is likely that a tenancy has been created; regardless of the intention of the parties. The court also concluded that any attempt to disguise the grant of a tenancy would be a “pretence” or a “sham” agreement.

Despite this, landlords and letting agents ingeniously attempt to describe such agreements as “licences” or a “licence to occupy”. The benefit of granting a licence means that the usually statutory protections associated with a tenancy would not apply.

Islington based letting agents, Green Live Limited, granted “sham” licences to tenants. The use of a “licence” suggested that tenants were not offered the usual protections, for example, the requirement to provide two months’ notice to vacate pursuant to s21 Housing Act 1988 or have their tenancy deposits protected within a Government authorised scheme pursuant to s212 Housing Act 2004.

Because a letting agency is a business engaging in a “commercial practice” to “consumers”, Islington Council sought a prosecution under the Consumer Protection from Unfair Trading Regulations 2008.

Under the Regulations, a commercial practice is considered to be “unfair” if it is a misleading action which is satisfied under Regulation 5(2):

1. It contains false information and is therefore untruthful; or its overall presentation in any way deceives or is likely to deceive the average consumer, even if the information is factually correct; and
2. It causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.

The Defendant pleaded guilty to two offences under the Regulations and were handed an £11,000 fine, ordered to pay compensation of £3,000 to the tenants and pay the prosecutions’ costs.

Licences are, of course, a perfectly legal way to grant occupancy provided that they are done correctly. Simply naming a document a “licence” will not suffice and letting agents attempting to circumvent the law in this way could face prosecution.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*