Despite a trend in the UK in favour of “personal leases” (where an employee is the named tenant) rather than “corporate leases” (where an employer is the named tenant), a large number of companies continue to prefer corporate leases.
What is a corporate let?
A corporate let is when a company takes on a residential tenancy agreement as the tenant, rather than an individual. An employee is then able to occupy the property as a licensee of the tenant.
As the official tenant, the company is responsible for all the tenant’s obligations including the payment of rent, council tax and utility bills. However, it is commonly arranged so that the company pays the rent and the occupant pays the council tax, utilities and other bills. (It is important to remember that the company is fully accountable for default of payments of any of these costs).
The Tenancy Agreement
It is not possible to use an Assured Shorthold Tenancy agreement for a corporate let. ASTs cannot be signed by a company and are only appropriate for personal lets.
Although many companies prepare and use their own tenancy agreements, the landlord has the right to review and propose amendments. Occasionally companies request a premium lease, which can vary in term from two to four years, under which all the rent is paid annually in advance. A reduction in rent is sometimes granted in these circumstances.
Most companies require flexibility to move expatriate staff around the world. The most 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, they may negotiate a business break clause or a diplomatic break clause. This means that the tenant can only break if the occupant is being relocated outside a 30 mile radius of the property, or ceases to be employed by the company. Where a landlord insists on this, tenants often agree for the first year, but request that the break clause become unconditional from the start of the second term.
The landlord should be provided with the name of the person living in the property (and their family if applicable). Company lets usually allow the tenant to replace the occupant with another employee of the company at any time. Some landlords might insist that appropriate wording is included in the agreement to give them the right to approve the replacement occupant, but the landlord has no legal entitlement to do so under a company let.
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 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.
If the company pays a deposit in cash, they should insist that this is held by a stakeholder, independent of both parties, who will only release the funds upon approval by both parties.
The pros and cons of company lets
In a recent newsletter by Morton Fraser, they pointed out two specific disadvantages of using a corporate lease in the UK. UK consumer protection law operates for the benefit of individuals and does not assist businesses. In the context of tenants’ rights, this means that important areas of protection are lost by having a corporate lease rather than an Assured Shorthold Tenancy agreement.
According to Morton Fraser, the disadvantages of a corporate lease are:
1. Protection of tenant’s deposit. Landlords and letting agents are legally required to lodge deposits with an independent deposit protection scheme which adjudicates disputes at no cost to the tenant. This does not apply to company leases. Corporate tenants can find themselves in a weaker negotiating position when it comes to the return of any deposit or dilapidations disputes.
2. Enforceability of an “unfair term” in a lease. Tenancy Agreements are protected under consumer legislation called the Unfair Terms in Consumer Contract Regulations 1999. An example of an “unfair term” in a lease is a clause which states that a tenant may not make a deduction from rent (even if a landlord does not carry out necessary repairs). Clauses like this would be enforceable in a corporate lease, but are far less likely to be enforceable in a personal lease.
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