Addendum to lease - odd request from landlord

windas

Hello, I have a query for a friend who's a bit worried.

Her landlord is re mortgaging his buy-to-let property from SBI(State bank of India) and has asked her to sign an addendum to the lease. The addendum gives the bank a right to have the rent paid direct to them should the landlord be unable to pay the mortgage.

She is obviously a bit uncomfortable and has expressed her reservations to him. The landlord has assured her that she isn't guaranting the mortgage and that her liability is no different. The only difference would be that she would pay her rent to SBI not the landlord.

The addendum clause seems to me a somewhat odd request. Is this standard request from a mortgage provider or would she be putting herself at risk by agreeing?

anselld

Very odd, although I cannot immediately see how she would be putting herself at risk.

davidmcn

Pretty commonplace (in commercial lending at least) for borrowers to assign the rental income to the bank as additional security, so in principle I don't see anything to be worried about. Though I'm not sure why they consider it necessary for the tenant to sign up to it.

Socajam

Whether I am not putting myself at risk or not, I would not do it.

ThePants999

I don't see a problem here. I'd sign that.

greatcrested

The only circumstances in which the mortgage lender would be legally entitled to the rent would be if they became the landlord following repossesion of the property by the courts. See

Post 6: Repossession: what if a LL's mortgage lender repossesses the property?

Having said that, this appears to be an attempt by the mortgage lender to enable them to receive rent prior to that happening in circumstances where the landlord has mortgage arrears, but where repossession has not yet taken place.

Personally I suspect the clause would be unenforcible. The tenancy contract is between the tenant and landlord, and rent is due to the landlord. I don't see how a 3rd party (the lender) could enforce this clause. The lender's only contractual agreement is with the landlord (their borrower), and in the event of a breach (eg mortgage arrears), they would have to enforce their contract with him, not his contract with the tenant.

So on the one hand I see no problem with agreeing, since the clause is (I think) legally unenforcible, but on the other hand I'd not sign (and he can't force the tenant to agree) as it introduces a messy contractual term.

If, however, the intention is to force the tenant to pay their rent to the mortgage lender following repossesion of the property by a court for mortgage arrears, then the clause is unnecessary. In those circumstances, the lender would become the tenant's new landlord (see link above) and they would automatically be enttled to the rent anyway.

davidmcn

greatcrested said:

Having said that, this appears to be an attempt by the mortgage lender to enable them to receive rent prior to that happening in circumstances where the landlord has mortgage arrears, but where repossession has not yet taken place.

Yes, that's the intention.

Article here about assignments of rent. Though no mention there of it requiring anything special in the lease, just notice to be served on the tenant advising that the rent has been charged to the lender.

greatcrested

davidmcn said:

greatcrested said:

Having said that, this appears to be an attempt by the mortgage lender to enable them to receive rent prior to that happening in circumstances where the landlord has mortgage arrears, but where repossession has not yet taken place.

Yes, that's the intention.

Article here about assignments of rent. Though no mention there of it requiring anything special in the lease, just notice to be served on the tenant advising that the rent has been charged to the lender.

Thanks - interesting link david and it's good to learn something new! Wierd, but then the law is wierd!

I withdraw my advice above...

davidmcn

greatcrested said:

davidmcn said:

greatcrested said:

Having said that, this appears to be an attempt by the mortgage lender to enable them to receive rent prior to that happening in circumstances where the landlord has mortgage arrears, but where repossession has not yet taken place.

Yes, that's the intention.

Article here about assignments of rent. Though no mention there of it requiring anything special in the lease, just notice to be served on the tenant advising that the rent has been charged to the lender.

Thanks - interesting link david and it's good to learn something new! Wierd, but then the law is wierd!

I withdraw my advice above...

I would say I've only encountered it in commercial property, maybe most lenders don't consider the admin worthwhile for residential properties. No idea how much it ever gets used in practice if there are arrears.

windas

..

I would say I've only encountered it in commercial property, maybe most lenders don't consider the admin worthwhile for residential properties. No idea how much it ever gets used in practice if there are arrears.

Thanks @davidmcn and @greatcrested for the analysis from a contractual point of view. Would you reckon she's in any risk if she signs the agreement, though? I'm wondering if private tenants have legal protection in case of eviction (due to rental arrears)on repossession which this clause may potentially override, for instance. 

davidmcn

windas said:

..

I would say I've only encountered it in commercial property, maybe most lenders don't consider the admin worthwhile for residential properties. No idea how much it ever gets used in practice if there are arrears.

Thanks @davidmcn and @greatcrested for the analysis from a contractual point of view. Would you reckon she's in any risk if she signs the agreement, though? I'm wondering if private tenants have legal protection in case of eviction (due to rental arrears)on repossession which this clause may potentially override, for instance. 

Don't see why it would. It's got nothing to do with rights on repossession, and they'd hardly be able to both collect rent and evict her, would they?