Industry guidance on buy-to-let
arrears and possessions
Introduction
The Council of Mortgage Lenders has issued guidance on handling arrears and possessions for owner
occupier mortgages which came into effect on 31 January 2009.
Most buy to let loans are not covered by that guidance. Buy to let is a distinct market with its own
characteristics. The fundamental differences between BTL and owner occupier loans are:•
The borrower should not be resident in the property and unlike owner occupier loans does not risk
losing a home;
•
BTL loans are not usually regulated by the Financial Conduct Authority (FCA) or the Consumer
Credit Act; (though some ‘Consumer BTL’ loans will be).
•
Whilst the lender’s primary concern is its relationship with its borrower third parties such as
tenants and occupiers can be affected by action taken by the lender if the borrower is in arrears.
•
The borrower can be a corporate body and the borrowing may be on a portfolio basis.
Because of these different characteristics lender’s processes and policies for dealing with a borrower in
arrears under a buy to let loan will vary. In England and Wales options available to a lender are:•
•
•
•
•
Obtaining a court order for possession;
Appointing a receiver of rent –usually a Law of Property Act receiver;
Receiving rent directly;
Sale of the property either with or without vacant possession; and
Combinations of these.
Status
This publication is guidance for members of the Council of Mortgage Lenders – it is not a statement of the
law and should not be regarded as such. This guidance has no regulatory status and some of the examples
of good practice may not be appropriate for all lenders.
It relates to buy to let loans secured against properties in England and Wales. It covers loans where at the
time the loan was taken out both the lender and the borrower understood that the security property would be
let to a third party. It does not apply where the borrower has taken out a mortgage over his own property
and subsequently let out that property (either with or without consent of the lender).
A Law of Property Act receiver is usually the agent of the borrower and not the lender and this guidance in
not intended to interfere with that relationship in any way.
Guidance
1
Acting fairly
1.1
Lenders in buy to let arrears cases are expected to act fairly towards their borrower and take the
individual circumstances of each borrower into account. Except where there is immediate prejudice
to either the property or to any occupant at the property, the lender should not seek to realise the
security (including the appointment of a receiver) until all other reasonable attempts to resolve the
position have failed. It is recognised however that sometimes it is in the interests of the tenants and
lender to act more quickly, for example, in a case where it is clear the borrower has disappeared
and cannot be traced.
1.2
As set out above there are many options available to lenders when realising security in buy to let
loans. Lenders should ensure that their policies allow for flexibility in approach and that their choice
of enforcement action for the particular loan is appropriate. Lenders should not adopt a “one size fits
all” approach to buy to let loans.
1.3
Appropriate management information must be collated and provided to the lender’s board to allow
the board to assess whether buy to let borrowers are being treated fairly and lenders policies should
provide for this. Management information should also consider the way in which tenants and
occupiers are dealt with.
2
Lenders' policies
2.1
Each lender should have a written document setting out its policy and processes in relation to the
handling of buy to let arrears and possessions cases. These will be signed off by senior
management. Suitable training must be given to ensure that staff are fully aware of the policy and of
the different ways in which buy to let loans can be dealt with.
2.2
In many respects a lender’s buy to let policy will be very similar to its policy for owner occupied
properties. Lenders may therefore want to use our guidance on owner occupier loans as the basis
for their buy to let policies. This should be adapted to take into account:•
The position of occupiers
•
The nature of the loan
•
The alternative remedies to a court order listed above
2.3
Additional issues to be included in a lender’s buy to let policy and associated good practice are set
out below.
3
The position of tenants when the lender is seeking possession
3.1
When seeking possession under the mortgage, it is important to note that an order for possession in
mortgagee possession proceedings against a borrower does not necessarily amount to an order for
possession against a tenant.
3.2
If the tenancy is in place before the loan was entered into, the lender will normally take possession
of the property subject to the terms of the tenancy. Should the lender wish to obtain vacant
possession in these circumstances the lender will have to do so in accordance with the legislation
governing the relevant tenancy.
3.4
If the tenancy was created after the loan was entered into but was consented to by the lender, on
possession the lender will take the property subject to the terms of the tenancy. Generally the
terms and conditions of a buy to let loan will include consent to tenancies. Provided those terms
and conditions are complied with the tenancy will be treated as having consent from the lender. This
means that the majority of tenancies in buy to let lending have consent and are binding. Should the
lender wish to obtain vacant possession in these circumstances the lender will have to do so in
accordance with the legislation governing the relevant tenancy.
4
Unauthorised occupants
4.1
As set out in 3 above in the majority of cases where the loan is a buy to let loan and the lender is
considering enforcement action against the borrower, the tenant will be subject to a tenancy which
has been approved by the lender and the tenant is entitled to occupy the property on the basis of
that tenancy.
4.2
There are some instances where the borrower has granted a tenancy which does not have lender’s
consent and is not binding on the lender. In these circumstances the lender’s primary duty is to the
borrower. When entering into the tenancy the tenant is unlikely to be aware of the borrower’s
mortgage and the lender’s requirements on lettings. In these circumstances where the lender seeks
vacant possession the lender should consider the tenant’s position very carefully and treat the
tenant sensitively respecting the fact that as a result of the borrower’s actions the tenant will lose
their home.
4.3
Where 4.2 applies and if
•
the tenancy is an assured shorthold tenancy;
•
the tenant is complying with the terms of the letting and paying the rent to the lender or the
lender’s receiver; and
•
the lender’s obligations to the borrower are not compromised
the lender should consider:•
whether having regard to all the circumstances of the case it is fair to the tenant to give the
tenant a reasonable period of notice to find alternative accommodation; and if so
•
the appropriate length of that notice period.
1
5
Receivers and tenants
5.1
A receiver is usually the agent of the borrower/landlord and as such is bound by any tenancy
created by the borrower/landlord.
6
Vacant possession
6.1
Where the property is subject to a tenancy (whether binding on the lender or not) and the lender is
considering enforcement action against the borrower, the lender should consider whether obtaining
vacant possession is the most appropriate method of enforcement. In carrying out that assessment
the lender should consider the position of the tenant as well as having regard to the fact that its
primary obligation is to the borrower.
7
Additional issues to address in buy to let arrears and possessions policies in
addition to those set out in our owner occupier guidance and above.
Possession Action
Policy and good practice. Your policy
should state:
Procedure good practice examples:
Before bringing an action for possession you
will attempt to identify all tenant/occupants at
the property and the nature of their interest in
the property.
•
Provide any tenant or occupier with contact
2
details for your organisation.
•
Where possible having regard to data protection
and privacy laws inform tenants/occupiers of
key events/dates in the process as these arise.2
•
Recommend that any tenant or occupier seeks
independent advice from a Citizens Advice
Bureau, law centre or housing aid centre.
•
If any tenant provides evidence of an existing
tenancy to confirm to the tenant as soon as
possible as to whether you regard the tenancy
as binding on you and, if not, to explain your
reasons.
That you will within five working days of receipt
of the hearing date notify any tenant or
occupier at the property of the date and comply
with court rules.
1
It is not expected that a notice period given to a tenant under clause 4.3 would be greater than the statutory notice the tenant would
be entitled to under an assured shorthold tenancy
2
We have received views from the Information Commissioner’s office on this – see covering letter
Acting as lender in possession - this can mean being in receipt of the rental
income of the property as well as actually having an order for possession
Policy and good practice. Your policy
should state:
Procedure good practice examples:
That you will ensure that the property is
properly managed in accordance with good
professional management practice.
• Ensure that you provide clear details as to how
any tenant should pay the rent and provide
receipts for rent paid.
That all tenants and occupants at the property
will be treated in a professional manner.
• Ensure that any deposit paid by the tenant and
held by the lender (is protected in an approved
scheme as required by the tenancy deposit
legislation) and subsequent deductions are
accounted for directly or via a tenancy deposit
scheme if the deposit is so registered.
That you will comply with the obligations of the
landlord under any binding tenancy agreement.
That when you sell a security property subject
to tenancies:•
•
you will promptly inform any tenant and any
occupant in writing of the name and contact
details of the new owner; and
how you will make best efforts to co-operate
with tenant(s)/occupiers over arrangements for
marketing and viewing the property.
When selling a property:•
how you will assess the best price and ensure
proper marketing;
•
how you will assess whether sale is the best
course of action;
•
how you will assess whether to market with or
without vacant possession; and
•
how you assess whether use of auctions is
appropriate or whether other methods of sale
would realise a better price.
When writing to the tenant or occupier:• ask that they contact you as soon as possible;
• suggest they obtain independent advice and
where possible suggest advice providers;
• where appropriate give instructions as to future
rental payments and stress the importance of
their continuing to pay their rent and comply with
the terms of their tenancy agreement; and
• set out your commitment to maintaining
professional standards of property/tenancy
management.
Appointing a receiver
Policy and good practice. Your policy
should state:
Procedure good practice examples
When Law of Property Act 1925 receivership is
contemplated that you will consider carefully
whether it is appropriate to appoint a receiver
and that appointment of a receiver is not
automatic following default.
• You have processes in place to ensure that
appointment is not automatic and is appropriate
for the loan in question.
That before appointment you will give the
borrower written notice which clearly states
what action is required by the borrower to avoid
the appointment being made.
That you will only employ a receiver who you
believe has the appropriate skills to carry out
the appointment.
When an appointment is to take place that you
will notify the borrower the action that will be
taken to appoint a receiver:
• How and when you will provide the information.
• How you will check that an appointment is
appropriate and that staff have a clear
understanding of those procedures.
• How you will ensure that the customer has clear
information about the powers and role of the
receiver.
• How you will ensure that the borrower
understands its rights and obligations in relation
to the receiver.
• How you will communicate the costs of the
receiver to the borrower and its obligations in
relation to those costs.
Following appointment of a receiver
Once a receiver is appointed you will write to
any tenant(s) and occupiers at the security
property to inform them of the appointment and
its implications.
• Provide a named contact at the receiver to
facilitate initial contact.
• Where possible write to the tenant personally
confirming the appointment.
The communications should state:• What a receiver is and his powers and role in
relation to the tenant/occupier.
• How the receiver will fulfil a commitment to
maintaining professional standards of property/
tenancy management.
• The desirability of making contact with the receiver
as soon as possible.
• The importance of obtaining independent advice.
Receivers
Policy and good practice. Your policy
should state:
Procedure and good practice examples
That in the appointment the receiver will agree
to provide professional property management
services at the property and to act fairly and
responsibly to tenants and occupants at the
property.
What procedures you will have in place to monitor and ensure that the receiver is acting fairly
and responsibly to tenants and occupants. This
will include how you will deal with complaints
about the services provided by the receiver.
© Copyright June 2009 Council of Mortgage Lenders
address North West Wing Bush House Aldwych London WC2B 4PJ
telephone 0845 373 6771
fax 0845 373 6778
website www.cml.org.uk