Sham tenancy agreements

A sham agreement is a contract that claims to give the parties different rights from the ones they have in law. A landlord can attempt to make a sham agreement with a tenant verbally or in writing in different forms, even via text or Whatsapp messages.

Sham agreements are often used by private landlords to attempt to avoid legislation such as the Housing Act, which creates protections and obligations for tenants and landlords.

A sham agreement typically involves a landlord stating that an occupier has a licence when the actual agreement between the parties is classed as a tenancy under housing law.

Why a landlord might issue a sham agreement

Common obligations a private landlord might seek to avoid through a sham agreement are those which apply to assured shorthold tenancies, including:

• tenancy deposit protection rules

• requirement to serve a valid section 21 notice

• establishing grounds to serve a section 8 notice seeking possession

• the requirement to obtain a possession order and warrant to evict the occupier

A private landlord might also seek to avoid complying with rules regarding HMO licences.

The reality of the occupier's situation determines whether they are a tenant or a licensee. The description on the agreement does not decide the status of the occupier.

A sham agreement typically describes the agreement as a licence and often includes a clause intended to exclude one of the key elements of a tenancy.[1]

The key elements of a tenancy are:

• the grant of exclusive possession of premises

• for a period of time

• at a rent

A tenancy is created where the key elements are present, even if the agreement describes the occupier as a licensee or lodger.

A sham agreement is any agreement that claims to give the occupier fewer rights than they have in law. There are some common clauses or forms of contract which could indicate a landlord has issued a sham agreement.

Restriction of exclusive possession

Exclusive possession is the right of a tenant to stop other people, including the landlord, from entering their home without permission. Exclusive possession can be over a whole property, or just a single room. An occupier who has exclusive possession is a tenant, as long as the other requirements for a tenancy are met.

Sham agreements often include a clause denying that the occupier has exclusive possession. For example, the agreement could state that the landlord or other people have the right to access the property.

A clause restricting exclusive possession might be used by a landlord to try to avoid serving a valid notice seeking possession or complying with tenancy deposit protection rules.

Sham licence agreements restricting exclusive possession

In one case, a couple moving in together signed separate licence agreements for a one-bedroom flat. The landlord claimed to have the right to permit other people to use the flat and reserved the right to move in with the occupiers, denying that they had exclusive possession of the flat. In practice as the accommodation was too small, and the landlord had not moved in over time, it was clear there was no genuine need for the clause.

The House of Lords decided on the facts that the occupiers had exclusive possession. It held that the licence agreements were a pretence, and that the occupiers had a joint tenancy of the flat.[2]

Provision of services

A landlord could reserve the right to access a property to provide services such as cleaning, which would mean an occupier does not have exclusive possession.

In some types of accommodation, particularly supported housing, this can be a valid term of the agreement. The occupier typically has a licence rather than a tenancy.

This type of clause might be used to claim an occupier has a licence and that the landlord does not need to serve a valid notice seeking possession. It might also be used to avoid complying with tenancy deposit protection rules.

A landlord who includes a clause reserving access to provide services might have issued a sham agreement if there is no intention of providing those services.

Lodger agreements

A lodger agreement is created where an occupier shares accommodation with a resident landlord. This does not create a tenancy and the occupier can be evicted without a possession order.[3] A sham lodger agreement might be used to try to evict an occupier without a possession order and avoid complying with deposit protection rules.

A lodger agreement could be a sham agreement if the landlord is not resident in the property immediately before the agreement starts and when it ends.

Holiday let agreements

A property that is genuinely let for the purposes of a holiday does not create a tenancy and the occupier could be evicted without a possession order.[4]

A sham holiday let agreement might be used to try to evict an occupier without a possession order and avoid complying with deposit protection rules.

A holiday let agreement could be a sham agreement if the occupier is not occupying for the purposes of a holiday.

In one case, a property was initially advertised as a holiday let, but the occupier signed a new six-month agreement while working as a student nurse. As both the landlord and occupier knew the property was not going to be occupied for the purposes of a holiday, it was held that the occupier had a tenancy.[5]

Property guardians

A property guardian is an occupier who agrees to reside in vacant commercial or residential property for less than market rent. The property owner grants a licence to an agency, who then sublets to the individual property guardian.

A sham property guardian agreement might be used to try to evict an occupier without a possession order and avoid complying with deposit protection rules.

Many property guardianship agreements are genuine licences.[6] A property guardian agreement could be a sham agreement if the key elements of a tenancy are present, such as exclusive possession.

Exclusive possession as a property guardian

The County Court found that a property guardian had exclusive possession of the premises and was an assured shorthold tenant. In this case the guardian was:[7]

• offered the choice of a room in the property by the property agency at the start of the agreement without any involvement of the other guardians living in the property

• given the key to that room and the other guardians in the property did not have access to it

• in occupation of the same premises for over three years and had never been asked to move to alternative rooms.

Accommodation clubs

Accommodation clubs are advertised as a membership that allows access to flexible accommodation for people who want to move at short notice and might not want to be tied into a tenancy. They often describe the occupier paying a ‘joining fee’ rather than a tenancy deposit, and a monthly ‘membership fee’ rather than rent.

An accommodation club might be used as a sham agreement to avoid deposit protection rules and to seek to avoid serving an occupier with a valid notice seeking possession.

An accommodation club could be a form of sham agreement if the key elements of a tenancy are present. Some accommodation clubs have been prosecuted by local authority trading standards for issuing sham agreements to try and avoid creating tenancies.[8]

To challenge a sham agreement, the occupier needs evidence (verbal or otherwise) that a term or the name given to the agreement was never intended to be effective.

Any written agreement is a source of evidence regarding the intention of the parties.

Evidence of the actual agreement between the parties can override the written agreement if it shows that the intention was different. The burden of proof is on the person seeking to overturn the agreement.

Illegal eviction

A landlord might try to use the shame agreement to claim that an occupier is not entitled to a possession order or warrant. It might be necessary to challenge a sham agreement when threats of illegal eviction are made, or even after an illegal eviction has already occurred.

Illegal eviction is a criminal offence.[9] An occupier who has been illegally evicted by their landlord can:

• apply to obtain an injunction to re-enter the property

• report the illegal eviction to the local authority, who have the power to prosecute landlords[10]

• contact the Local Government and Social Care Ombudsman if the local authority will not take action[11]

It could be difficult to prove that a sham agreement has been issued, and an occupier who is financially eligible for legal aid should seek help from a solicitor.

Defending possession proceedings

A landlord might serve an incorrect notice and apply to court for a possession order based on a sham agreement. For example, after serving a notice to quit rather than a valid section 21 notice or section 8 notice seeking possession. If a landlord applies to court on an incorrect notice due to sham agreement, an occupier can challenge the notice at a possession hearing.

The tenant needs evidence to demonstrate what the agreement between the parties is in reality and that a sham agreement has been issued.

Possession proceedings are in scope for legal aid, so an occupier who is financially eligible for legal aid could seek assistance from a solicitor with the possession hearing.

Compensation for failure to protect a tenant's deposit

A landlord might issue a sham agreement with the aim of avoiding tenancy deposit protection rules which apply to assured shorthold tenancies.

An occupier who has paid a tenancy deposit which is not protected when this was required could apply for compensation.

Occupiers who believe that they have been issued a sham agreement can report the landlord to their local authority trading standards department.

Trading standards departments have issued fines to letting agencies and landlords for issuing sham licences.[12]

See Tenant remedies for unfair trading practices for more information.