Residential Tenancy (Landlord) Guidance

A1 Introduction

Managing Trustees  decide to let out residential Model Trust Property to tenants  for many reasons; the property may be investment property or former caretaker’s accommodation that is let out to generate income for the charity in the long term. Alternatively Managing Trustees may decide to let an empty Manse until it is next required to house a presbyter, deacon or a lay employee.

This guidance note aims to assist Managing Trustees in navigating the charity law and Methodist law, policy and best practice requirements that must be followed before Model Trust Property can be let on a residential tenancy (tenancy). The guidance aims to provide an outline of what steps Managing Trustees need to take.

A2 Why are the Trustees for Methodist Church Purposes (TMCP) involved?

Although Managing Trustees have responsibility for managing the property, they are not the legal owner of it. The legal title to the property is vested in the Trustees for Methodist Church Purposes (TMCP), as Custodian Trustees. TMCP holds property under the Model Trusts contained in the Methodist Church Act 1976, on trust for the local Managing Trustees. This means that TMCP needs to be party to the tenancy agreement.  TMCP is required to give approval to all matters where it is Custodian Trustee. TMCP is therefore required to approve the substance of the transaction in accordance with Standing Order 930(3) and must also approve the documents on behalf of the Connexional Team under Standing Order 931(3).

TMCP is obliged to concur with and act upon the lawful instructions of the Managing Trustees to enable them to administer the charity effectively. To this end TMCP will work with you and your letting agents/solicitors to ensure that the tenancy complies with charity law and Methodist law, policy and best practice requirements set out in the Residential Tenancy (Landlord) Checklist and Section B and Section C of this guidance note. This should also help Managing Trustees to ensure that their duties as both managing trustees and charity trustees have been fulfilled and enable TMCP to concur in the grant of the tenancy.

Please do not let the tenant move in before TMCP has confirmed its approval to the transaction and an approved tenancy agreement has been signed.

A3 Further information

In addition to this guidance note, you may find the following guidance notes of assistance in relation to the proposed residential tenancy:

• Residential Tenancy (Landlord) Checklist
• Residential Tenancy (Statutory Requirements) Focus Note
• Residential Tenancy (During) Focus Note
• Residential Tenancy (Ending) Focus Note
• Template AST
• Residential Tenancy (Landlord) Template Clauses
• Residential Tenancy Document Guide
• Ground 5 Notice Template

Before a tenant has been found there are various things that Managing Trustees can do to ensure that TMCP’s approval will be forthcoming when a tenant has been identified:

B1 Step 1 – Logging a project and Final consent

The letting of residential property is a transaction which needs to be logged on the Property Consents Management System (Consents Website) as Final consent is required by Standing Order 930(4)(ii). This should be done as early as possible to prevent delays further down the line.

A new project must be logged (and Final consent obtained to that project) each time that the identity of the tenant changes. If the same tenant remains in the property and wants to renew the tenancy at the end of the fixed term, the original Final consent would still be valid for two years from the date that consent was originally granted. In either case, you would still need to follow the rest of the steps summarised in the Residential Tenancy (Landlord) Checklist and set out in Section B and Section C of these guidance notes.

B2 Step 2 – Professional advice

As charity trustees, Managing Trustees have a duty to obtain professional advice under section 120 of the Charities Act 2011 to ensure that any letting is on; “the best terms that can reasonably be obtained”. Further to this general duty under charity law to secure best terms, Methodist policy states that residential lettings must be for no less than market rent. There are only very limited exceptions to this policy, considered on a case-by-case basis by the Methodist Council. Therefore, it is almost always the case that Methodist property cannot be let for less than the market rent.

The Managing Trustees will be anxious to make sure that the rent is negotiated at the right level in the first place to ensure that TMCP’s approval will be forthcoming to the tenancy. It is therefore highly recommended that professional advice on the terms of the tenancy, including market rent, is obtained before the property is advertised for let or negotiations start with an existing tenant.

B3 Step 3 – Approval of the form of tenancy agreement

TMCP must approve the form of tenancy agreement before it can give approval in accordance with Standing Order 930(3) and 931(3) on behalf of the Connexional Team.

Lettings should be on the basis of an assured shorthold tenancy under the Housing Act 1988 (AST) unless this type of tenancy is not suitable in the circumstances. The most common example that Managing Trustees are likely to come across, is where residential property is let to a company or local authority i.e. where the tenant is not an individual. A common law tenancy is often used in such cases. If the Managing Trustees intend to enter into a different form of residential tenancy agreement, please contact TMCP Legal so that we can confirm any differences in the requirements.

B3.1 – Template AST

TMCP has prepared a template form of AST (Template AST) that reflects Methodist best practice on letting residential property and complies with Methodist law, policy and best practice. The Template AST is in an approved form. Therefore, provided that the details relating to a particular tenancy are completed correctly once a tenant is found and terms are agreed, TMCP should be able to approve the final form of agreement. There is also a separate Residential Tenancy Document Guide (Template AST) with guidance on using and completing the Template AST. Please contact TMCP Legal for more information about the AST.

If you alter or amend the Template AST in any way TMCP would need to approve the amendments in the same way that it would approve a non-template AST agreement (Non-Template AST) (see Section B3.2). You may want to contact TMCP for approval sooner rather than later to ensure that completion is not delayed once you find a tenant.

B3.2 – Non-Template AST 

Managing Trustees can of course opt to use a form of tenancy agreement prepared by their solicitors or agents instead of using the Template AST. In this case, please ensure that your solicitors/ agents have a copy of (1) the Residential Tenancy (Landlord) Template Clauses, (2) the Template AST and (3) these guidance notes so that they can ensure that the tenancy agreement incorporates the required charity law and Methodist law clauses. Such a tenancy agreement will only be approved if it:

• incorporates the Residential Tenancy (Landlord) Template Clauses within the body of the tenancy agreement. Please note that it is not acceptable for the Residential Tenancy (Landlord) Template Clauses to be merely attached to the end of the tenancy agreement.
• includes appropriate clauses dealing with any deposit and the Tenancy Deposit Scheme being used, IF a deposit is being taken.
• is otherwise in accordance with Methodist policy and best practice regarding residential lettings as demonstrated in the Template AST.

To avoid delays later it is highly recommended that you send a copy of your draft tenancy agreement to TMCP for approval before a tenant has been found.

TMCP Legal will not approve tenancy agreements that fail to comply with the requirements in this Section B3.2 regardless of whether or not such agreements were approved previously.

B4 Step 4 – Statutory requirements

Residential tenancies are increasingly subject to statutory requirements targeting rogue landlords and letting agents and seeking to protect tenants. Managing Trustees must fulfil all statutory requirements before entering into a residential tenancy agreement and TMCP will seek confirmation of this before approving the tenancy under Standing Order 930(3).

Please see the Residential Tenancy (Statutory Requirements) Focus Note for guidance on the statutory and best practice requirements that apply and the steps that will need to be taken before the tenancy is entered into. Managing Trustees should also speak to their agent who should be up-to-date with the statutory requirements and will be able to help them ensure compliance as part of their service as letting agent.

It is highly recommended that Managing Trustees start working their way through the statutory requirements including installing smoke and carbon monoxide alarms and obtaining an Energy Performance Certificate before finding a tenant.

For Managing Trustees in Wales, please refer to the Rent Smart Wales Focus Note. The training that Managing Trustees (who carry out letting and property management work) need to undertake will also help them to understand the statutory responsibilities placed on landlords in Wales.

B5 Step 5 – Forms of security

Managing Trustees, as prudent charity trustees, should consider what steps they can take to safeguard the charity’s position and assets. Your agent/ solicitor will be able to explain the options available. They may recommend taking a deposit and/or asking somebody to guarantee the tenant’s obligations under the agreement. They will also be able to explain the advantages of ensuring that an Inventory and Schedule of Condition is put in place.

Managing Trustees are encouraged to consider what forms of security to take early in the transaction so that this does not delay matters once a tenant has been found. For example, if Managing Trustees decide to take a deposit they may want talk to their letting agent about the statutory requirements and available Tenancy Deposit Schemes so that they can be certain that arrangements can be put in place once a tenant is found. The forms of security chosen will also impact on the drafting of the tenancy agreement. If Managing Trustees want to have the tenancy agreement pre-approved, will it include guarantor and/or deposit provisions?

B5.1 – Deposits

It is considered best practice for Managing Trustees to request a deposit as security for the tenant’s obligations under the tenancy agreement. This should enable Managing Trustees to call upon money held as a deposit should they find themselves with a tenant who is unable to pay rent and/or damages the property.

If Managing Trustees decide to take a deposit then they need to have regard to the strict statutory requirements regarding tenancy deposits including how they are held and used and the information that must be given to tenants. Managing Trustees may find the information on gov.uk to be a useful point of reference.

Failure to comply with the statutory requirements can prevent Managing Trustees from regaining possession of properties even if the tenant is at fault and leave Managing Trustees open to financial penalties. Managing Trustees need to ensure that they obtain appropriate advice on tenancy deposits from their solicitors/ agents to ensure that any tenancy deposits are dealt with correctly.

Due to the risks involved, TMCP requires confirmation from Managing Trustees’ solicitors/ agents that advice has been given to Managing Trustees on their responsibilities relating to any deposit and that the tenancy deposit provisions in the tenancy agreement are appropriate to the Tenancy Deposit Scheme being used and are in line with current legislation i.e. up-to-date.

B5.2 – Guarantor

Although this form of security is not used by Managing Trustees very often, you can request that somebody (often the tenant’s close relative) stands as guarantor, to guarantee the tenant’s obligations under the tenancy agreement. Sometimes this can be helpful if a tenant has not rented property before and no references are available from previous landlords.

B5.3 – Inventory and schedule of condition

It is best practice to attach a list of contents, and a description of the condition of the property, often including photographs, to the tenancy agreement (‘Schedule of Condition’). A Schedule of Condition provides a record of the state of the property at the beginning of the tenancy and can make it easier to enforce the repairing obligations. Please speak to your agent/ solicitor about this. If you have an agent they may prepare this for you as part of their letting services. Any inventory and Schedule of Condition would usually be signed by the tenant when they sign the tenancy agreement.

Once Managing Trustees have found a tenant, or agreed to enter into a new tenancy with an existing tenant, the steps in this Section C can be taken:

C1 Confirmation of market rent and best terms letter

Managing Trustees need to obtain written confirmation from the letting agent that (1) the agreed rent is set at no less than market level and (2) the letting is on the best terms that can reasonably be obtained. (See Section B2).

Please provide TMCP with a copy of this written confirmation for review and approval. This confirmation is required before TMCP can approve the tenancy.

C2 Connected Persons

Once the identity of the tenant is known, Managing Trustees can provide TMCP with confirmation as to whether the tenant is connected to the charity within the meaning of s.118 of the 2011 Act. Please note that this confirmation is also required when existing tenants enter into a new tenancy as the tenant’s links to the charity could have changed since they first started renting the property.

If the tenant is NOT a connected person, the tenant will need to sign a Connected Person Certificate to confirm this to be the case. The certificate must be completed with details of the Managing Trustees and the tenant before being signed. Once signed please return a copy of the certificate to TMCP with confirmation that as far as the Managing Trustees and any agent or solicitor submitting the certificate is aware, the tenant is not connected to the charity.

If the tenant IS a connected person Managing Trustees will need to apply to the Charity Commission for an Order authorising the tenancy. Please refer to the Charity Commission guidance on how to make an application.

TMCP will need to see a copy of the Charity Commission Order before approval to the tenancy can be given.

C3 Approval of the final tenancy agreement

TMCP’s approval to the final tenancy agreement must be obtained before the tenancy is entered into. (See Section B3.)

If you are using the Template AST or have had your Non-Template AST or other tenancy agreement pre-approved then it should just be a case of submitting the final version correctly completed with the details of the tenant and agreed terms so that approval can be confirmed. If a deposit is being taken then please ask your agent or solicitor to confirm that the tenancy deposit provisions are up-to-date and appropriate to the Tenancy Deposit Scheme being used when you submit the tenancy agreement for final approval. (See Section B5.1).

C4 Statutory requirements

Now that the identity of the tenant is known Managing Trustees will be able to carry out the “Right to Rent” checks to satisfy the requirement placed on landlords under the Immigration Act 2014 to verify their tenant’s immigration status and ensure that they have the “right” to rent. It is also a good opportunity for Managing Trustees to make sure that they or their agents have fulfilled all statutory requirements that need to be satisfied before the tenancy is entered into and that confirmation of statutory compliance is produced to TMCP(if it has not been produced already). Please see the Residential Tenancy (Statutory Requirements) Focus Note for details of the requirements.

D1 Satisfaction of charity law and Methodist law, policy and best practice requirements

Once Managing Trustees have found a tenant or agreed to enter into a new tenancy with an existing tenant, they may feel under pressure to enter into the tenancy without delay. TMCP can only concur with the tenancy once all of the charity law and Methodist law, policy and best requirements set out in the Residential Tenancy (Landlord) Checklist and detailed in Section B and Section C have been fulfilled. Managing Trustees should therefore check that they have provided TMCP with evidence that these requirements have been satisfied so that approval to the tenancy can be confirmed:

• Confirmation of project number and that final consent is in place
• Confirmation of market rent and best terms
• Approved AST
• Signed and correctly completed Connected Person Certificate
• If a deposit is being taken; Letting agent or solicitor’s confirmation that Managing Trustees have been advised on their statutory obligations relating to the deposit and that the tenancy deposit provisions in the tenancy agreement are up-to-date and appropriate to the Tenancy Deposit Scheme being used
• Written confirmation from the agent or the Managing Trustees if no agent is involved that; (1) the Managing Trustees have been advised on or recognise their statutory obligations as landlord in respect of the tenancy and (2) the agents or the Managing Trustees will take steps to ensure that all relevant statutory requirements are fulfilled before the tenancy is entered into including but not limited to:
  • Carrying out the “Right to Rent” checks required under the Immigration Act 2014
  • Fitting and testing smoke & carbon monoxide alarms as required under the Smoke and Carbon Monoxide Alarm (England) Regulations 2015
  • A valid Energy Performance Certificate is in place and will be provided to the tenant
  • Ensuring that gas safety records are up-to-date and providing a copy of the most recent gas safety record to the tenant
  • Providing the Government’s ‘How to Rent’ guide to the tenant.
  • Placing any Deposit in an approved Tenancy Deposit Scheme within 30 days of receipt and serving the certain prescribed information on the tenant
    
    Or complying with any comparable legislative requirements in another UK jurisdiction.

D2 TMCP's approval

There is no reason why TMCP would not concur with the letting under Standing Order 930(3) once Managing Trustees have satisfied all of the charity law and Methodist law, policy and best practice requirements. Please wait for TMCP to confirm that the requirements have been met before agreeing a completion date with the tenant.

D3 Signing the tenancy agreement

The tenancy agreement must be signed by two of the Managing Trustees who have been duly authorised to sign property documents on behalf of the relevant managing trustee body. The tenancy agreement cannot be signed on their behalf by a letting agent.

Guidance is provided on the s.333 resolution that should be passed by the managing trustee body to give such authorisation (if a resolution is not already in place for property documents generally) see Section 333 Resolution Template Clauses.

D4 Allowing the tenant(s) into occupation

The Managing Trustees must ensure that NO tenants are allowed into occupation of Model Trust Property (or allowed to store items on the premises) before TMCP has approved the transaction in accordance with Standing Orders and an approved tenancy agreement has been signed by both parties. If the Managing Trustees have any doubt as to the dangers of allowing a residential tenant into occupation before a proper tenancy agreement is in place then they should ask an independent solicitor for advice.

E1 After the tenancy has been entered into

Please confirm to TMCP once the tenancy has been entered into and send us a copy of the signed tenancy agreement.

E2 The end of the fixed term of the tenancy

Please make a note of the date on which the fixed term of the tenancy ends and contact the tenant well in advance of this date to agree what will happen at the end of the fixed term. Please refer to Section B1 for details of the consent requirements and the Residential Tenancy (Ending) Focus Note for guidance on ending the tenancy. It is best practice for Managing Trustees to ensure that a new tenancy agreement is entered into at the end of the fixed term and that the tenancy is not allowed to run beyond the fixed term.

 

Please refer to the Focus Notes:

• Residential Tenancy (During) Focus Note; and
• Residential Tenancy (Ending) Focus Note

for guidance on managing a residential tenancy, ongoing statutory requirements and how to end a residential tenancy.

 

Please note that this document is to provide guidance and assistance to Managing Trustees and their professional advisers. This guidance note is general in nature, may not reflect all recent legal developments and may not apply to the specific facts and circumstances of any particular matter.   Also note that nothing within the documents and guidance notes provided by TMCP nor any receipt or use of such information, should be construed or relied on as advertising or soliciting to provide any legal services. Nor does it create any solicitor-client relationship or provide any legal representation, advice or opinion whatsoever on behalf of TMCP or its employees.   Accordingly, neither TMCP nor its employees accept any responsibility for use of this document or action taken as a result of information provided in it.   Please remember that Managing Trustees need to take advice that is specific to the situation at hand. This document is not legal advice and is no substitute for such advice from Managing Trustees' own legal advisers.