We believe, however, that it is important to distinguish between cases where the tenancy is recognised by the lender (because the landlord has a buy-to-let mortgage) and instances where a tenancy is not recognised and probably not even known to the lender. This can occur if the borrower has a residential mortgage but is letting out the property to a tenant without the consent of the lender and in breach of the terms of the mortgage.
Most tenants will have landlords with buy-to-let mortgages, and will therefore have tenancies that are recognised by the lender. Those tenants are already protected and will have their tenancies honoured by the lender as long as they are not in breach of their tenancy agreement.
Lenders are sympathetic to tenants who are paying their rent and acting responsibly in cases where the landlord has failed to get permission to let the property. But the legal position is complicated because the lender has a contractual obligation to the borrower, even though he is in breach of his mortgage terms. Potentially, there are also legal constraints on the ability of lenders to collect rent from tenants in this position.
We want to work with the government to resolve the problems and ensure that the notice period for tenants is consistent with the lender’s other contractual obligations. The government is expected to consult on proposals over the summer and legislate by 2010. We will work for a solution that helps responsible tenants in the comparatively few cases where the landlord is letting the property without the consent of the lender.