The Localism Act has created a new mechanism for mutual exchange to protect certain ‘life-time tenants’ following the introduction of fixed term tenancies.
The current position
Mutual exchange is the mechanism by which tenants can swap properties without having to make a separate application to their landlord. In a mutual exchange tenants not only swap properties but also step into each other’s shoes. If Tenant A has a different tenancy agreement from Tenant B, he will be obliged to comply with the differing terms of Tenant B’s agreement and vice versa.
The new regime
Section 158 of the Localism Act creates a new mechanism for mutual exchanges based on the granting of new tenancies. The section introduces a protection for assured lifetime tenants who were granted their tenancy prior to 1 April 2012. If Tenant A (a lifetime tenant whose tenancy was granted prior to 1 April 2012) wishes to exchange with Tenant B (a fixed term tenant) then a new tenancy is issued to each and Tenant A is granted another assured tenancy.
The fixed term tenant (B) is granted a new tenancy but there is no particular provision regarding its status which suggests that it will be a matter for the landlord to decide what type of tenancy to offer Tenant B. If the concept of mutual exchange is that each tenant effectively steps into the shoes of the other, there is an argument that Tenant B should be entitled to an assured tenancy which is what Tenant A would have ‘left behind’ had the mutual exchange taken place under the old legislation.
The Transfer of Tenancies and Right to Acquire (Exclusion) Regulations 2012 (SI 2012/696), excludes fixed term tenancies at an affordable rent.
The following criteria must be met for S158 to apply:
- One tenancy must be lifetime and the other must be a flexible or assured shorthold tenancy with a fixed term of at least two years.
- The lifetime tenancy must have been granted before 1 April 2012. The fixed term tenancy must be at a social rent.
- The exchange must not fall within the list of grounds on which a landlord may refuse an exchange under section 158. This list is set out in Schedule 14 to the Localism Act 2011, and is closely based on the grounds on which consent may be refused to a mutual exchange between secure tenants.
The reality is that the new legislation will apply in only a limited number of cases but landlords should ensure that, whatever the legal mechanism for mutual exchange, tenants are aware of the implications, including any change in secure or assured status, any change in rent level between social and affordable rent, and any gain or loss of the right to buy, preserved right to buy, or right to acquire. As tenancies and rent levels become more varied, it will be even more important to ensure that tenants are fully informed.