My landlord has defaulted on their mortgage. What should I do?

Marc von Grundherr, Director
Marc von Grundherr

Try to stay calm – tenants with an Assured Shorthold Tenancy (AST), the majority, are protected in law and are not under immediate threat of eviction. They have the right to remain in their rental property until the end of their current lease, unless there is a specific clause enabling a mortgagor to forfeit the lease. If there is a provision in the tenancy agreement to do this, the lender must serve notice in line with the terms of the agreement.

At the end of the tenancy the bank or other lender must serve a Section 21 Notice giving two months’ notice to end the tenancy. The tenant must pay the rent until the date set out in the Section 21 Notice. It is possible the lender will allow the tenant to stay longer in the property as they can continue to receive rent to cover interest payments but this is down to individual lenders – ultimately they will probably wish to sell. The landlord should have a buy-to-let mortgage but if not, they will have been letting the property illegally, however this does not affect the tenant’s rights.

If the tenant is renting through a Periodic Tenancy the situation is different. A Periodic Tenancy is automatically established at the end of an AST if neither landlord nor tenant signs another agreement. This Periodic Tenancy continues on a rolling basis on the same terms and conditions as the previous AST. If this applies, the bank can serve a Section 21 Notice immediately giving the tenant two months’ notice to end the tenancy.

When it comes to the tenancy deposit, this should be held in a government-approved scheme and is therefore protected. It should be returned to the tenant at the end of the tenancy as long as there is no damage or shortfall in rent.

If a tenant is concerned, they should contact their letting agent or seek legal advice.

Marc von Grundherr
Lettings Director
Benham and Reeves Residential Lettings