One couple, Chris and Siobhan Taylor, agreed to rent and paid 48,000 pounds, up- front, for a five-bedroom house in Loughton, Essex. By doing this they got a 6,000 pound discount but a few months down the line they learn that their landlord is behind on his mortgage repayments by tens of thousands of pounds.



Siobhan said, 'We are feeling very vulnerable. We had no idea when we rented the property that this could happen. We just assumed that everything was OK. We face losing all our money and our deposit, or having to go to court, should the lender want to repossess during our one-year tenancy.'

Unfortunately, the Taylors' have found the huge hole in the legislation protecting tenants. When you pay rent above 25,000 pounds you have to sign a standard tenancy contract, not an assured shorthold tenancy contract; this would have protected them more in this case.

The deposit they paid of 7,850 pounds will have been given to the landlord directly and not to a third party as is recommended under the Tenancy Deposit Protection Scheme, so is gone and the same applies to anyone sharing a house or a flat and paying over 2,083 pounds monthly, if the lease is in joint names.

Head of operations at the Association of Residential Lettings Agents (ARLA), Ian Potter, says, 'The whole subject of the private rented sector is under review in a Housing Green Paper. It is acknowledged that the current system is not satisfactory.'

The problem is, there are no regulations for letting agents. Members of ARLA do have to follow their codes of conduct but this does not include ensuring that a landlord has informed his lender that he is renting the property and produce proof that they have, it simply says that they must inform them. Therein, is a loop hole that prevents the letting agent from being deemed negligent.

Sue Anderson, from the Council of Mortgage Lenders, advises, 'A bank or building society will eventually send a letter to "the occupier" of a property. We advise tenants to open any letter addressed this way. The letter will give them a minimum of 14 days' notice of any court hearing to repossess the house.

'If the court does repossess, they will have a further minimum 28 days before the lender takes possession. As soon as a tenant realises there is a problem, they should get advice from Citizens' Advice or a solicitor, and make contact with their landlord's lender.'

If a property is to be let, the lender, once they know, will usually switch the existing loan to a ‘buy-to-let' mortgage.

'If you have paid all the rent up front, then if the house is repossessed you need to put in a claim against the landlord for the outstanding rent and deposit. This would be paid out of any surplus once the property is sold.' says Mario Economides, at solicitors Lorrells Georgiou Nicholas LLP.

'Tenants falling outside the assured shorthold tenancy rules should insist that the landlord has his lender's consent and that any deposit is paid into an escrow account held by a solicitor or the letting agent.

'I would not advise clients to pay rent up front as a year is a long time and you don't know what will happen.'