What are the repercussions of cancelling signed AST?

Hi Gary

Assuming you're correct and the council won't grant a licence in time, I suggest firstly you negotiate with the tenants; if you offer them some compensation (plus the return of their deposit and any other expense they've incurred to secure the tenancy), they might well be willing to sign a deed of surrender to bring the tenancy to an early end.

Unless they surrender their tenancy, the tenants are of course legally entitled to the accommodation for the duration of the fixed term of the AST or, as in this case, compensation as they signed the AST in good faith. However, most people would prefer to avoid court action, and this will probably be the last thing your tenants will want when they're simply trying to find somewhere to live before their course starts.

I would also check the terms of the contract you signed with the agents, as this places them under a duty of account to you. For example, ARLA's Privated Rented Code of Practice.pdf clearly states that ARLA agents are responsible for ensuring a property complies with any licensing requirements (see page 9, item 4.1 of the booklet linked to above).

Presumably the licence is required because you have a minimum 5 or 6 tenants. Can you reduce the number below that requiring a licence and negotiate with those then affected. Unless you have a very high number of tenants you might end up only dealing with one or two. Has the local authority said why they will not grant a licence or if they intend to grant one eventually, when this might be. Again, if the delay is not massive you might be able to find them temporary accommodation somewhere like a B&B and meet the extra cost. Just a couple of ideas to play around with and they might be way off the mark depending on the circumstances.
Cyril

You do not say why the council are unlikely to grant a licence before the start of the new academic year. Such information would be useful in formulating a considered response.

Reply to the comment left by "Cyril Moseley" at "19/08/2016 - 13:05":

That's a very good idea, Cyril but I would just caution that if this workaround is used, with some of the occupants moving in but as lodgers and not tenants, the property will still be regarded as an HMO as ANY rent paying household (whether they rent as tenants or licensees - lodgers) is caught under the HMO definition (whether mandatory or additional HMO rules apply).

Before getting into the nitty gritty there is a term in contract law called, 'frustration of contract'. I believe this would be the case as an external cause is preventing you from fulfilling your obligations.

Possibly, but Gary would have to demonstrate he was not responsible for the Council not approving the property as an HMO.

Reply to the comment left by "Mandy Thomson" at "19/08/2016 - 13:11":

Hi Mandy,
I wasn't suggesting that tenants should be provided with accommodation in the premises under a different category of occupancy such as lodgers, as that obviously would not work. What I was suggesting was that reducing the number of tenants could take the HMO outside the licensing criterion. Most, if not all local authorities have a point at which HMOs become subject to licensing and below which no licence is required. This is usually around 5 or 6 tenants and so if things could be arranged around 4 tenants with the extras being farmed out, you might not need a licence in the short-term. You should be able to find out what your local authority's licensing criterion actually is if you look online.

Reply to the comment left by "Cyril Moseley" at "19/08/2016 - 19:37":

Hi Cyril

My apologies - I didn't word my response very well. I appreciate that wasn't what you meant, but I was concerned that someone with little knowledge of HMOs and lodgers might interpret your post in that way.

Reply to the comment left by "Mandy Thomson" at "19/08/2016 - 20:30":

Hi Mandy,
That's ok, no offence taken. I guess we are all probably on a bit of a learning curve and you are right to be concerned about misinterpretation. No-one is on a steeper curve than me, as I have only been doing this for about a year, though I did have a little to do with HMOs in my previous existence, (now retired).
Cyril

In my opinion: If Gary has it in writing from the council then that is enough proof that the contracts have been frustrated. Refund monies, apologise and await any legal action which I'm sure will not happen as students will have better things to do. You can also try the work arounds Mandy & Cyril are suggesting.