Property Litigation FAQs – Can I accept rent from a third party?

Yes. A landlord can generally accept a rent payment from a third party, but the payment should be accepted on a clearly documented basis and without treating the payer as the tenant. The legal consequences will depend on who is paying, why they are paying, whether they occupy the premises and what the lease says. 

Not necessarily. Simply accepting a payment from a third party does not usually create a landlord and tenant relationship. However, if the third party is in occupation and the landlord knowingly accepts rent from them over a prolonged period, issues may arise around occupier rights, the existence of a tenancy, waiver of a covenant breach, or a virtual assignment. 

Landlords often accept rent from guarantors when tenants default. Provided the payment is clearly recorded as being made under the guarantee and on behalf of the tenant, the landlord’s rights against the tenant should generally remain unaffected. 

This is common in practice. Ensure there is a clear written record that the payment is made on behalf of the tenant and does not create any direct relationship with the payer. 

Possibly, but not always. In Clarence House Limited v National Westminster Bank Plc [2009], the Court of Appeal held that third-party rent payments did not, on the facts, amount to sharing or parting with possession, so there was no breach of the lease covenants. The case shows that some arrangements may pass on the practical benefits and burdens of a lease without creating a legal assignment or underletting, sometimes called a virtual assignment. Whether there is a breach depends on the facts and the lease wording, so legal advice should be taken.

Landlords and managing agents should: 

• Identify who is making the payment and question why
• Consider whether the payer occupies the property
• Consider whether any lease covenant has been breached
• Address rent demands and correspondence to the tenant unless a formal assignment or other agreement is in place.
• Record in writing that the payment is accepted from a third party on behalf of the tenant, and that the acceptance of this rent does not create a tenancy, licence or other direct relationship with the payer.