As many tenants struggle with rent payments during the Covid-19 crisis, some landlords and letting agents are asking them to sign a ‘moral contract’ agreeing to pay rental arrears in the future. Laura Noble, Licensed Conveyancer in Coodes Solicitors’ Residential Property team, comments.
The Covid-19 pandemic has had an unprecedented financial impact on the economy and many individuals are feeling the strain. While landlords can apply for mortgage repayment holidays, private tenants have no such option in terms of contractual rental payments.
Legislation in the Coronavirus Act 2020 has all but suspended the eviction process for landlords. In some cases this has led to a breakdown in communication, with many tenants failing to advise their landlords or lettings agents of their situation and any difficulty in paying the full amount of rent or complying with other obligations detailed in the Tenancy Agreement. Enquiries to housing charities have increased whilst people struggle to meet their financial obligations on a reduced income.
What is a moral contract?
Some landlords have come up with a goodwill gesture to help tenants who are unable to pay the full rent due under their tenancy agreement. They are giving them the option to pay what they can afford and then settle the remainder as and when they can. Some letting agents and landlords are taking this one step further by asking tenants to sign a moral contract stating their unconditional commitment to repay any or all rental arrears.
These moral contracts contain a statement in the form of a tear-off slip, which the tenant is asked to sign and return to the landlord or agent. The wording states: ‘I….agree to pay my part and be part of the team. I am committed to paying all rental arrears and honour my moral obligation to play my part.’
Are moral contracts legally binding?
A moral contract may help a landlord to maintain good relations with tenants and keep the lines of communication open. At such a challenging time, this could be more important than ever. However, is such a contract valid and legally binding?
In order to form a legally binding contract there must be evidence of an offer, unqualified acceptance, consideration, intention to create legal relations and certainty of terms. It could be asserted that, if all other required elements are present, a tenant who signs and returns the tear-off slip enters into a legally binding and enforceable contract with the landlord. However, if the tenant does not sign and return the tear-off slip it would not be creating a valid contract. It may, however, form an addendum to the existing tenancy agreement if worded correctly and executed properly.
Every situation is different, so any landlord with questions about forming a legally-binding contract with a tenant should seek specialist legal advice.
Is it necessary to ask a tenant to sign a moral contract?
The tenancy agreement entered into between a landlord and tenant places an obligation on the tenant to pay the rent in full on the date specified. Therefore, signing and returning the tear-off slip on a moral contract merely reinforces or alters the terms of the agreement already entered into between the landlord and tenant.
The suspension of the eviction process set out in the Coronavirus Act 2020 does not negate the entirety of the rent being due, nor does it change the tenant’s legal obligations. Asking a tenant to sign a moral contract may send the wrong message as tenants could interpret the moral contract as a free pass to not pay rent. Failure to pay rent would still mean that a tenant has breached their obligations under the Tenancy Agreement, leaving them open to eviction proceedings in the future.
Communication is the key to the present issues with rental payments during the Coronavirus pandemic. If landlords and tenants communicate with each other, this will go a long way to resolving any current or future problems.
However, if communication is not possible or does not work, landlords should seek legal advice to resolve a tenancy dispute.
For advice on drafting a tenancy agreement, please contact Laura Noble in the Residential Property team on 0800 328 3282. For advice on dealing with tenancy disputes, including non-payment of rent, please contact Hayley Gaffney in the Disputes team on 0800 328 3282.