Tenant screwing us over - advice?!

[QuizzlyBear]

My DH and I own a flat in London which we rent out to a middleman. He sublets to three short-term tenants (doesn't live there himself) who are working on contracts in London and need somewhere to stay. These are 'his' tenants and all contracts etc are directly with him, not us. Included in the contract is their rent and bills, which he pays to us and the utility companies respectively.

Last month he didn't pay us the rent. Apparently he had money troubles - though he did collect the rent from the tenants living in the property. He asked if we'd just 'let it go' - which we couldn't afford to do as we have to pay the mortgage(!) but we agreed that we'd give him a month's grace and he'd sign a further 6 month contract with the extra money spread across the 6 months.

Now it turns out that he's not going to pay us this month and when confronted he offered to surrender the tenant's lease to us and leave the situation entirely (he offered the 6-week security deposit to partially cover our loss). The tenants living there didn't know anything was wrong but now are aware and there's a good chance he won't pay them their deposits (which he had separately to us). It also turns out that there's at least £1,000 in unpaid gas and electric bills due.

My husband is keen to just get rid and swallow the cost of the rent and bills because he's worried that if we threaten court action the man might simply not surrender the contract, not pay and we'd have to go through a 3 month eviction process with no income. I'm fuming and there must be something we can do to get our money back, right?!

I'm so angry that this guy thinks it's fine to not only screw us over but take the money from the tenants and leave them (unaware) in danger of being homeless 

We let it to this 'middleman' company three years ago and until now there's been no problems. I agree that there are too many layers to the arrangement (it was set up by my husband!) and while it's worked up TIL now, it only take one person for it all to go tits up!

It's not technically an HMO as the tenants are friends who rotate working at the same company and there aren't any locks on the bedroom doors.

It also turns out it's £1k in electric bills alone - we're still trying to find out the amount of gas bills outstanding, but I'm guessing it's at least the same again 😒

This is what's known as a R2R scheme. There's been a lot of criticism on this financial model as you've found out.

This is a commercial arrangement and should be under a commercial tenancy under the L&T act. This gives the owner/head landlord (you) quite a lot of powers as there is the protection of forfeiture of lease if rent is not paid.

I'd hope you've got a commercial lease? We lease properties from the private sector and our service is funded. We house people excluded from mainstream housing options. But ours is heavily governed and our leases are water tight.

However, if there are three or more people forming two or more households you're subject to HMO management & now licence conditions. I'd also check the status of the council tax situation. As you/he are liable.

Were I you, I'd retrieve the property back under your control , change the locks, issue new tenancy agreements to the existing occupiers for a 6-month period then you're not unlawfully evicting the occupiers. They can pay their rent directly to you. Do an inventory and treat them as new tenants. If they've all paid deposits, then they'll need to apply to the TDS for refunds. If he's not protected their deposits, they can sue him for that. While you're a victim, they are also.

I'd just get shut. Plenty of people have been ripped off with R2R. Oh and read the meters and change the utilities into your name so you're not landed with his bill.

That's what I'd do. That's what would happen if we breached our commercial leases.

If you have any questions, please do ask. But it needs sorting. For you. And those tenants.

My input would be the electric bill is nothing to do with you.
If your tenant has set up so that he pays on behalf of the people living there, then that's been him an the electric co.
Just tell the electric co you are taking over the bill from x date as the tenancy has been ended, and you only pay from them onwards.

OP the bills follow the tenants to their new address and aren’t your responsibility unless under the contract you pay them and they are in your name.