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Landlords turn to ‘moral contracts’ with tenants, but are they enforceable?

Landlords and letting agents are turning to an unusual option to negotiate with tenants whose income is affected by COVID-19

Sheila Manchester

A Scottish estate agency has asked its tenants to sign a ‘moral contract’ to express their unconditional commitment to repay their rental arrears in full, as soon as possible. At the bottom of the letter, there is a tear-off slip which says: “I …[name]… 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.” 

Experts at the property litigation firm, Hägen Wolf say that it may be a way of maintaining effective communication with the tenants through the COVID-19 crisis, but its effectiveness is questionable.
Matt Pugh, managing partner at Hägen Wolf, said, “Firstly, there is a question of whether such a moral contract is an enforceable legally binding contract. For a contract to be enforceable, five requirements must be met: there must be an offer, acceptance, consideration, intention to create legal relation and certainty of terms.

Will it create a legal contract?

“In terms of acceptance, you have to ask how many tenants will return the tear-off slip reaffirming their commitment to pay all rental arrears and their moral obligations towards their landlord. Following recent changes to the law which have, in effect, suspended evictions, communication between landlords and tenants has often been drastically reduced, with the latter often failing to return their landlord’s calls or to update them on their current situation. It might be argued that, if the slip is returned, then a legally enforceable contract between the tenants and the landlords was created.”

The firm argues that the moral contract just reiterates the tenant’s obligations already detailed in the tenancy agreement. The current suspension on evictions does not alter the terms that both parties agreed to when entering into the original tenancy agreement and it does not, therefore, exonerate tenants from their obligation to pay rent.

If tenants fail to make payments or accrue rent arrears, they will still be in breach of their contractual obligations and would still be at risk of possession proceedings being issued at a future date, after the current eviction suspension ends.

Matt added, “While the use of a moral contract does not effectively change the position for either landlord or tenant it might mitigate against the fear many landlords have that the current suspension on evictions has sent the wrong message to tenants who might believe that they have been completely relieved of their contractual obligations during this period.”

Read more about rental contracts.

May 6, 2020

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