Pre Localism Act 2011 all mutual exchanges took place by deed of assignment. Post Localism Act surrender and re-grant is the mechanism used for mutual exchange.
Mutual exchange is where two tenants assign their tenancy to one another. The result being that each tenant takes over the other tenant's tenancy. So, if a secure tenant exchanged with an assured tenant, new tenancies are not signed. On mutual exchange the tenancy stays with the property not the person.
The Localism Act 2011 provides that if a secure or assured tenant whose tenancy commenced before 1 April 2012 wishes to exchange their property with a tenant holding a flexible or fixed term tenancy, the exchange will be achieved by surrender and re-grant of new tenancies.
Section 158 Localism Act 2011 provides that surrender and re-grant will take place where:
- at least one of the tenants who wishes to transfer has a secure or assured tenancy which commenced before 1 April 2012
- at least one of the tenants has a flexible tenancy or fixed term assured shorthold tenancy
All existing tenants retain the security of tenure enjoyed under their original tenancy before exchange. However they will only be able to retain this security once because should they ever exchange again they will fall outside the requirements of s158 in that the tenancy would have commenced after 1 April 2012.
Surrender and re-grant does not apply where a secure or assured tenant exchanges with a:
- tenant with a fixed term tenancy of less than two years
- affordable rent tenant (the landlord can charge up to 80% of what it would cost if you were renting the property privately)
- intermediate rent tenant (tenants who pay rent levels below the normal market rent level in that area, although rents are higher than what a tenant would normally expect to pay in social housing)
- mortgage rescue tenant (typically where a housing association buys their property and rents it back to them as assured shorthold tenants)
Secure or assured tenancies granted after 1 April 2012 will not retain security of tenure (not protected by s158) if they exchange and mutual exchange will take place by deed of assignment which means, if a secure of assured tenant wants to exchange with a fixed term tenant they loose their security of tenure.
The main changes in mutual exchanges is that pre 1 April 2012 secure and assured tenants keep their security regardless of exchange and exchange must be by surrender and regrant. Post 1 April 2012 secure and assured tenants loose there security of tenure if exchanging with a flexible or fixed term assured shorthold tenant and exchange continues to be achieved by deed of assignment.