Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

These Regulations are due to come into force on 13 June 2014 and will apply to all contracts that traders enter into with consumers after that date. The Regulations replace the provisions that are currently in place under the Consumer Protection (Distance Selling) Regulations 2000 and the Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc Regulations 2008.

A consumer for the purposes of the Regulations is an individual acting outside of their trade, business craft or profession.

How do the new Regulations apply to lettings agents?

The Regulations do not apply to tenancy agreements as Regulation 6(1) (d) specifically excludes contracts for rental of accommodation for residential purposes from their scope. However, terms of business with landlords are potentially caught.

What is required?

The Regulations distinguish between three types of contracts and require different initial information to be given or made available to the consumer:

1. On Premises Contracts – Regulation 9

These are defined as contracts that are concluded otherwise than at a distance or by way of an off premises contract.

So, all contracts concluded at a lettings agent’s premises. The Regulations require the trader to give or make available the information set out in Schedule 1 of the Regulations.

The information does not necessarily have to form part of the terms of business document but the agent will need to be able to prove that the information was given and it must be in a clear a comprehensible form.

2. Off Premises Contracts – Regulation 10

These are defined as contracts that are either negotiated and concluded in the physical presence of both the trader and the consumer off of business premises; or concluded at a distance following the consumer making an offer in the physical presence of the trader.

The Regulations require the trader to give or make available to the consumer the information set out in Schedule 2 of the Regulations.

Again, the information does not have to be in the contract so long as proof that the information has been given in a clear and comprehensible form is kept.

The trader must in addition give the consumer the cancellation form contained at Part B of Schedule 3 of the Regulations on paper.

3. Distance Contracts – Regulation 13

These are defined as contracts concluded under an organised distance selling/service provision scheme without the physical presence of the consumer and the trader at any time.

So, none of the negotiations or offers have been conducted face to face.

The Regulations require the trader to give or make available to the consumer the information set out in Schedule 2 of the Regulations.

The requirements are the same as off premises contracts (as above) in terms of the provision of the information and the cancellation form. In addition, the trader will need to send confirmation of the contract in a “durable medium” and keep proof that the confirmation of instruction was sent out.

There are additional specific requirements for contracts concluded by electronic means or on the telephone.

What are the consumer’s cancellation rights?

For off premises and distance contracts, the consumer has the right to cancel the contract at any time during 14 days without giving a reason unless the consumer requests early supply of service in accordance with Regulation 36(4).

There are a number of exceptions to the right to cancel but none of these will apply to most terms of business – Regulation 27 and 28.

The trader should not begin service until after the cancellation period unless the consumer expressly requests this. If this has not been requested and the consumer cancels within the 14 days, the trader is required to reimburse the consumer for all costs paid by the consumer already under the contract without imposing any fees.

If the consumer does requests that the supply of service begins during the cancellation period, the consumer may still cancel within the 14 day period but will be required to pay for the service on a pro rata basis. If the service has been fully performed before cancellation, the consumer will cease to have the right to cancel.

What are the implications of failing to give the required information?

1. If the required information about fees is not given to the consumer, he or she will not be liable for them;
2. The 14 day cancellation period is extended until either 14 days after the information is given or at 12 months, whichever is the earlier;
3. The trader will be guilty of an offence under Regulation 19 if it fails to give notice of the right to cancel and will be liable to a fine.

Conclusion

Agents would be advised to update their terms of business from June to make sure all of the information required and the notice of cancellation is included. The complete Regulations and schedules can be found here

Filed under: England & Wales

Court Fees to Increase on 22 April 2014

In a move that has been described by the Civil Justice Council as “a tax on litigation”, HM Courts and Tribunals Service have announced that many Court fees will be significantly increased from 22 April 2014.

The fees for possession proceedings are subject to some of the highest increases with the fees for claims issued via the Court’s Possession Claims Online (PCOL) system to suffer a staggering rise from £100 to £250 and the fee for paper based claims to see a rise of in excess of 60% from £175 to £280.

There is a catalogue of other significant increases, which can be viewed on the court website. It has been approximated that all of the increases will boost Court revenue by approximately £200m.

Understandably there has been much criticism of the increases, which will undoubtedly considerably add to the cost of accessing justice for litigants.

Landlords may feel particularly hit in light of the need for a court order to recover possession, and especially since many local authorities will not re-house tenants until they have been formally evicted.

Filed under: England & Wales,

More consultation over the Private Rental Sector

Due to the ever increasing demand for rental properties the Government have decided that a consultation on this area is needed. The discussion titled ‘Review of property conditions in the private rented sector’ is in its initial stages so no changes are imminent; but certain topics have been raised with a view to helping the system perform better and raise the standard of the housing industry to make sure tenants are protected and are able to live in a safe environment.

The intention of the consultation is to protect tenants from rogue landlords and agents but to try to balance this by not adversely affecting the good landlords/agents. The aim is to avoid imposing unnecessary legislation which could create more hassle, decrease much needed investment in private rented housing and result in further costs which will eventually be passed on to the tenant in the form of increased rent etc.

There are a number of topics that have been proposed as talking points for which they are inviting comments and suggestions. These include:

• Rights and responsibilities of landlords and tenants – How can it be made clearer to both sides what is required of them and what can be done if the other side has breached their obligations?
• Retaliatory evictions – How to prevent landlords from simply serving notice to evict a tenant that has notified them of necessary repairs to the property?
• Illegal evictions – Should the penalties against landlords convicted of illegal evictions be stricter?
• Safety conditions – Should smoke and carbon monoxide alarms be mandatory in all properties?
• Licensing of rented housing – Should there be mandatory licensing for all properties? Should there be voluntary accreditation schemes for Landlords so that the good landlords can be found more easily?
• Housing Health and Safety Rating System – Is more information required to make the system clearer for all parties?

This is a non-exhaustive list and so if you have any ideas of how to improve the housing market the details of where to send your proposals are detailed below and any suggestions made should be considered and discussed.

The closing date for responses is 28 March 2014 and they can be sent to PRSReview@communities.gsi.gov.uk

We will be looking to keep an eye on this and will update the blog when there are any further developments.

Filed under: England & Wales, , , , , , , ,

Section 21 news ( and comment)

Spencer v Taylor [ 2013] EWCA Civ 1600.

The Court of Appeal has recently revisited the requirements of section 21 of the Housing Act 1988 and its application to statutory periodic tenancies, which in due course is likely to significantly alter and simplify the way notice is served on statutory periodic tenants of an Assured Shorthold Tenancy (AST).

The facts

The Landlord, Mr Spencer, served notice on his tenant, Miss Taylor who was on a weekly statutory periodic tenancy following on from a fixed term agreement. From the transcript of the judgment it would seem that the notice was sent in the usual format that most agents use, and was a “standard” section 21(4)(a) notice. (There is no statutory required standard form but a customary standard form has developed).

The expiry date was in the format approved in the case of Elias v Spencer, i.e. it required possession “after 1/1/2012 or (b) at the end of your period of tenancy which will end next after the expiration of two months from the service upon you of this notice” (i.e. the “saving provision” as approved in Lower Street Properties v Jones.

Possession proceedings were brought once the notice expired. The tenant defended the proceedings arguing that the given date of expiry of the section 21 notice was not the last day of a period of her tenancy and that the saving provision gave a second date, which invalidated the first. In other words a continuation of the interpretation of the requirements of section 21 (4)(a) Housing Act 1988.

The tenant defended successfully in the first instance. The Landlord appealed successfully in the High Court. The Tenant appealed to the Court of Appeal.

The Court of Appeal

The appeal judge hearing the tenant’s appeal in the Court of Appeal, Lewison LJ, concentrated on the requirements of section 21 as a whole, starting with section 21(1) finding:

1. The fixed term tenancy came to an end on its expiry date for the purposes of section 21(1)(a).
2. No other tenancy had come into existence save for a statutory periodic tenancy (which we now all know is a new tenancy following Superstrike!).
3. The landlord gave the tenant two months’ notice.
All three conditions of s21(1) were satisfied and therefore the court could give possession

The significance

To go back (briefly) to basics: section 21 of the Housing Act 1988 provides the mechanism by which a landlord can recover possession of his property that has been let on an AST. A court can grant a possession order under section 21 (1), or under section 21 (4) if certain conditions are satisfied.

Prior to the judgment in this case, the courts have been finding that section 21(1)(b) applied only to serving notice during the fixed term of an AST. This line of thinking is supported by section 21(2), which provides that notice may be given under section 21(1) before or on the day the fixed term comes to an end, even if a statutory periodic tenancy arises part way through the notice period.

Once a statutory periodic tenancy had arisen, it was understood that section 21(4)(a) applied: “without prejudice to any such right as is referred to in [s21(1)], a court shall make an order for possession of a [property] let on an AST which is a periodic tenancy.

The requirements of section 21(4)(a) are that: “…the landlord…has given to the tenant a notice in writing stating that, after a date specified in the notice, being the last day of a period of the tenancy and not earlier than two months after the date the notice was given, possession…is required by virtue of this section”; and “…that the date specified…is not earlier that the earliest day….the tenancy could be brought to and end by a notice to quit…”

It is well known in the industry that adhering to the requirements of section 21(4)(a) have been tricky to the point of ridiculousness. Possession claims have historically been thrown out of court simply because the landlord required possession on the wrong date, or asked for possession “on” a date, rather than “after” (see Fernandez v McDonald [2003] EWCA Civ 1219). There has been much case law interpreting section 21 (4)(a), some of it to alleviate the harsher requirements of the section, ( see for example Lower Street Properties v Jones in which the court approved the use of the “saving provision” to avoid the risk of putting an incorrect date on the notice).

The law therefore is now that a landlord wishing to gain possession of his property let on an AST which was a fixed term and has become periodic needs to give only two months’ notice in writing, pursuant to section 21 (1)(b) and need not concern himself with rental periods.

So what about section 21 (4)(a) and the case law surrounding it? Fernandez v McDonald [2003] EWCA Civ 1219, the leading case that requires notices under s21(4)(a) to demand possession “after” rather than “on” a date? Lord Justice Lewison considered that that case fell “squarely within section 21(1) rather than section 21(4)”. However he emphasised that his comments on Fernandez v McDonald were not part of the “ratio decidendi” of the case ( i.e. not part of his judgment). Therefore the case law surrounding section 21 (4) ( a) remains good law, but it is section 21 (1)(b) that governed Spencer and Taylor, and by extension any notice served on a periodic tenancy ( statutory or otherwise) that was once a fixed term.

Comment

This judgment is surprising perhaps in that it has come apparently out of the blue, when agents and solicitors up and down the country have accepted ( if reluctantly) the difficulties and specific requirements of serving valid notice on statutory periodic tenancies. However it is well known that there has been significant ( and many would say understandable) criticism of the section 21 (4)(a) requirements and so the idea that the Court of Appeal has moved to simplify things is not so surprising. Further, Lewison LJ’s interpretation is of section 21 is not new – it is just new to the courts.

On the face of it then, Spencer and Taylor has removed the onerous requirements of section 21 (4)(a) from fixed term ASTs that have become periodic. Gone is the need for the saving provision lest the date of expiry be wrong. Gone too is the need to work out what is the “period” of the tenancy when the rent day does not match the beginning and end dates of the fixed term. Instead the landlord/agent simply needs to ensure proper service of the notice according to the terms of the tenancy agreement, and to ensure that he gives at least two months notice in writing as if serving the notice during the fixed term of the tenancy in accordance with section 21(1)(b).

However, some words of caution:

Although this Court of Appeal judgment is good law today this point may be appealed to the Supreme Court and may be overturned in the next year or two. A notice which satisfies section 21 (4)(a) will also satisfy the looser requirements of section 21 (1)(b). Most tenants give back possession and do not quibble over the validity of notices, but if they do, possession claims are usually done on the paper (accelerated) procedure or a 5 minute possession hearing with a District Judge. Court of Appeal judgments take time to trickle down to the lower courts and do you really want to have to set yourself up for an argument or risk an adjournment when you could just serve notice to expire at the end of a rental period?

Tenants wishing to serve notice are still bound by the common law rules which would mean that if they are on for example, a quarterly periodic tenancy, their notice period must still run for a clear quarter and expire at the end of a rental period ( or on the day rent is due). Spencer v Taylor gives landlords a much easier way of serving notice while leaving the tenants with much more onerous requirements.

So after breathing a sigh of relief that we can all forget about section 21 (4)(a) in practice we would suggest that, in light of the above, agents might like to keep the practice of serving notices that comply with section 21 (4)(a), at least for the near future.
Section 21(4) a will continue to apply to contractual periodic tenancies which never had an initial fixed term, and to tenancy agreements which provide for an initial term to continue on a contractual periodic basis . The latter may become more prevalent following the Superstrike ruling as a way of avoiding the need to serve prescribed information, and it should be noted that for the purposes of section 21 (1)(a ) the tenancy will not have come to an end at the end of the fixed term and therefore section 21 (1) (b) will not apply.

In conclusion, the ruling in Spencer v Taylor is good law and should in the long run make serving notice on tenants much simpler. However for the moment our advice is that if you do change your systems to serve section 21 (1)(b) for all but contractual periodic ASTs, you should do so knowing that the courts might take some persuading that the notice is validly served. You will also have to keep an eye out for any Supreme Court reversals. If you are prepared for this then fine, otherwise it might be easier to let others beat the path first.

Filed under: England & Wales, , , , , ,

APPOINTMENT OF A MANAGER

We have recently seen a rise in the number of enquiries from long leaseholders dissatisfied with the management of their building. Often after the leaseholders have themselves taken over the management.

Many of our readers will be aware that the Commonhold and Leasehold Reform Act 2002 introduced Right to Manage (RTM). This was a non-fault ground that if the majority of leaseholders in a building wished to take over management then in effect they could do so. The process was thought to be straight forward but the rise in cases before the First Tier Tribunal Property Chamber and subsequent appeals to the Upper Tribunal are a clear indication that many freeholders will not give up management without a fight. Even when the process has been followed dissatisfaction can still exist with some leaseholders unhappy with the conduct of others.

So what other options are there? The Landlord and Tenant Act 1987 provides an alternative route. To follow this it is first necessary to show that in some way the body managing the development is not complying with its statutory duties and requirements under the lease. Any one leaseholder is entitled to follow this procedure.

Initially a Notice must be give to the freeholder and the person managing under section 22 of the 1987 Act. This notice needs to give details of what the perceived difficulties are and suggest how the manager can remedy the same. If the landlord and manager do not then remedy the breaches within a reasonable period of time an application can be made to the First Tier Tribunal Property Chamber inviting them to appoint a manager.

At the hearing the Applicant has to justify to the Tribunal that it is “just and convenient” to appoint a manager. Generally the Tribunal will want to be satisfied that the current appointee has not been complying with the lease and statute. The Tribunal will also take account the views of other leaseholders and the freeholder. The Tribunal will consider all points to try and determine if the imposition of a manager will improve the lot of the leaseholders to ensure good management of the building.

It is for the Applicant to source a person to be a manager. Generally the Tribunal will want to appoint a professional who can demonstrate that they fully understand what is required of them, will follow one of the approved statutory codes of management (such as the RICS Residential Service Charge Code), have sufficient professional expertise and hold insurance. The proposed manager will normally be required to attend any hearing and in effect be interviewed by the Tribunal to satisfy them as to the suitability. The reason for this is that the Manager (who may also be given powers as a Receiver) is an appointee of the Tribunal and answerable to them in the first instance rather than the parties to the leases. The management order will set out comprehensively the terms of appointment including prescribing the fees the manager can charge, the length of the appointment and other rights give to them. If anything is not covered or difficulties arise any party (including the manager) can then apply to the Tribunal for further directions. Typically an appointment will initially be for two or three years and before the Order lapses it is possible for the parties to apply for an extension of the same.

The benefit is that an entirely independent manager is appointed who is personally answerable (as the Order always names a specific individual) to the Tribunal. We have seen a rise in situations where the leaseholders have taken over management (either as a result of an RTM or collective enfranchisement) but issues have arisen. All too often we come across situations where factions arise who do not wish to strictly comply with the lease or statute. When such agreements are unanimous this can work but there are risks. In these circumstances the imposition of a manager may be better for all parties to resolve disputes. It is also worth noting that the leaseholder(s) who apply will themselves have no liability for the management. In forming and setting up an RTM their will be costs which the participating leaseholders are joint and severally liable for and those leaseholders whop become Directors of an RTM also have responsibilities under the rules and regulations governing companies.

These situations typically are complicated but appointment of a manager can be an effective method of resolving long residential leasehold management problems. We at PainSmith are happy to advise on any such matters, including assisting in finding managers prepared to accept such appointments.

Filed under: England & Wales, , ,

Office of Fair Trading to study Residential Property Management services

The OFT last week announced that it intends to launch a market study into the residential property management field for leasehold property in England and Wales.

Ahead of the study the OFT has invited interested persons to tell them about what areas they should be concerned about. Their Press Release sets out what areas the OFT is particularly interested in and so if you are involved in this sector you should be reviewing this and consider what if anything you want the OFT to look at.

Recently leasehold law does seem to have come on to the political agenda so it will be interesting to see what steps the OFT takes following on from its investigation into retirement home security services.

Filed under: England & Wales, , , , , , ,

More Long Leasehold News

For those of you who are involved in people looking to extend their leases or undertaking freehold purchase by way of collective enfranchisement under the Leasehold Reform Housing and Urban Development Act 1993 you will no doubt be aware of the issues with regards to signing the Initial Notices required under this Act.

Due to a case called St Ermin’s Property Co. Ltd v. Tingay [2002]EWHC 1673 (Ch) it was determined that all such Notices must be personally signed by the relevant leaseholder. The case determined that the Notice could not be signed by a solicitor or even under a Power of Attorney but required an actual signature. This practically caused many issues particularly once the residence requirement was removed and leaseholders were often “Buy to Let” landlords spread all over the globe.

As a result a Private Members Bill, Leasehold Reform (Amendment) Bill, is due to get its second reading on 22nd November 2013. The Bill sets out to amend paragraph 99 of the 1993 Act to remove the requirement that Notices must be personally signed. If the Bill should become law it will mean that Notices may be signed “by or on behalf of the tenant” and should remove this practical difficulty.

Whilst this may seems minor many notices have been rejected by freeholders on the grounds they have not been properly executed and leaseholders have had to start the process all over again incurring not only their own costs but having to pay costs to freeholders.

Filed under: England & Wales, , ,

Phillips v. Francis: Permisssion to Appeal granted

At the end of last year we were all faced with the Judgement in Phillips v. Francis [2012] EWHC 3650 (Ch). No doubt those of you with an interest in long leasehold matters and particularly property management will recall that Sir Andrew Morritt, The Chancellor, in what is believed to be one of his final judgments, determined that the test for qualifying works requiring consultation under the Landlord and Tenant Act 1985 required all qualifying works to be considered together. If the total cost would exceed £250 then consultation was required.

He determined that it was a case of looking at qualifying works as a whole in the relevant service charge period and if the cost would exceed the threshold for consultation then the landlord/managing agent should consult. So if the cost of repairs (no matter what was included) in any one service charge period would mean that any one leaseholder would have to contribute more than £250 (the current threshold) then consultation should take place. Prior to this the practice had been that elements could be broken down and it was a question of looking at the particular works and consulting on those for which the contract sum would result in a charge above the threshold.

The Supreme Court in Daejan v. Benson offered some relief in its decision earlier this year. Here the Supreme Court determined that generally dispensation for a failure to consult should be granted although conditions may be attached. However the Francis decision continued to cause much consternation.

It appears initially the Landlords did not appeal due to a lack of funds. It is understood that they have now gained support from interested parties including ARMA and RICS. An application for permission to appeal and an extension of time was made. This application was granted by the Court of Appeal yesterday, 18th November 2013, with Lord Justice Gloster giving Judgment.

The Court of Appeal accepted that there was a point of principle such as to satisfy Civil Procedure Rule 52.13. As a result time was extended and permission to appeal granted with the court taking account of the unprecedented industry interest and concern over the original decision.

It would appear the Respondents are concerned that the Appellants have assistance from various parties with the appeal yet supposedly no party has come forward to offer assistance to the Respondents. Various other arguments were raised which it is understood they will continue to pursue at any substantive hearing of the appeal.

It seems likely that the full hearing will come before the court at some point next year and so for the time being the position as to when to consult appears to be in a position of flux. As we learn more we will post updates.

We would like to thank Anneli Robins a pupil at Arden Chambers who attended the hearing and prepared a note and Justin Bates, also of Arden Chambers, for supplying us with a copy of the same.

Filed under: England & Wales, , , ,

Data Protection

We often get asked whether and in what circumstances landlords, tenants, agents and contractors can give out each other’s details of and those of other third parties. The main concern is not to breach the Data Protection Act 1998. Anyone who processes personal information must comply with eight principles of the Data Protection Act, which make sure that personal information is:
• Fairly and lawfully processed
• Processed for limited purposes
• Adequate, relevant and not excessive
• Accurate and up to date
• Not kept for longer than is necessary
• Processed in line with your rights
• Secure
• Not transferred to other countries without adequate protection

Unlawfully obtaining or accessing personal data is a criminal offence under s55 of the Date Protection Act 1998. Organisations processing personal information are required to register with the ICO. Failure to notify is a criminal offence. The ICO provides a checklist to organisations to check if they need to register. However lettings agents do generally process personal data ( e.g. tenants’ financial information) and if so should register.

There is a useful guide on the Information Commissioner’s website here.
Below is a list of the most common queries we get, and our answers
(with reasons).

1. Can an agent give out tenant referencing details to a landlord?
We say: Yes, the agent has collected the information as agent of the landlord, on behalf of the landlord. The Information Commission adds that the agent should make it clear to the tenants/guarantors that this will happen when the information is taken.

2. Can an agent give out landlord’s details to the tenant?
We say: It depends. If the tenant requests the landlord’s name and address in writing from the agent, section 1 of the Landlord and Tenant Act 1985 requires that the agent must supply the tenant with that information within 21 days of receipt. Criminal sanctions apply for failure to comply. There is a duty to disclose the name and address of all directors and company secretary to a corporate landlord. However where not required by statute, an agent should get the landlord’s permission before handing information to the tenant.

3. Can an agent/landlord give out tenant details to utility companies where there are unpaid bills?
We say: Yes the utility company may need the forwarding address of the former tenant to recover unpaid bills, or to return funds. The information commissioner adds that there should be a clause in the tenancy agreement setting out that this may happen.

4. Can landlords give former tenants details to enquiry agents/tracing agents in order to recover unpaid rent/ issue debt proceedings?
We say: yes – but again the ICO says it is good practice to notify the tenants in the tenancy agreement that this might happen.

5. Can landlords/agents give tenant’s details to guarantors?
We say: only to the extent that it relates to the guarantee. So you need to see whether the information you are passing on relates to the guarantee (e.g. it would probably be relevant to say there are rental arrears but not to notify the guarantor that the tenants have had a baby and the date of birth and name of that baby, for example).

6. Can landlords/agents give tenant’s information to the Local Authority/ Police?
We say: again, it depends. Local Authorities do have powers to request personal information, and so do the Police. However they should be able to provide authority – to demonstrate that they have authority to ask, and that a landlord/agent has the duty to disclose.

7. If the tenant requests to see the tenancy file, does the agent have to disclose the entire file?
We say: No. The tenant should make a subject access request. The file belongs to the landlord. You do not have to supply information about other people. The agent should send a redacted copy and even then only needs to provide personal information. This does not mean the agent’s management log for example.

What are the sanctions for breaching the Data Protection Act? The Information Commission can order the offender to stop the breach. For serious breaches monetary penalties can be given and criminal prosecutions brought. See here: http://www.ico.org.uk/enforcement/prosecutions

In general the best place to go for those concerned about Data Protection is the ICO website. They have useful guides and checklists, as well as news and updates.

Filed under: England & Wales, , ,

Private Rental Sector – Written Ministerial Statement

The DCLG has today provided a written ministerial statement on the private rented sector setting out measures including
• A code of practice for management of property in the PRS
• Review of repair and safety standards with a view to new enforcement powers against landlords
• A Tenants’ Charter setting out tenants rights and obligations
• A model tenancy agreement with suggested standard clauses
• Further working towards the compulsory redress schemes.

The aims are to ensure that tenants get a better deal; to support good landlords; to take action against rogue landlords; to increase the supply of rented housing.

The statement can be read here.

Filed under: England & Wales

Yes you are your brother’s keeper. Immigration Bill 2013

Last week the Immigration Bill was given its first reading in Parliament. As was mooted in the Queen’s Speech, it contains requirements on landlords and agents to check the immigration status of tenants, with penalties for failure to comply.

If the Bill becomes law, people living in the UK without the “right to rent” are to be prohibited from renting premises in the UK. Section 17 of the Bill provides that persons “disqualified by immigration status” are not to be granted tenancies. Tenants who become disqualified during a tenancy are to lose their right to rent.

And the landlord/agent is responsible for checking.

If a landlord and/or agent lets a property to, renews a tenancy agreement with, or possibly allows continued occupation once a statutory periodic tenancy arises of a disqualified person, that landlord/agent will face a penalty of up to £3000.00.

There is a list of excuses that landlords can look to rely on, including that it was the agent’s fault (!), or that the “prescribed requirements” ( yet to be prescribed, but probably something along the lines of taking copies of passports/visas etc) were complied with before the tenancy was granted. If a person becomes disqualified during the tenancy the Landlord can try to wriggle out of paying a penalty if he tells on the tenant. Agents will have similar excuses set out in section 21.

The penalty system looks like this: 1. Landlord/agent receives penalty 2. Landlord/agent objects 3. Penalty is cancelled, reduced, increased, or no action to be taken. The prospect of an increase might put some people off lodging an objection.

The Bill anticipates that landlords might try to get around the responsibility to check immigration status by inserting a clause into the tenancy agreement prohibiting occupation by a disqualified person; section 17(6) provides that any such clause will be ignored for the purposes of determining whether there has been a contravention.

In anticipation of the fact that asking landlords and agents to do the job of the UKBA could give rise to racial profiling and discrimination ( hmmm, that name looks a bit foreign, let’s be on the safe side and not let our property to them),
Section 28 provides that a code of practice is to be issued to ensure compliance with the Equality Act 2010 and Race Relations ( Northern Ireland) Order 1997. Interestingly though a breach of the code will not incur civil or criminal proceedings. This looks like a dangerous balance: breach of the Immigration Act will incur a penalty, whereas breach of the so-called safe-guard will not.

Points to note:
• The Bill is currently in draft form. If and when it becomes law the current draft provisions may have been amended considerably.
• It does not apply to British Citizens, EEA nationals or Swiss nationals.
• Currently the referencing checks that reputable agents carry out would probably provide the necessary information ( sight of passports, evidence of bank accounts etc).
• The Bill covers tenancy agreements whether written or oral.

The above may seem unusually political for a Painsmith blog. This is not the intention. However Painsmith is committed to helping to eliminate discrimination in the private rental sector and in its current form this bill is set to cause problems.

Filed under: England & Wales, , , , ,

Advertising guidance for letting agents and private landlords

…..is finally with us. Readers will recall the case involving a complaint against Your-move.co.uk Ltd ( Your Move) stating that an advert that had been placed on Rightmove did not contain details of compulsory charges such as administration fees. We blogged on this here.

So six months down the line we have some guidance from the Committee of Advertising Practice Compliance team (CAP). The CAP has written to various organisations in the lettings sector with guidance on how to comply with the advertising code.

See here for the guidance. Readers should look especially at the key points 1-9, and also the helpful examples.

The CAP letter warns that they will be “closely monitoring ads in all media from 1 November 2013 onwards and will consider appropriate follow-up action against non-compliant ads from this date”.

Agents should also take a look at the CAP advice targeted at letting agents here:

Filed under: England & Wales, , ,

Property Owners Beware of Fraudulent Transfers

If you own a property that is registered and do not live in it yourself, you could be an easy target for fraudsters.

One type of fraud that is not new but seems to be becoming more common involves fraudsters transferring a property into their own name with HM Land Registry and then securing a mortgage against it. Having converted the equity in the owner’s property into cash, the fraudster disappears, defaults on the mortgage and leaves the true owner to deal with the consequences.

This is what happened in the case of Barclays Bank plc v Guy 2008. When Mr Guy found out about the fraud on his property, he applied to the Court to rectify the register to show that he was the owner and not the fraudster. The Court found that Mr Guy was entitled to this but he was not entitled to have the mortgage charge removed. The Court found that the mortgage remained valid and so the mortgage company was entitled to seek an order for sale to recover the sum it had lent to the fraudster if they were not paid.

How can this be right? The Court referred to Section 58 of the Land Registration Act 2002 which provides that, if a person is listed as the proprietor of a legal estate with HM Land Registry, that is conclusive evidence of ownership. The Court accordingly found that, the transfer into the fraudster’s name was a mistake and so rectifiable but the mortgage charge was not a mistake as the mortgage company was entitled to rely on the information on the Land Register as conclusive evidence of ownership. The Charge was therefore not rectifiable. This means too that if the fraudster sells the property to an innocent third party, that transaction would be binding.

So, how do you minimise the risk of this happening to you? If you do not live at your property personally you must make sure that you amend the Register to show that (by using a Unilateral Notice) and provide your current address for correspondence. Updating your address with HM Land Registry is free – all you need to do is complete a form and send it to a freepost address with evidence of your identity.

Filed under: England & Wales, , ,

Whose address? Sections 47 and 48 Revisited

We have heard on the grapevine that some agents are currently being advised that following the Land Tribunal ( Upper Chamber) decisions of Triplerose Ltd v Grantglen and Beitov Properties Ltd v Elliston Martin , they should not use an agent’s office and address as an address for service for the purposes of Sections 47 and 48 of the Landlord and Tenant Act 1987 (LTA1987). There have even been suggestions that tenancy agreements should be amended to require the tenant to serve notices on both the landlord and the agent. We disagree.

The Beitov and Triplerose cases concerned service charges, and the decision was crucial to long leasehold premises. We blogged on this here.

Section 47 of the Landlord and Tenant Act 1987 (LTA1987) provides that where any written demand is given to a tenant of residential leasehold property, then that demand must contain:
a) the name and address of the landlord and
b) if that address is not in England and Wales, an address for service.
and that any part of the amount demanded that consists of a service charge will not be treated as being due until such information is furnished by notice given by the landlord to the tenant.

The Beitov case decided that the wording of s47 means that where any written demand is given to the tenant the Landlord must put his or her actual address on the demand, not a care of address or agent’s address. A demand for service charges will be invalid without. The sanction for failing to give the actual landlords address in section 47 of the LTA 1987 is that service charges are not due.
However assured shorthold tenancies do not require the payment of service charges. The sanction for breach of section 47 is of no consequence.

By contrast, ASTs are affected by the provisions of s48 of the Act. The sanction for failing to comply with s48 is that rent is not treated as falling due BUT s48 requires only “an address in England and Wales at which notices may be served on him by the tenant”.

In short we disagree for two reasons:

1. Rent is covered by s48 – and where it is demanded the requirement is only to supply an address for service in England and Wales
2. Requiring tenants to serve notices on both landlord and agent is too onerous an obligation in residential AST lets. There is too much scope for the tenant to get confused and fail to serve on one or other address. Arguably such a term would be unfair and unenforceable, especially as Landlord only has to serve on the property.

Our position remains that it is fine to use an agent’s address for service in ASTs.

Filed under: England & Wales, , , , , ,

Agents signing prescribed information

We are running out of titles for deposit blogs. We have had some queries regarding a court case in which possession proceedings were thrown out because the Prescribed Information had been signed by the agent, not the Landlord. This is unreported and we do not know exactly what went on although it has been reported here:

Painsmith has also experienced a claim for possession defended on this same point: the tenant argued (i) that the certificate on the deposit protection certificate must, pursuant to paragraph 2(g)(vii) of the The Housing (Tenancy Deposits) (Prescribed Information) Order 2007, ( the Housing Order ), be signed personally by the landlord, (ii) that under paragraph 2(g) (iii) the landlord’s address etc must be provided and not the agent’s and that accordingly the s.21 notice is invalid.
In our case the matter settled so we can only speculate on the outcome of that hearing, which would have only been a county court decision and thus not precedent.

However we disagree with the above view. Section 2 of the Housing Order provides that prescribed information for the purposes of section 213(5) of the Housing Act 2004 (“the Act”) includes: at 2g (iii) “the name, address, telephone number, and any e-mail address or fax number of the landlord”; and at 2g(vii) confirmation (in the form of a certificate signed by the landlord) that—
(aa)the information he provides under this sub-paragraph is accurate to the best of his knowledge and belief; and
(bb)he has given the tenant the opportunity to sign any document containing the information provided by the landlord under this article by way of confirmation that the information is accurate to the best of his knowledge and belief.

The Housing Order sets out what information is needed for the purposes of the Housing Act 2004. Chapter 4 of the The Housing Act 2004 deals with tenancy deposit schemes. Section 212 part 9 of the Housing Act provides that “In this Chapter [ i.e. Chapter 4] – (a) references to a landlord or landlords in relation to any shorthold tenancy include references to a person or persons acting on his or their behalf in relation to the tenancy or tenancies……”.

So, for the purposes of s213, the obligations on the landlord are also onto a person or persons acting on his or their behalf i.e. his agent. The Housing Order prescribes what information must be given for the purposes of compliance with s213.

In our view “landlord” for the purposes of the Housing Order 2007 should share the definition with the primary legislation i.e. the Housing Act 2004. It is not logical to interpret the Housing Order 2007 in a way that is incompatible with its parent legislation.
It follows that in our view the deposit schemes are correct to allow the agent to sign.

However as we know, the courts can make some odd decisions so we might have to concede if a precedent is set in a higher court. Watch this space.

Filed under: England & Wales, , , , ,

Another Deposit case

Superstrike Ltd v Rodrigues [2013] EWCA Civ 669 (14 June 2013)

So what’s the big deal?

The facts: On 12 January 2007, Mr Rodrigues entered into a fixed term tenancy agreement for a year less one day. The deposit was not protected as the compulsory tenancy deposit legislation (which required landlords to protect the deposit and serve the prescribed information) came into effect on 7 April 2007 i.e. after the tenancy agreement was entered into. On the expiry of the fixed term, Mr Rodrigues remained in occupation under a statutory periodic agreement and the deposit remained unprotected. On 22 June 2011 the Landlord served a section 21 notice and issued proceedings on it, which Mr Rodrigues defended, amongst other things, on the basis that the section 21 was invalid as it was served while the deposit was unprotected.

The decision: Firstly the Court of Appeal ruled that the statutory periodic tenancy was a new tenancy under Section 5 of the Housing Act 1988. This decision is uncontroversial as the wording of the section is clear.

The next question was – if a new statutory tenancy arose in January 2008, was a deposit received at this time (thus triggering the requirements to protect the deposit and serve the prescribed information?) The landlord argued that it didn’t as no money was physically received, i.e. no cash, cheque or bank transfer made but the Court of Appeal disagreed. In paragraph 38 of his judgment, Lewison LJ stated:

“In my judgment, although there is no evidence that the parties said or did anything of that kind, and it is likely that they were not aware of the nature or incidents of the legal process that took place when the fixed term tenancy came to an end, nevertheless the position as between them should be treated in the same way as if they had had such a discussion. The tenant should be treated as having paid the amount of the deposit to the landlord in respect of the new tenancy, by way of set-off against the landlord’s obligation to account to the tenant for the deposit in respect of the previous tenancy, given that the landlord did not seek payment out of the prior deposit for the consequences of any prior breach of the tenancy agreement”.

What this means: When a new statutory periodic tenancy arises, the deposit is received for the purposes of section 213 Housing Act 2004 as at that date and so must be protected and the prescribed information served.

What now?
Tenancies that were created before the deposit protection legislation came into effect i.e. before 6 April 2007, but rolled over into a statutory periodic tenancy after that date, fell to have their deposits protected on the expiry of the fixed term.

On the expiry of the fixed term and the arising of a statutory periodic tenancy, or a new fixed term, the requirements of the Housing Act deposit rules kick in for this new tenancy, which are that within 30 days of receipt of the deposit it must be protected and prescribed information served. Whether the prescribed information must be re-served has been a matter of discussion and you can enjoy some excellent analysis from Nearly Legal and David Smith of Anthony Gold Solicitors.

A cautious landlord and agent might prefer to re-serve for each new tenancy, (including a statutory periodic tenancy), than expose themselves to tenancy deposit claims or defences to section 21 possession proceedings.

Following this case there is undoubtedly a number of long-term tenants who could challenge the validity of any section 21 notice served on them. Landlords in doubt may want to consider returning the deposit to their tenants (with or without deductions) before service of a section 21 notice.

Interestingly, the courts service N5B form for accelerated possession proceedings asks the Claimant at section 7(a): “was a money deposit received on or after 6 April 2007?” After the Court of Appeal decision one presumes that the answer to this will, if a statutory periodic tenancy arose after that date, have to be answered affirmatively.
Statutory periodic tenancies that arose before that date and have never been renewed will not be affected by this decision.

On 17 June 2013 the deposit schemes made a joint press release here.

Filed under: England & Wales, , , ,

Lettings Fees in the news

Shelter has stepped up its campaign to make it unlawful for lettings agents to charge any fees at all to tenants. You can read their report here. The average compulsory lettings fee that renters pay to a landlord’s agent in setting up a tenancy is £355.00. The charity would like to see tenants’ costs limited to the protected deposit and rent in advance as it is in Scotland.

Painsmith receives frequent queries about agents’ fees, and what can and cannnot be charged. The position currently is that agencies must be transparent about their fees, which should be an accurate reflection of their actual reasonable costs rather than an unsubstantiated sum. We have blogged on this before .

The Advertising Standards Authority recently ruled that agents must publicise their fees and charges in their quoted prices, or at least provided enough information for potential renters to calculate what they will be charged.

There is already a great deal of consumer protection legislation, e.g CPR Consumer Protection from Unfair Trading Regulations 2008, UTCCR, as well as regulatory bodies such as the Property Ombudsman. Regulation 6 of the Consumer Protection Regulations prohibits misleading omissions, which includes the providing of material information in a manner that is unclear, unintelligible, ambiguous or untimely. To charge extortionate fees is already either unlawful or unenforceable.

If it becomes unlawful to charge tenants any fees at all it has been argued that the cost will have to be picked up by tenants later on down the line through higher rents ( although in its report Shelter says that since Scottish law was clarified there has been no significant rise in rents). That said, if Shelter succeeds in effecting a ban on lettings fees, agencies will no doubt adapt. It may even cause a demise in the number of rogue agencies that are currently operating.

Filed under: England & Wales, England only, , , , , ,

Forfeiture and the Courts

As many of our readers will be aware that since the passing of the Commonhold and Leasehold Reform Act 2002 before a freeholder can take steps to forfeit a lease a determination is required. Section 168 of the 2002 Act gave jurisdiction to the Leasehold Valuation Tribunal to determine if there was a breach of covenant under the lease. As with all Leasehold Valuation Tribunal claims a more limited cost regime applies although some leases may allow recovery of any freeholders costs as an administration charge.
Recently a case came to be decided by the High Court Queens Bench Division known as Cussens v. Realreed Limited [2013] EWHC 1229 (QB). The freeholder applied to the County Court for a declaration that the Leaseholder was in breach of her lease of two flats which she owned which she had sub let and which had then been used for the purposes of prostitution. It appears form the judgment that the unlawful use itself was not disputed. The County Court made a declaration that the lease terms had been breached and made an order for the leaseholder to pay the freeholders costs. The tenant then appealed challenging the County Court’s jurisdiction to make such a declaration and also against the order for costs.
It was argued that given the terms of section 168 of the Commonhold and Leasehold Reform Act 2002 it was for the LVT to make the determination that there has been a breach of the lease. The High Court determined that there is nothing to stop a freeholder seeking a declaration in the County Court for such a breach of covenant. It is worth pausing here to remember that potentially a County Court could of course refer the matter itself to the LVT to make a determination as to whether there has been a breach.
With regards to the question of costs the leaseholder tried to argue that it was inappropriate to make an order for costs given if application had been made to the LVT a more limited costs regime would have applied. This would have limited the costs which the LVT could have ordered the leaseholder to pay to the freeholder and the court should have had regard to this. The judge referred to the fact that prior to the appeal no objection had been taken to forum chosen and that no doubt the leaseholder had hoped to recover her own costs if she had been successful in resisting the landlords claim. All of this being said the Court determined that there was nothing wrong with the order made by the Judge at first instance. The Judge had made the declarations sort (which this appeal upheld) and it followed he could make an Order for costs as he had done. The barb in the tail for the landlord was that the High court Judge did say that it would be open to the leaseholder to argue in any costs assessment hearing that the costs should be limited to take account of the LVT costs regime.
So what does this all mean? It leaves open to freeholders the right to apply to the county court. Tactically careful consideration needs to be given and certainly if there is no clear provision within a lease for costs recovery then a freeholder may be better advised to apply to the court rather than the LVT. The plus of the LVT for a determination is that often a hearing and determination can be achieved quicker allowing a freeholder to have any breach dealt with sooner.

Certainly any leaseholder who finds themselves threatened with any form of breach of covenant declaration or determination proceedings would be well advised to take urgent advice. Both to consider the merits of any such claim and the best tactics to adopt. A declaration can have fairly devastating effects given that ultimately it could lead to a forfeiture of the leasehold interest leaving the leaseholder owning nothing and potentially still owing any mortgage or other loan they had taken out!

Filed under: England & Wales, , ,

Rent Review: RPI, CPI and RPIJ

Commonly over the past few years longer term agreements or those with rent review clauses have tended to review the rent in line with the Retail Prices Index (RPI).
RPI was previously a National Statistic prepared by the Office of National Statistics (ONS) and used by Government as a measure of price changes. However earlier this year it was downgraded so that it was no longer a national statistic. ONS has confirmed that they will continue to produce RPI figures for the time being. This means that for agreements which refer to this as the measure to be used for calculating any rent review there is no need to worry. The statistic is still produced and ascertainable so the clause can still be operated. Remember all parties are bound by the terms of the lease and the court will give all words a common-sense interpretation. This means that simply because RPI is no longer a national statistic there is no reason why it cannot still be used.

So what about the future? You can still use RPI. It still exists and can be readily determined (even if a little harder to find on the ONS website than previously). The issue is that some parties are uneasy about using a statistic which is not a nationally excepted measure of price increases. RPI does however include housing and mortgage costs. For this reason alone it may be said to be a more accurate prediction on how inflation has affected rents although some economists suggest such figures alone help to perpetuate inflation.
Certain other figures are referred to. In particular the Consumer Prices Index (CPI) which is also calculated having regard to a specified “basket” of items save it does not include housing and mortgage payments. Hence this has tended to be considerably lower. If you are acting for Landlords CPI is less likely to appeal as the percentages have historically been substantially lower than RPI.

We are due to get two new indices produced by ONS. Both are meant to give a “truer” reduced level of inflation which again a landlord may disagree with although both supposedly will include some reference to housing costs. The two are RPIJ and CPIH. The ‘J’ in RPIJ stands for Jevons, which is the formula that replaces the one that was found to not meet international standards. It is likely to be lower than RPI. CPIH is similar to CPI but includes owner-occupier housing costs. It seems clear one of these will become the preferred option for including in rent review clauses but time will tell. There will always be a pull between landlord and tenant to adopt whichever either side sees as the most advantageous to them.
It should be remembered that a rent review clause can contain whatever mechanism the parties agree. This could include agreed increases by fixed amounts or determination by an external party. The later whilst common in commercial leases has tended not to find favour with residential tenancies given the short time nature means parties want a formula which will not put them to expense.

The bottom line is as ever to remember whatever terms are placed in the tenancy are binding upon both parties unless they mutually agree to the contrary.

Filed under: England & Wales, , , , , ,

Leasehold Valuation Tribunals, are they no cost forums?

Over the past year or so we have read some of the debate that has been ongoing over the recoverability of legal costs at the Leasehold Valuation Tribunal (LVT).

The starting point as with most Tribunals in England and Wales is that they are a none costs shifting forum which in simple terms means that each party is responsible for their own costs and the Tribunal will not order the losing party to pay the other sides costs. This means that any costs which either side incurs will be for them themselves to pay. In the LVT under the current rules (which are due to change in July when the LVT becomes part of the new Lower Tribunal (Lands Chamber)) if a party has behaved vexatiously or unreasonably the LVT can order that that party pays to the other side up to £500 towards any costs which have been incurred. Such Orders are rare.

The situation is however muddied in that in disputes before the LVT, which will inevitably involve Leaseholders and Freeholders, there will be a contractual relationship between the parties being the lease. Often leases will include a clause allowing a Freeholder to recover legal costs in connection with disputed service charges as a management expense. If so it may be recovered under the service charge and so even though the Freeholder has perhaps “lost” at the LVT the costs they have incurred can be recovered from all the Leaseholders. Also some leases contain clauses that allow a Freeholder in certain circumstances to recover LVT costs directly from any one Leaseholder who sought to bring a challenge as an Administration Charge.

What this means is that Leaseholders as we have said in previous posts need to carefully consider what the terms of their leases provide. If the lease does not allow recovery then the risk may only be the £500 if a Freeholder can satisfy an LVT that conduct was frivolous or unreasonable but care needs to be taken.

So what can Leaseholders do? It is important to remember that LVTs are simply creatures of statute and so have to operate within the framework that Parliament has laid down for them. Certain safeguards are in place. In particular it is possible for Leaseholders to make an application under section 20C of the Landlord and Tenant Act 1985 to seek limitation of the costs which a Freeholder can recover as a service charge expense. The LVT has broad powers and discretion. It is vital that Leaseholders make such an application and think carefully about the reasons. These do not simply have to be limited as to whether they win (since submissions will often be made before the LVT has issued its decision) but should explain why the application was necessary to be made or responded to and in what ways the Freeholder may have been unreasonable such as failing to enter into constructive dialogue etc.

The LVT can then look to make such an Order. This may prevent the recovery of whole or part or even fix the amount which can be recovered. This would then bind a Freeholder in respect of recovery via the service charges whatever the terms of the lease may provide. If however the LVT declines to make an Order the Leaseholder can still challenge the reasonableness although this challenge itself may incur costs.

With regards to recovery from a Leaseholder directly this would be an Administration charge and again can be challenged as to reasonableness and the payability via the LVT. For challenges of this type it is worth taking advice on the specific terms of the lease and what may be considered reasonable. This will involve looking at the specific lease terms and then going on to look at the circumstances as to how the costs were incurred and what work was undertaken.

As can be seen in terms of the rules of the LVT it is fundamentally a no costs forum (and the change in July to the new Tribunal is not likely to fundamentally change this). The problem is that everyone is bound by their lease terms as to what can be recovered. In the throes of purchasing a property all too little time is often given to looking at what can and cannot be recovered under a service charge. A good understanding as to the terms of your lease and your ownership can prove worth its weight in the long run.

Filed under: England & Wales, , , , ,

Not another Deposit case!

Taking six months’ rent up front is not a deposit, the Court of Appeal has ruled in Johnson & Ors v Old [2013] EWCA Civ 415.

The facts will strike chords with many agents and landlords: the rent was expressed to be £950.00 per month, payable in advance (standard AST practice), with the first six months’ rent to be paid “up front” (also common practice for example where a tenant might have failed a credit check). When the landlord brought possession proceedings the judge at first instance threw the case out on the basis that the six months’ rent up front was a security deposit, which had not been registered and that therefore the section 21 notice was not valid. The landlord appealed and won; the tenant then appealed to the Court of Appeal, which is where we are today.

The key issues included whether the rent paid six months up front was money held as security against future rent payment dates (the tenancy agreement made reference to the rent due date being the first of every month). If so, the tenant argued, it was a deposit as defined in S212(8) Housing Act 2004 and fell to be protected, which it had not been.

The Court of Appeal hearing the tenant’s appeal was unequivocal: the money paid was rent, and not “money intended to be held as security for the performance of any obligations of the tenant or the discharge of any liability of his, arising under or in connection with the tenancy”. The point was tested by “asking, rhetorically, how the tenant would have responded to a demand on 1 September 2010, for rent in respect of the month of September 2010……her answer would have been “why are you asking me for rent which I have already paid?”….”

The court also gave short shrift to the idea that, as the agent held onto the money and drip fed it in monthly payments to the Landlord, the money held by the agent was a deposit. The Court found that the rent was paid over by the tenant, and the arrangements between the agent and landlord about how the monies were transferred was neither here nor there.

So what are the implications of this decision? The position remains as we have been advising agents and landlords to date: rent in advance does not constitute a deposit in need of protection. With the above being said, it is always advisable to have clear and well drafted tenancy agreement that all parties can follow.

It is important to differentiate this case from another common scenario: where an extra payment (usually a month’s rent) is received and held in case the tenant defaults on a rental payment during the tenancy but would be paid back. This is a deposit. Rent taken at the beginning of a tenancy in respect of the last month of a tenancy is not a deposit but an amount taken at the beginning to be applied in the event that there is any default is.

Filed under: England & Wales, , , ,

HMO mandatory licensing- calculating storeys

London Borough of Islington v The Unite Group Plc [2013] EWHC 508 (Admin)

Thanks again to David Smith and our friends at Nearly Legal for drawing this recent case to our attention. NL has summarised the case comprehensively here so the below is a quick overview.

The High Court in this case has clarified the rules on calculating the number of storeys of a property in a block of flats. This is important in order to determine whether a particular property falls into the mandatory licensing category.
The building in the case in question contained a number of flats over more than 3 storeys. Each flat comprised of one storey with up to six student occupiers in each flat – what you might describe as a standard HMO. The ground floor of the building was used as business premises.

The Court was asked to determine whether these flats were HMOs that required licensing. The statutory requirements are that if an HMO or any part of it comprises three storeys or more and it is occupied by five or more persons and those persons form two or more single households, then the HMO must be licensed.

The high court found that “it is the HMO that must comprise the three storeys and not the building in which an HMO happens to be found”.

So, where living accommodation is in a part of a building above or below business premises you must take into account each storey comprising the business premises. Where a series of self-contained flats sit above commercial premises, you count the commercial premises in your calculation and the number of storeys in the flat itself, not the building.

The case should make it simpler to calculate whether an HMO falls into the mandatory licensing category and should release many landlords from the requirement to license self-contained single storey flats that sit in a block. However, since failure to have a licence when required has such severe consequences including prosecution, fine and rent repayment orders, if in doubt do seek guidance from the local authority (armed with a print out of the high court ruling to wave at them if necessary).

This ruling contrasts with the case of R v Roderick John Williams 2008 but as a High Court decision will take precedence. In Mr Williams’ case, he was successfully prosecuted for having an unlicensed HMO. This HMO actually covered two storeys but it sat on top of a basement flat and the court decided that under the Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2006 [link] the two storey flat had to be calculated as having three storeys as it sat over a one storey flat.

Filed under: England & Wales, , , ,

Deposit News

1 April 2013 has seen more changes to deposit protection.

There are now four authorised schemes: TDS, DPS and mydeposits have been joined by Capita tenacy deposit protection scheme . This is an insurance based, rather than custodial scheme, meaning that the deposit is held by the agent or landlord.

It’s all change in the established schemes too. TDS have relaxed their rules and have summarised the main changes on their own blog here and in pdf form here.

DPS has introduced an insurance based scheme. You can read about it here.

Mydeposits scheme in Northern Ireland went live on 1 April 2013. See their press release here.

Filed under: England & Wales, , , , ,

Arla annual conference 2013

A big thank you to all those who came to chat to us at the Painsmith stand on Tuesday. It was great to see the old faces and put names to new ones. Please keep following our blog – we have some interesting ones coming up, including more on deposits ( oh yes), an HMO ruling to name just two. You can leave comments as well. Don’t forget to look at our website too for info.

Filed under: England & Wales,

Lettings Fees

The Advertising Standards Authority (ASA) has decided that all charges that will be imposed on a proposed Tenant must be made clear in all advertising of the property prior to the letting. In other words, no hidden fees.

This comes after a complaint was made against Your-move.co.uk Ltd ( Your Move) stating that an advert that had been placed on Rightmove did not contain details of compulsory charges such as administration fees. It is worth noting that the advert in question stated that fees would be payable and even then had a link to Your Move’s own website that did specifically detail the charges. The ASA decided that this in itself was insufficient and the exact fees needed to be stated on the advert itself. In addition to this, if there are fees the value of which are not known at the time of advertising then it will need to be explained how those charges would be calculated.

The fact that this issue has been addressed now is not surprising given the report that the OFT ( Office of Fair Trading) has recently published which criticised the disclosure of letting agent’s fees which are payable by Tenants. With these findings coming it would be prudent for Letting Agents to “get their houses in order” to quote Guy Parker, the Chief Executive of the ASA, and ensure that fees are transparent so that they are not the ones that fall foul of latest requirements.

Currently, Rightmove’s own policy is that fees are not included in any of their advertisements. Whether they will be looking to change this in light of the above is unclear but as this case shows the letting agent will not be free of the obligations simply by following Rightmove’s protocol and so it should be requested that the fees are included in any such advert taken out on their site.

It would appear that there will be a tough approach on this and as such until proper guidance has been given (we would expect a number of relevant authorities, Office of Fair Trading included, to be issuing guidance imminently) our advice is that all advertising or publicity material (including window cards, brochures and website posts) contain the non-optional fees payable so that it is reasonable that any proposed Tenant looking in to the letting of a property will know the exact amount that they will be required to pay.

Filed under: England & Wales, , , ,

Daejan Investments v. Benson : Consultation on long residential leaseholds

So at last the Supreme Court has issued its judgement in Deajan Investments Limited v. Benson and others [2013] UKSC 14. The Court, consisting of a panel of five Justices including the President and Deputy President, overturned the Court of Appeal (and the Upper Tribunal and LVT). The decision was a three to two decision with Lord Hope (the Deputy President) and Lord Wilson dissenting. The majority judgment was given by the President Lord Neuberger supported by Lords Clarke and Sumption.

In brief the facts are that Daejan had proposed to undertake major works to a property in which the Respondents were leaseholders. Daejan had cut short the last stage of the formal Section 20 Landlord and Tenant Act 1985 consultation process. Daejan had made an application pursuant to Section 20ZA of the Act to seek dispensation from the consultation requirements. During the original hearing, before the LVT, Daejan had offered to reduce the amount claimed by £50,000 to compensate the Respondents for any prejudice which they may have suffered, although it was not accepted that they had suffered prejudice.

The LVT concluded that this was a major breach of the consultation requirements and the need for transparency was paramount. The LVT did not accept that it could grant some kind of conditional dispensation. The matter was appealed and whilst some of the reasoning changed the decision was upheld.

So the matter came before the Supreme Court. It is worth highlighting that argument in this case was heard before the controversial decision in Phillips v Goddard [2012] EWHC 3650 on which we have previously blogged.

The Supreme Court found in favour of Daejan and overturned the earlier decisions. They have granted dispensation but on terms.

So why is all this important?

If Daejan had stood then Landlords would have faced a very hard task to obtain dispensation where they had not properly consulted. The Court has now ruled that whilst agreeing with the Court of Appeal that the effect on a Landlord was not relevant it was pertinent to take account of the prejudice which any leaseholder may suffer. The Court made clear that the consultation requirements are part of the broader statutory regulation of service charges and ensure that leaseholders do not pay for inappropriate works or pay unreasonable amounts. This is different from transparency per se.

If there has been a breach of the regulations it would then be for the Leaseholders to show some prejudice. The Supreme Court makes clear the obligation to do this is upon the Leaseholders but it would then be for the Landlord to re-but this prejudice and generally any LVT considering such a matter should be sympathetic to the leaseholders.

The court went on to rule that the LVT was entitled to impose conditions. These could be limiting the amounts or awarding costs of investigating the prejudice. In this case the court accepted that the sum offered of £50,000 appeared to have been picked out of the air but given that on all the evidence this was greater than the value of any prejudice to the leaseholders the LVT was entitled to grant dispensation subject to this sum being deducted from the total sum sought. The court also determined that it was reasonable for the leaseholders costs of dealing with the application for dispensation at the LVT to be paid by the landlord. The judgment expressly addresses this point in connection with the LVT’s very limited current costs powers and makes the distinction between this being “costs” in the normal sense of litigation and it being an amount payable as a condition of the grant of dispensation.

In practice it seems that dispensation will remain very fact specific. Landlords would in our opinion be foolhardy to think they can simply flout the rules and then subsequently make an application for dispensation. That being said where there is a breach the well advised landlord will be looking to make an application at the earliest opportunity and to consider what reasonable conditions they should offer.

With regards to Phillips v. Francis, whilst we are sure many property managers and landlords are concerned as to the effect this may have on present and past service charges (particularly given the fact they have been paid does not mean that they cannot be challenged!), this may offer some hope that a well prepared application for dispensation under section 20ZA will receive favourable treatment.

What is clear is that each application and set of circumstances will need to be considered on its own merits.

Filed under: England & Wales

Marveen Smith on Money Box Live

Tune into Money Box Live on BBC Radio 4 at 3pm this Wednesday 6 March 2013 to hear Marveen Smith and the panel discussing and taking callers’ questions on renting and letting.

Filed under: England & Wales

Read the Lease!

A recent decision of the Upper Tribunal (Lands Chamber) in Sadd v. Brown [2012] UKUT 438 (LC) stands to remind us that it is always important that you read and understand the terms of the lease.

The case was about the recoverability of an insurance premium. In the past all parties to the lease had assumed that it allowed the recoverability of the costs incurred by the landlord in insuring the building. At first instance the LVT decided that whilst the amount charged was reasonable on the true construction of the lease the premium was not payable by the leaseholder. It would appear that this point was not itself taken by the parties but raised by the LVT itself.

Once again the Upper Tribunal made clear to the LVT that it is not for them to take points and certainly not without referring the issue to the parties for their comments. If we stop there it is important that all parties in approaching the LVT bear in mind that panels are now less likely to raise issues of their own motion and so parties must make sure they have properly considered what points they may have in their favour. The Upper Tribunal has made clear over the past 18 months that the LVT should be slow to interfere and raise points if not raised specifically by the parties.

The above being said the Upper Tribunal took the view given the landlord as part of its appeal had put forward its arguments it was reasonable for the upper Tribunal to determine the issue. The landlord contended that it was unusual for a lease to not include a term allowing the landlord to recover the cost of the insurance. He relied upon the fact that until this application both parties had assumed that the lease did allow recoverability. The landlord invited the tribunal to imply such a term into the contract relying upon Liverpool City Council v. Irwin [1977] AC 239. The Tribunal took the view that given this was a lease containing detailed provisions regulating the parties relationship and on the face of it contained all terms it was not appropriate to imply such a clause. Further the Tribunal took the view that it was not necessary to imply such a term to give effect to any other terms of the lease in the way that often the term “reasonable” is implied. Finally the tribunal decided that it was not necessary to imply such a term to give business efficacy to the lease (although we are sure the landlord did not agree with this!).

As a result the appeal was dismissed and the landlord could not recover the cost of insurance as the lease did not allow recoverability. As we have said before it is vital that a careful review of the lease is made. Anyone taking on block management should always ask to see all the leases and check with the Land Registry that no variations have been granted. Only when you have done this will you be sure as to what can and cannot be recovered as any failings are likely to find themselves laid at the managing agent’s door if they have not previously been drawn to the freeholder’s attention

Filed under: England & Wales, , , ,

Jackson Reforms on Costs

Many of our readers will not have heard about the Jackson Costs reforms specifically although you may have read about some of their effects in the press. Why should the amount us lawyers are going to receive affect you? Well you may ask but ultimately rules affecting costs and the recoverability affect anyone involved in litigation.

Whilst some of the rules are being finalised we do understand many of the new principles. Many of the new rules appear to be directed at those undertaking personal injury litigation and the desire to limit the recoverability of the costs in this field which it was felt were not reasonable. In particular this has led to the payment of referral fees in personal injury cases being banned.

However a number of the rules will impact on anyone using the courts. In particular from April of this year the small claims limit is due to rise to £10,000 and will then rise to £15,000. This will bring many more cases within that track and will mean that cases allocated to small claims will not generally recover any legal expenses. All businesses who have any involvement with the courts need to bear this in mind particularly if you often have debts which you pursue which fall below this level. It will mean that you need to think carefully how you pursue such debts and what use you make of legal advisers whose costs are likely to be irrecoverable. Perhaps the moral is look what debts you currently have outstanding and if between £5,000 and £10,000 and something you want to pursue using legal help it might be worth moving forward with these now rather than waiting until after April 2013.

We currently are awaiting various other changes to the rules. The courts will be imposing on fast track claims (those claims between £10,000 and £25,000) a fixed costs regime. Whilst talked about in the past it seems that the court will impose this upon all litigants falling within that track. This is likely to mean that not all legal costs will be recovered and so it is vital that early attempts are made to settle. To encourage this amendments are being made to the settlement regime (known as Part 36 Offers) to make it far more financially worthwhile to make a “good” offer at the outset to protect you on costs recovery.

As for multi track claims (which is the track into which many landlord and tenant matters fall) the court is going to require Costs Budgets which it will then review at the initial case management conference and supposedly everyone will then be bound by. This means all lawyers will need to provide robust estimates as their clients costs may be capped to these limits.

We await the rules but it seems there is a real desire to get a grip on costs and cap what can be recovered. This will not necessarily affect the amount a party has to spend (this will always depend on the particular case) but in deciding how to pursue a more careful consideration of the costs will need to be given.

Filed under: England & Wales

Consultation for Repairs on Long Leaseholds

We all await the Supreme Court ruling in the Daejan v. Benson case which hopefully we will receive judgement on soon. Shortly before Christmas the High Court Chancery Division got in on the act. It ruled in the case of Phillips v. Francis [2012]EWHC 3650 (Ch).
In brief the facts are that this related to a holiday park consisting of various chalets let on long leases. A dispute had arisen over charges levied by the freeholder. From the point of view of this article the interesting point was whether the consultation requirements imposed by the Landlord and Tenant Act 1985 as amended applied to “repair” costs. The issue was what are “qualifying works”.

The court considered the definition of “qualifying works” set out in the Act which provides that these are “works on a building or any other premises..”. Consideration was also given to a case decided prior to the current legislative framework being Martin v. Maryland Estates [1999] 2 EGLR 53 but this case was discounted as being of relevance.

Whilst only a High Court decision, the decision itself was given by the Chancellor of the High Court . He determined that all works should be bought into the account to calculate the contribution and then apply the limit. In essence what this means is that all repair works carried out in any service charge period should be lumped together and then if any one leaseholders contribution exceeds £250 then consultation should be undertaken. The Judge said it is not appropriate to simply break the works down into what he termed “sets of qualifying works”.

This means that where a leaseholder has been presented with a service charge account with any item over £250 including for repairs undertaken in a twelve month period they may be able to challenge this to have a cap applied. Typically repair costs in an account may be made up of various relatively minor ongoing maintenance issues which have arisen during that period none of which it was imagined individually would require consultation.

For Landlords this poses a dilemma. For past charges they need to see if challenged. If so Landlords will then need to consider whether they look to make an application for dispensation from consultation. Currently, whilst the outcome of Daejan is awaited, this is certainly not a forgone conclusion. Alternatively every year they will need to consult on the process they will seek to adopt for repairs, although practically it is difficult to see how this can properly be undertaken. It may be that this decision itself will be appealed.

What is clear is that this year is going to see much debate on the question of consultation. It appears to us as the regulation over consultation grows and becomes more complex it is likely that the costs charged by Managing Agents (either for management in general and consultation in particular) are likely to rise to take account of the increased work and the risks involved in providing this service.

Filed under: England & Wales, , ,

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