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.

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.

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.

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.

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.

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.

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.

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

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.

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.

The aim of the Green Deal is to improve the energy efficiency of properties by removing the upfront cost of improvements and instead allowing the cost to be paid in instalments through energy bills.

Green Deal Finance can be used to pay for improvements such as cavity wall or loft insulation; upgraded heating; installation of draught-proofing; installation of double glazing; and installation of renewable energy technologies such as solar panels or wind turbines.

A Green Deal Assessor will carry out an inspection of the property being proposed for improvements and will make recommendations as to the most suitable – weighing the cost of the improvements against the likely savings that the improvements would attract. The golden rule is that the savings enjoyed as a result of installing any particular technology must be equal to or greater than the cost of the finance required.

Once the Green Deal Assessor has made recommendations, a Green Deal Plan will need to be signed with a Green Deal Provider. The Green Deal Plan is a contract setting out what work will be done and how much it will cost and once it has been signed the Green Deal Provider will arrange for a Green Deal Installer to carry out the contracted work. All participants in the process are bound by the DECC’s code of practice and must display the quality mark.

Once the Green Deal Installer has carried out the work, the cost will be payable in instalments through energy bills. As the finance obligation passes with the liability to pay the energy bills rather than with the person that signs the Green Deal Plan, Green Deal finance must be disclosed in all new property transactions as part of the EPC information. A written acknowledgment of the finance should be obtained from the tenant, licensee or purchaser in a standard form to confirm the information has been given.

In respect existing tenancies, neither the landlord nor the tenant can sign a Green Deal Plan without the permission of the other.

There are plans afoot to obligate landlords to install green technologies upon receipt of a “reasonable request” from tenants but, as we understand it, these are unlikely to come into force before April 2016.

As part of the structure of the building landlords have an obligation to keep the stove and the chimney in good repair. Landlords should also check what the requirements are of any building insurer with regards to the same.

We have recently received questions asking whether landlords need some form of certificate; and can tenants be required to clean the chimney?

With regards to any fuel burning appliance installed after October 2010 it must comply with appropriate Building Regulations. This means that any such appliance must either have been installed by a HETAS approved engineer, who can then self certificate, or specific Building Regulation consent should have been obtained. A homeowner should ensure that such certification is kept in a safe place as this may be required. Under these regulations a carbon monoxide detector will also have to be installed which the landlord will have to check is in good order. The landlord will then be responsible for the ongoing maintenance and repair of such a stove whilst it is in the property. For appliances installed before this there is no specific requirement for certification save that landlords should be satisfied that they are safe and as part of this they would be well advised to ensure that a carbon monoxide detector is present.

We would always recommend that landlords carry out regular inspections to check what, if any, repair or maintenance issues may exist. There is however currently no statutory requirement to obtain some form of annual certification.

Generally such stoves require for general safety that the chimneys are swept at least once in every twelve month period. Many tenancy agreements contain a term that the tenant should ensure that this takes place. Some commentators seem to indicate that this is an unfair contract term relying on the guidance issued by the OFT in 2005. We disagree.

In our opinion provided a landlord can show that the chimney was swept before the start of a tenancy it is not unreasonable to place an obligation upon a tenant to ensure that the chimney is swept at regular intervals provided there is no obligation for them to return the property with the chimney in a better state than it was given to them. This can only apply to having the chimney swept and any maintenance which may be required from time to time would be the landlord’s responsibility. We are not aware of any specific challenges made by tenants to such terms and if anyone is would welcome hearing from them.

To summarise our view is that a well advised landlord will check if the installation was after October 2010 that they have a copy of the certificate. They will prior to any tenancy have the chimney swept (or make sure they have evidence that this happened) and also make sure that in any pre-tenancy inspection they check no repair or maintenance issues arise. We would always suggest that if in doubt a reputable professional is employed to undertake a check and the prudent landlord will ensure that their property has smoke and carbon monoxide detectors fitted.

The government announced these changes to the EPC, and air conditioning inspections regime, on 19 December 2012. The changes come from the EU Directive (Council Directive 2010/31/EU) on the energy performance of buildings (EPB Directive 2010). The directive mainly consolidates the regulations but there are some significant changes in relation to the contents, issue and display of EPCs.

In relation to residential lettings the significant changes are as follows:
• property advertisements are to include details of the energy performance certificate rating ( the A-G rating) where available;
• the requirement to attach the front page of the certificate to any written material is to be removed;
• listed buildings are exempt from the need to have a certificate on their sale or rent.

The above does get around some of the problems that agents have been facing such as how to attach a front page to the particulars on display in the window. However agents will nevertheless have to produce the EPC to potential tenants and there is no additional leniency in respect of obtaining it, and the penalties have not been amended for failure to comply.

Remember the other requirements still apply and you can read about them on our previous blogs here.